Sustainable Pricing

The enthusiasm Emma Montague has for her work is tangible and infectious. Not something you might expect for someone involved in Pricing for an insurance company, but it’s clear she enjoys her job.

Emma is a relatively rare kind of human; she chose insurance as a career rather than falling into it, as many do. Having studied economics at Cambridge University, she worked actuarial consulting before moving to work directly for a number of large international insurance companies as an actuary.

Soon after we begin chatting, Emma dives into explaining what her team do and the differences between pricing and reserving. Whilst the Reserving team project the reserves needed to cover claims from business already written, the Pricing team’s focus is on estimating the profitability of future business. This includes building tools that enable the relative profitability of policies to be assessed by underwriters. Modelling techniques are varied and cater for everything from sparse data to truly big datasets.

Data is increasingly valued as an asset, and this impacts what the Pricing team do.

“Our modelling techniques very much depend on the data set and applying what we know about the nature of the class to establish which risk characteristics are driving claims - and how much premium we need to charge to cover all these claims.”

It’s clear that all of this comes back to one of the key principles of insurance: spread of risk. A company that focuses too much on one thing will have a very volatile book, so a mix is crucial. But how do you optimise that mix for profitability?

“Data analysis allows you to know which segments of the portfolio are areas of opportunity and which are hot spots which may be under pressure, so we need to increase rate, change the terms and conditions, or withdraw a little.”

In recent years, Emma explains, the Pricing Team has been maturing and strengthening pricing capabilities. This includes upgrading existing pricing tools, developing new approaches and transitioning to web-based platforms (eg RuleBook) and other data capture solutions as part of Chaucer’s Pricing Transformation Project. The goal is to unlock more insights into claims drivers and trends by analysing data that would otherwise be locked up in spreadsheets or, in some cases, not captured at all. These data insights inform work to continuously improve the predictive power of pricing models and allows pricing MI to be developed by the pricing team to support risk selection and portfolio optimisation. In some cases data volumes are large, and the technologies have enabled predictive analytics that simply would not be possible in Excel (as an example, she refers to current project based on 60 million rows of data).

As well as building tools to support underwriter decision-making, Pricing also directly assess the profitability of risks referred to the team for pricing. These are typically the largest or most complex cases. Emma explains that the data and nature of the exposures and claims drivers can vary widely by class, so the work of the pricing team has lots of variety . Some classes of business have mostly smaller, more predictable claims (eg Marine Cargo or Hull). Others have relatively few but large claims so there is more potential volatility (eg Catastrophe classes). This variety is evidently part of the spice of Emma’s working life.

“My day is dealing with multiple projects, multiple workstreams.” Emma says.

“The Pricing Transformation Project is focused on making sure we’re in a good place to support sustainable, profitable growth. We need to support the pricing of growing premium volumes, but also mature our capabilities for deeper insights of that business. This is about embracing technology, ensuring that we work towards ever better data quality and enhancing our approaches to analyse more deeply as more data is collected.”

What follows from this is greater collaboration with brokers and coverholders; “to improve our data for better modelling insights, we have to specify the data we need. Data comes in all sorts of shapes and forms and often even for the same class it is different (the granularity of data varying by geographical location for example). So we need to consider how we best leverage what we know, to inform what we don’t“.

Throughout our discussion Emma’s broad knowledge and cross-company experience shine through. “I and others in the pricing team have worked across most divisions we have here at Chaucer, in other companies. Pricing, reserving, and undertaking capital parameterization for those divisions has given me a deeper understanding of the classes and has helped provide me with a better sense of what’s possible. I have also worked more broadly across strategy and transformation programmes. I and others in the pricing team have seen what works and where the challenges and opportunities have been. That has helped shape our pricing strategy and approach to pricing projects, together with working closely with underwriting teams, Chaucer Technology Group and the wider pricing team to design the solutions”.

This has all certainly helped Chaucer’s positioning in the market. The Lloyd’s RIO Pricing oversight (maturity) framework assesses syndicates’ pricing capabilities across a wide range of criteria relating to the company’s pricing approach, pricing team capabilities and pricing deliverables. Categories include Data, Technology & Infrastructure, Technical Modelling and Application. As part of the assessment, the team ran several workshops with Lloyd’s to evidence in detail. As part of the initial assessment Chaucer were one of the few companies which achieved Advanced level, with no gaps identified. Emma stresses that having this rating is key for Lloyd’s being supportive of Chaucer’s growth.

When I ask what Emma would like to be doing if she weren’t in insurance, she says she chose this career after much thought and is happy to be doing it, so there’s nothing in particular she would rather be doing. “It’s very interesting and it’s very different, you don’t always know what’s going to come up next.” She does have dreams for retirement, however. Being a lover of nature, history and restoring old houses, she hopes to spend her later years enjoying indulging in these, and helping people and animals. It’s evidently still a while off yet and in the meantime, she’ll continue to enjoy her varied role supporting future profitability at Chaucer.