Ageas UK’s Inflation Tracker impacts positively on pricing decisions
With a market as price sensitive as the UK market, it is imperative that Ageas has a good understanding of claims inflation. This is a key input to its pricing and reserving and helps Ageas UK to assess its operational actions and the levers it can pull.
A common challenge is that inflation can be distorted by changes in mix. As an extreme example, if the business had more claims involving high-end sports cars in one year than the previous year, these claims are naturally higher cost, and therefore this does not show like-for-like inflation.
This is an extreme example and so it would be easy to identify, but underneath the surface there are constant subtle shifts in mix, all of which have the potential to distort claims inflation.
Through the work of Ageas UK’s Data Science Centre of Excellence, Ageas UK’s solution was to develop a bespoke tool which uses a combination of Machine Learning models and techniques that deconstruct the output of those models. This tells Ageas what claims in one period would have cost, had they occurred in an earlier period, say a year ago. It automatically identifies and quantifies the impact of all of those subtle shifts in mix and therefore provides a view of underlying economic inflation.
This tool has enabled Ageas UK to respond quicker than most to evolving changes in the economy. Ageas was able to spot the inflation trend in the motor market very early on allowing it to manage its pricing position with slightly more headroom than many of its competitors. It also allowed Ageas to shield broker partners from sudden shocks which was greatly appreciated.
Continued growth despite price hikes
In a market such as the UK, which is super sensitive to pricing, when and how increases are executed matters to customers and brokers. Ageas UK has responded very well to that challenge.
Ultimately despite the necessity for price increases largely reflecting the impact of inflation on costs, the business continued to grow in the past year with 4 million policies in place. Ageas has also been winning and retaining more customers than ever.
Ageas’s focus and enhanced capabilities have enabled the business in 2023 to outperform the market in Motor, its biggest product line. And it continues to be ranked top quartile underpinned by a consistent reserving approach and excellent technical capabilities.
In turbulent economic times, tools like the inflation tracker are critical in allowing the business to respond quickly to market developments, which also underscores the increasing importance of data and advanced analytics. And when data mixes with the right technology, the results can be quite remarkable.
