As the insurance sector undergoes a rapid evolution in regard to its pricing challenges, José María Castelo Marín, an esteemed actuary and advisor at Akur8 reflects on the tumultuous nature of this change – and opens up on why actuarial expertise is now key for insurers who wish to remain competitive.
In 2023, the insurance field saw a significant shift. Digital transformation, a dominant theme in previous years, was overshadowed by a focus on the combined ratio.
The COVID-19 pandemic initially led to fewer drivers on the roads and reduced economic activity, prompting insurers to lower premiums.
However, as economic activity resumed, more drivers returned to the roads, increasing mileage and frequency. This was soon followed by geopolitical tensions between Ukraine and Russia, which triggered hyperinflation and created a macroeconomic storm unseen in the last two decades.
Consequently, the cost of claims soared while premiums grew at a slower rate, impacting the loss ratio and combined ratio significantly.
To navigate this challenging environment, insurers need to manage the combined ratio by increasing premiums, reducing frequency, and controlling cost severity.
Akur8’s pricing platform plays a crucial role in this by fostering greater pricing sophistication, enabling insurers to increase prices thoughtfully and select lower-risk clients. This adaptability has contributed to Akur8’s success in the industry.
Technological advancements, particularly artificial intelligence (AI), are opening new avenues for innovation and growth in the insurance sector.
AI is now a focal point for insurers looking to enhance their processes. Akur8, for instance, uses transparent AI to aid actuaries and pricing specialists, making them more efficient.
This technology reduces the time spent on data handling and model building, allowing actuaries to focus more on analysing results. Traditionally, actuaries spent 80% of their time managing data and 20% analysing it; AI technology is reversing this ratio, thus increasing the impact of actuaries on insurers’ decisions and profits.
The importance of time to market has never been more critical. In the past, insurance companies might adjust prices once or twice a year, but today’s market demands a more continuous approach.
Actuaries need both speed and transparency to communicate their recommendations to stakeholders effectively and regularly. Adapting premiums by small percentages occasionally is no longer sufficient; actuaries must now articulate their strategies in non-technical terms to maintain competitiveness.
The future
Looking ahead, the actuarial profession is expected to evolve with the integration of data science principles and techniques.
Both actuaries and data scientists play vital roles in insurance companies. Data scientists, with their broad skillset in data analysis, contribute to areas like pricing, conversion rates, renewal rates, and fraud detection.
In contrast, actuaries bring a deep understanding of the insurance business, interpreting data to uncover business insights.
Data scientists create sophisticated models with large datasets, while actuaries leverage their expertise to understand and apply these models to make informed business decisions. This combination of skills is crucial for modern insurers.
Akur8’s position in this evolving ecosystem is pivotal. The company bridges the gap between technical analysis and strategic decision-making. Where actuaries once interacted with C-level executives intermittently, they now maintain regular communication, underscoring the growing strategic importance of pricing in insurance operations.
Akur8 provides a common language for all insurance stakeholders, enhancing time to market, ensuring modelling transparency, and enabling data-driven collaborative decisions.
Read the full interview from Akur8 here.
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