[Skip to content]

Sign up for our daily newsletter
The Actuary The magazine of the Institute & Faculty of Actuaries

The pricing actuary’s salvation

It is written in the health insurance pricing actuary’s survival handbook that success comes from control over infor-
mation basics: premium adequacy, managed care value, operating cost control, and business acquisition efficiency. In today’s cut-throat competition, protecting your bottom line with the right rates means making the best use of information.
Health plans and insurance carriers must have facts to scrutinise competitors’ business and support their pricing decisions. Only reliable competitive intelligence will set the stage for a pricing actuary to excel. This means a capacity to collect, interpret, and report relevant market-based information to help anticipate market movement and know when action is needed to guide rate changes.
Being prepared and profitable in a fast-paced health insurance market is a formidable task. Tracking, measuring, and benchmarking where you stand is a full-time proposition. Success will come to knowledge-based companies that have the information to drive the market through leadership; being a follower doesn’t cut it anymore.

Beyond simple price comparisons
Competitive intelligence is a systematic business process to gather information on critical market forces. Results are used to define a company’s comparative market position, retool core pricing assumptions, and benchmark for future success.
Maximising market position means knowing and watching your competition using information going beyond simple rate comparisons. Overtaking competitors requires an integrated, well-orchestrated approach to evaluate best practices, understand vulnerabilities, and learn from what the marketplace tells you.
Competitive intelligence must emerge as a disciplined, integral part of an organisation’s strategic infrastructure. All too often gathering and analysing this information is designated as a secondary or last-minute effort. Its focus becomes diluted and one-dimensional. It is constrained by internal politics, egos, misaligned incentives, and institutional bias. The result can be a routine exercise comparing only the most pedestrian product, service, and price features.

Information drives success
Learning from the opposition requires dissecting underlying strategic direction behind competitors’ management, operations, market position, and financial structure. To be truly effective, competitive intelligence means evaluating competitors as if you had a financial stake in their business think of it as due diligence or a business audit.
Competitive intelligence
To be an effective pricing actuary you can only manage what you can measure! Effective competitive intelligence provides information through an external market evaluation that surveys trends, innovations, and tactics that influence the future position of your enterprise. An intelligence effort should examine a diverse set of information. For example, an array of management reports can augment your role as the final pricing decision-maker. These include:
– rate and pricing comparison;
– health plan benefit and product appraisal;
– underwriting standards review;
– marketing mix statement;
– financial position analysis;
– best practices assessment;
– executive and strategic intelligence.

Intelligence adds value
Competitive intelligence should reveal how your rivals design and implement their pricing, operational, and marketing strategies. Results should provide value to every operating unit of an organisation and be used to:
– restructure product and pricing assumptions;
– develop countersales tactics;
– achieve marketplace differentiation;
– incorporate operating and technology advances;
– address competitors head-on with customers.
A value-based intelligence effort needs to involve a multi-disciplined approach that understands the dynamics of balancing a profitable pricing strategy with successful selling. Competitive intelligence reports need to be practical and information-filled. Often value can come from having independent professionals deliver competitive intelligence. They conduct a healthy debate of assumptions, challenge facts, and scrutinise final analysis. This avoids disruption and bias inherent in an internally driven process riddled with political agendas and turf battles.

Your rates, your bottom line
Competitive intelligence’s guiding objective is the delivery of a realistic assessment of your company’s competitive situation, your price position, and your future. It must highlight areas responsible for undermining or enhancing performance and identify actions necessary to remain a viable, profitable player.
Ultimately, the goal is to institutionalise an intelligence system to track, analyse, and monitor competitive trends so you can make swift, informed pricing decisions in a context of bottom line value. Successful health insurance executives will manage tomorrow with relevant and useful information, according to the pricing actuary’s survival handbook.