Insurance pricing

Category: Pricing & rating · Reviewed by Jake Leat, Associate Director · Last reviewed

Insurance pricing

Insurance pricing is the discipline of determining the premium that should be charged for an insurance risk. It draws on statistical modelling, economics, market behaviour and regulatory constraint, and is the single most important commercial lever in a (re)insurer’s profitability.

The technical premium

Most carriers maintain a technical price — the actuarial estimate of the premium needed to cover expected losses, expenses, capital cost and target profit. The technical price is then adjusted by an underwriter for:

• Risk-specific factors not in the model.
• Market conditions (competitive intensity, cycle position).
• Strategic relationships (broker, MGA, panel).
• Cross-line bundling.

The gap between technical and quoted price (the rate adequacy or rate carried) is a closely tracked KPI.

Personal vs commercial lines

• Personal lines are predominantly priced by GLM / ML, with limited individual underwriter intervention.
• Commercial lines mix manual rating (small SME), GLM (mid-market) and individual underwriting (corporate, specialty).
• Specialty / Lloyd’s lines rely heavily on individual underwriter judgement supported by reference data.

Regulatory context

• FCA pricing rules (PS21/5) — in personal lines, prohibits new-customer prices being lower than equivalent renewal prices (“loyalty penalty” ban) effective 1 January 2022.
• Solvency II technical provisions framework underpins capital cost in the technical price.
• Consumer Duty (PRIN 2A) — fair-value and price-and-value outcomes apply to retail.

References

• FCA Policy Statement PS21/5 — General insurance pricing practices.
• FCA Handbook, PRIN 2A — Consumer Duty.
• IFoA. Practical Guide to GI Pricing.

Cross-references

• Manual rating
• Experience rating
• Schedule rating
• Generalised linear model insurance

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Maintained by Matt Bartlett, Director, Apex Insurance Brokers Limited. FCA FRN 724952. Companies House 07014570.