As customers increasingly search for a highly personalised products, insurers need to write policies that are more reflective of an individual customer’s risk. This often involves using non-standard risk factors that are obtained from new data sources, which do not fit into the standard actuarial “rating factor” approach.
Insurers also face communication difficulties regarding their pricing models, both internally and externally. Underwriters have difficulties understanding the output of traditional actuarial models, while customers increasingly demand explanations on how their data is being used to make decisions, thus trust and transparency with the current process becomes ever more important. As insurers look to increase their automated underwriting, they need to consider a customer’s “right to explanation” for any decisions made.