We asked three of our in-house experts - CEO Ian Hughes, Head of Product John Blevins, and Head of Insurance Karen Houseago - for the lowdown.
John: “It’s all about understanding where you’re placed in the market, and how quickly you can change prices in response.”
Karen: “Being agile means having the technical ability to be agile and change prices on a more frequent cadence than they did – and it's about having the granular detail over time, and using that information to inform a constantly evolving strategy.”
Ian: “Twenty years ago people would change their pricing once every six weeks, and it required the manual programming of pricing engines. Now some providers are changing daily or more and there are a lot of firms somewhere in the middle of those positions.
“We’re not talking about the technical price of risk here, which is updated more like once a quarter and needs the input of longer-term trends such as claims ratios. It’s the trading end where pricing can be tweaked in response to what’s happening in the market, which itself is changing fast.”
Ian: “GIPP is going to fundamentally change how insurance brands price their products – and we don’t actually know what that’s going to look like. The only thing we can predict is that we can’t predict anything! Everyone is facing the challenge of reconciling new business prices with renewal prices, and everyone’s going to approach that challenge differently.”
John: “Everyone’s also going to be keeping an eye on each other, too! No one necessarily wants to be the first, or to be an outlier. Understanding your position in the market is going to be more important than ever. This is why we are upgrading our price benchmarking capabilities to allow us to offer our services on a much quicker cadence, enabling our clients dig deeper in real time.”
Ian: “And it’s not just GIPP. There are fundamental inflationary pressures right now. Market costs are going up generally, wages, cost of parts – there’s enormous pressure on the base price. Plus, there’s enormous regulatory pressure to deliver fair value – so it’s not just about making the new business price matching the renewal price, it’s about both being FAIR. All of that put together means the first few months of 2022 are set to be fascinating. And potentially fascinating chaos!”
Karen: “Most brands will now have some sort of plan in place for how they’re going to deal with GIPP and I think there’s broadly three categories. Those who will adhere to the regulations and align new business and renewal pricing but who aren’t strategizing beyond that, those who have a few strategies up their sleeves and the tech to rapidly deploy them depending on how the market responds, and those who are relatively new to the market or are unencumbered by an enormous back book who have the freedom to change new business prices much more.
John: “It’s hard to say anything definitive. Clearly those with legacy systems that take longer to key into a pricing engine are going to be slower to react. For many of the older brands it’s not as easy as just pressing a button. But on the other hand, they often have the resources to update their tech.”
Karen: “If you look at the newer brands, some were built specifically for PCWs, with technology designed to integrate and change prices and offers fast. They might have fewer direct customers, but they also have less to worry about on renewals, and could use January as an opportunity to play hard for market share. I think we’ll see some of these brands really flourish.”
Ian: “For me the biggest challenge is going to be for those who don’t control their own price. Brokers, for instance, can control the selling price to an extent, but not the base underwriting price, unless they have some sort of MGA or underwriting capacity. Although brokers have commission to play with, instalment income and ancillary income, there’s a lot of levers to have to work out how to pull to best effect. That’s going to be a difficult balancing act, and why market data is going to be more important than ever in this new trading environment.”
John: “Essentially it’s going to let brands react quicker – if they want to. And potentially it’s going to let them experiment with different pricing strategies.”
Karen: “Spotting those subtle changes as they happen means brands can see if their proposition is proportionate to the market, and they can take an informed decision as to whether to follow competitors down, say, or focus on targeting different customers within their footprint. Seeing changes daily and over time will let brands pinpoint whether a competitor’s movement is a blip or a new strategy.”
Ian: “Most companies know what they sold and they know when those sales change. But they don’t know WHY they changed. Say you lose competitiveness for under 25s one week, and next week you lose competitiveness for over 65s. It could be because one competitor made a rate change or five did. You need to see who they are, how they’re behaving, and adjust your own trading patterns only when and where you need to.”
Karen: “There’s going to be an impact on PCWs as the shift in customer focus moves from solely price to include 'value' as well. And although we know that as all their customers are ‘new’ in theory, they’ll still be able to do offers and incentives as long as they’re not funded by the insurer. But how will they manage renewing customers? Can they identify renewal searchers for brands and make them the best offers? And what will happen to cashback sites and affiliates? Are they dead in the water?”
Ian: “For me, again, what’s going to be really interesting is seeing how pricing agility and fair value work together. IS it fair to offer people buying the same plan on a Monday a different price to those buying it on a Friday? How are brands going to document that decision-making, and how is the regulator going to police it?”
John: “There’s so much that’s going to have to be unpacked in 2022. Ian’s right – it’s going to be fascinating. And I can’t wait to see what the data shows us.”
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