New research about Online Insurance and Price Optimization

I came across two very interesting new research papers by Nicolas Michellod from Celent – both relevant to our discussions on Customer Value and Price Optimization for non-life Insurance.

Price Optimization in Insurance – A Revolution in Progress provides an in depth discussion on what price optimization is (also sometimes referred to as “demand driven pricing” or “market pricing”), how it is applied in the Insurance industry, and key factors to its success. It touches on subjects like real time price optimization and dynamic pricing, competitive pricing and even notes different vendors of price optimization software, including Earnix.

I found Celent’s description of the different levels of sophistication in demand based pricing to be very concise and accurate: Reactional analysis defines what has been performed, using Reports and Dashboards; Strategic analysis defines what lessons can we draw from the Reactional analysis, using Analytics; Scenario simulation answers what-if questions, using Predictive analytics; and finally Scenario comparison (and selection) defines what is the optimal approach (i.e. action to take), and requires Pricing Optimization.

Another trend Celent deeply analyzes for the first time (that I have seen) is the benefit for real time price optimization, or as they put it comparing “Back Office vs. Front Office” approaches. Rightfully the report focuses on online and European markets as the current segment leading this advancement, but we at Earnix are already starting to see other segments that are moving into the “Front Office” world of Price Optimization.

Celent also reviews some success stories in this area such as Progressive in the USA and Lloyds TSB Insurance in the UK (See related article about Lloyds TSB).

The Perils of Success – Rethinking the Maturing Online Insurance Landscape in Europe discusses the state of online insurance and its foreseeable future, and the evolution of online insurance IT architecture.

In the report Celent notes the reasons for the growth of Internet based Insurance purchase. The growth trend is indeed clear, and there are many good reasons for it. However for me, the most difficult question to “crack” on this topic is why some countries are taking significantly longer than others in developing a significant internet insurance markets. It is no secret that the USA and UK have taken off quite a few years ago, whereas countries like Germany, Italy and France are yet to achieve any significant internet market share. Celent is confident the “lagging” counties will follow this trend soon, but I would like to know “how soon?” and “if it hasn’t happened until now, why would it happen any time soon?”

I enjoyed very much reading these papers as they provide important insights on what we believe are key trends around Pricing and general performance in the insurance market. These research papers can be purchased on the Celent web site.

If you’ve had a chance to read these or other relevant research papers – please join the discussion and let us know your thoughts.

Many ways to say Customer Value & Price Optimization

Ever since starting this blog in 2007, not long after I joined Earnix we have been trying to find the most appropriate phrase to define the topic of our discussion. At Earnix we use the same phrases all the time and understand each other – Customer Value & Price Optimization for Insurance companies and Banks, so we expect the world to understand us also, easy – right? Well, not really…

As is often the case when new market categories are formed, different phrases are used to describe the same thing, and sometimes we are not sure what that “thing” is. As the market develops, that “thing” becomes clearer and a new terminology is established. For example, who really knew what ERP or CRM meant in the early 1990s? Now these terms are well understood and have a unique meaning. We at Earnix believe this is happening right now in the Insurance and Banking industry around Customer Value & Price Optimization.

So let’s discuss some of the different ways of saying “Customer Value & Price Optimization for Insurance companies and Banks”.

Let’s start with “Price Optimization.” Is it the analytical components of pricing such as demand modeling and pricing analytics, dynamic pricing, price elasticity, and price sensitivity? Or is it the business part – competitive pricing, pricing management, revenue management, profit management, or good old value based pricing, price execution, and revenue optimization?

Continuing on this point, the mathematical term of “optimization” is sometimes misused in this context. “Profit Optimization” is not a technically-correct term because what is actually implied is “profit maximization”. That is, pricing is the means while profit/revenue/value are the goals, therefore you optimize price to maximize these goals under constraints.

And what about the “Customer Value Optimization” part? Do we mean customer lifetime value, or maybe customer centric, or maybe a combination – customer centric lifetime value?

Or maybe we are talking about the predictive analytics technology we use, or putting it all into a software solution – i.e. pricing software? Or customer lifetime value software?

Well as you are probably aware, I have no answers here except that we are in a fascinating market that is developing as we speak, and so is the terminology around it.

What is clear is that “Customer Value and Price Optimization” software is providing exceptional benefits to our customers – including many of the world’s leading Insurance companies and Banks – some of which have been made public, and many more which have not. Last year, Insurance & Technology featured a number of insightful articles about customer retention and acquisition – here is one of many interesting quotes from one of these articles – “carriers that get to know their customers well — by effectively leveraging collected data and by simply listening to what they say — have a huge advantage in a tough insurance market.” You can find additional relevant articles and discussions from Insurance companies and Banks using Customer Value & Price Optimization solutions on our website.

Please join the discussion – and let me know what Customer Value and Price Optimization means to you.