Quantee has outlined two advanced methodologies for performing ethical price optimisation in insurance pricing, designed to meet sales and retention targets without resorting to the controversial practice of price walking. This approach is particularly timely as regulatory scrutiny increases in markets like the UK, where price walking—charging loyal, renewing customers more than new clients—has been banned.
At its core, price optimisation adjusts profit margins across customer segments to maximise revenue. But ethical challenges arise when some customers are charged more based on perceived price sensitivity, not risk or cost. While offering better prices to price-conscious or lower-income customers might seem fair, exploiting customer trust or inertia is problematic.
To address this, Quantee introduces two distinct strategies:
Separate optimisation: New business and renewal data are modelled independently, with optimised prices later averaged based on conversion or retention likelihood.
Joint optimisation: New and renewal data are combined into one dataset, retaining separate purchase indicators. This allows constraints to be applied globally, without letting the pricing model “know” whether a customer is new or returning.
Simulations show joint optimisation better hits demand targets across both portfolios, though separate optimisation provides a clearer model pipeline and potentially higher margin when applied to the right segment.
Each approach avoids directly pricing based on customer tenure. However, Quantee warns that systematic pricing disparities might still emerge at a market segment level due to differences in customer demographics. Therefore, demand model design is critical.
Ultimately, both strategies help insurers optimise pricing while maintaining regulatory compliance and customer trust, ensuring long-term profitability and fairness in a competitive InsurTech landscape.
Read the full blog from Quantee here.
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