How to cook your insurance premium?

How many pricing actuaries – like me – appreciate both great food and their job? Probably a lot. But how many of us notices the close resemblance of pricing process and cooking?

Let me shed more light on this.

Planning

‍

In both areas, first, we need to understand what the assignment actually is – what the final product, timeframes, and resources are. The more information you collect at first, the better the design of your project will be. For different occasions you will need different ingredients, tools, size of the team, and their skillset. You need to be able to answer all the following questions (and more). Are we meant to prepare a quick breakfast, business lunch, or a gala dinner – is it a personal, commercial or specialty line? How much time do we have, who is available, and what ingredients can we find?

‍

Modifying an existing dish, we must know why we do it – how it has been performing, and what has changed in our strategy, or in the market? Knowing customers’ expectations, regulations, best practices, and our competitors’ offer, gives us context crucial especially before launching any new product.

‍

After collecting all necessary information, and careful planning, we need to get our hands dirty.

‍

Ingredients‍

‍

Data for pricing are like ingredients for cooking. If they are not fresh or are of poor quality, your whole meal will be ruined. First, you need to carefully examine and select all available data, remove broken parts, run an extensive cleaning procedure, and preprocess them. Some ingredients can be grown inhouse, while other might be purchased. There even exists a term “feature store” and like with some exotic, hard to find fruits, sometimes to really stand out from the crowd, you need to spend hours finding the best supplier.

‍

Dishes

‍

Having all necessary high-quality ingredients, how to compose different dishes out of them? Without considering the flavour and visual value, we could equally good eat all of them separately or together as a blended goo, but it doesn’t sound appealing, does it? Ingredients need to be carefully picked and used, taking into consideration that some of them works much better together than separately, and that some completely ruin each other. We need to understand how they interact. They don’t operate in the void but they share the room with other ingredients, forming interesting combinations.

The wholesome meal experience is composed of smaller dishes. Some of them are very simple, while other are a masterpiece of the craft. And don’t forget the topping – commercial adjustment, and decoration – marketing discounts.

‍

Tasting

‍

Just like a cook tastes their creation to find out if all is good and works as intended, the same applies to your pricing. Testing. Tasting. Testing. Any change to your menu, without proper quality assurance and market fit evaluation, may ruin not only your good name, but also company brand, and your business. Never rush with an implementation as the street premium is a dish best served cold.  

‍

Serving

‍

Speaking of serving, cooks rarely do it themselves. There are intermediaries, “the insurance waiters”, brokers and agents, whose responsibility is to understand their customers’ needs, advise them well, and make sure they all feel comfortable along the way.

Like no one likes to wait for their meal, insurance premium should also be delivered swiftly. Long are gone days when customers were used to waiting for their quotation.

Conclusion

‍

If you really want to make a difference, to earn Michelin stars, you need to have a clear strategy, bright management, and engaged talents in your team. Well-operating pricing teams are like staff of the most famous restaurants. They have different strengths, but they all share the same goal. They all complement each other, making the whole process running like clockwork.

In pricing, like in cooking, it’s clearly visible who puts their customers in the centre of the process, and who just wants to make more money. Insurance pricing is a long-term game, and customers are there to judge.  

I hope you found this article interesting, and you’ll have a fresh look at your daily routine.  

‍

Bon Appétit!

‍