If two underwriting teams assessed a similar risk, could you explain why their technical prices differed? Would the difference reflect the risk itself, a deliberate choice of methodology or simply different assumptions in their spreadsheets?

For heads of pricing, actuarial managers and underwriting leaders, those questions get to the purpose of a technical pricing framework. It should make pricing decisions consistent enough to compare, clear enough to challenge and practical enough to use in everyday underwriting.

At MatBlas, our consultancy work includes reviewing, enhancing and designing technical pricing frameworks for insurance companies. Our view is that a useful framework starts with understanding how the business makes decisions, then connects the data, methods and responsibilities needed to support them.

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What a technical pricing framework should achieve

A commercial insurance pricing framework sets out how an insurer assesses risk, calculates its technical price and uses that assessment in underwriting decisions. It brings together the models, assumptions, controls and reporting that support the process.

One early task is agreeing what “technical price” means within your business. Does it represent expected claims cost alone, or does it also include expenses, reinsurance costs and an allowance for risk and return?

Different classes of business may also need different pricing methods. A sound framework makes those choices explicit and applies a consistent approach to documenting assumptions, approving changes and monitoring results.

Signs your current framework needs attention

• Similar risks are assessed using different assumptions, without a documented reason
• Nobody has clear responsibility for updating benchmarks or approving model changes
• Exposure information is repeatedly entered into disconnected tools
• Underwriting adjustments are recorded inconsistently or disappear from reporting
• Management reports cannot reliably connect quoted prices with the technical assessment
• Understanding a model depends heavily on the person who built it

These are useful starting points for a review because they identify where the framework is making decisions harder to explain or processes harder to maintain.

Define the foundations before choosing the technology

Insurance pricing framework design should address six connected areas, with decisions made in each area affecting how reliable the overall process will be.

Data inputs and quality

Agree which exposure, claims and policy information each pricing process needs, where it comes from and who maintains it. Set clear rules for missing data, validation and reconciliation between systems.

For commercial insurance, consistent treatment of limits, deductibles, policy periods and currencies can be as important as the modelling technique. Record data limitations alongside the resulting price so users understand the uncertainty involved.

Pricing methods and assumptions

Specify which methods are appropriate for each class and circumstances, including how experience, exposure information and benchmarks should be used. You should also be able to explain what happens when the available data is too limited to support the preferred approach.

Assumptions such as claims inflation and development patterns need an owner, a review schedule and a record of changes so users are able to establish which assumptions produced a particular result.

Expenses and other loadings

Define how the framework treats acquisition costs, operating expenses, reinsurance and allowances for risk and return, where relevant to your technical price definition.

Be explicit about calculation bases and interactions. A percentage of premium behaves differently from a percentage of expected claims cost, and unclear definitions can lead to omissions or double counting.

Underwriting judgement

Commercial insurance requires judgement about individual risks, especially where data is limited or a model cannot capture a material feature. Define where adjustments are permitted, what evidence supports them and when referral is required.

Keep changes to the technical assessment distinguishable from commercial decisions about the quoted price. That allows the business to examine both the risk assessment and the effect of market negotiation.

Documentation and approval responsibilities

Assign responsibility for methods, assumptions, model releases and exceptions. Set approval requirements that reflect the significance of a change, with proportionate review and testing.
Documentation should help another competent person understand and reproduce the assessment. It should also explain the model’s intended use and limitations, including situations requiring additional review.

Monitoring and feedback

Decide how pricing information will feed management reporting and how emerging experience will inform future assumptions. Useful measures may include rate adequacy, differences between technical and quoted prices, and the frequency and effect of adjustments.

Look at results by relevant portfolio segment an allow for claims development and changes in business mix before drawing conclusions about model performance.

Connect technical pricing with business objectives and risk appetite

​Before developing the framework, agree which decisions it must support. For example, a business entering a new class may need a structured approach to limited data, while an established insurer may need clearer visibility of profitability across its portfolio.

The aim is to then translate those objectives into practical requirements: Which segments are priorities for growth? What returns are being targeted? Which risks or concentrations require referral or fall outside appetite, irrespective of price?

For example, imagine a team seeking growth in a specialist liability portfolio. Its framework might require a documented technical assessment for each quotation, approval for material departures and reporting of those departures by segment. Management can then assess how growth is being achieved and what assumptions support it.

Growth targets should be assessed against a visible technical assessment. Changing a commercial objective should prompt an explicit decision about underwriting strategy – any change to technical assumptions still needs its own evidence and approval.

Implement the framework in manageable phases

​Technical pricing framework implementation needs to account for live underwriting workloads, so a phased approach gives teams space to test both the calculations and the way people will use them.

Map the current process

Follow representative risks from submission through pricing, approval and reporting. Identify duplicated entry, manual workarounds and gaps in responsibility. Involve underwriters, actuaries, IT and the people who use the resulting reports.

Agree the design and pilot one area

Document definitions, responsibilities, data requirements and intended outputs before development begins. Choose a representative class or team for a pilot, with agreed measures of success such as traceable assumptions, fewer manual steps and usable reporting.

Test calculations and integration

Test representative and unusual risks, missing inputs, assumptions and approval rules. Compare results with the existing approach and investigate differences rather than assuming the previous answer is correct.

Check that information passes accurately between systems and that model versions remain identifiable. Where appropriate, run the new process alongside the existing one before switching over, with clear sign-off responsibilities.

Support adoption and review use

Train people using real underwriting scenarios and explain how to handle exceptions. Give users a clear route to raise issues, then review how the framework is working after launch.

Pay attention to workarounds – if users routinely leave the system to complete an assessment, investigate whether the process, data or tools need adjustment.

Enhance the existing framework or redesign it

An enhancement may be sufficient where the core methodology remains suitable and weaknesses are concentrated in areas such as documentation, assumption management, data transfer or reporting.

A more substantial redesign may be appropriate where the framework cannot represent the business being written, models have diverged beyond manageable maintenance, or the underlying data structure prevents reliable analysis.

Assess those choices against the business problem, implementation effort and disruption involved. Review the framework before committing to a replacement platform, so the technology decision follows a clear set of requirements.

A practical technical pricing framework checklist

Use these questions to identify gaps worth investigating. An unclear answer is a useful prompt for review.

• Can everyone explain what the technical price includes?
• Are pricing methods and their intended uses documented by class?
• Are essential data inputs validated, with limitations visible to users?
• Do material assumptions have an owner and review schedule?
• Are expenses and other loadings applied on clearly defined bases?
• Are underwriting adjustments distinguishable from commercial price changes?
• Are referral thresholds and approval responsibilities clear?
• Can a previous assessment be reproduced using its original model and assumptions?
• Have calculations, exceptions and system connections been tested?
• Can management link pricing decisions with portfolio performance?
• Are users trained and able to report problems?

Build a framework your teams can use

A useful technical pricing framework gives people a shared basis for assessing risk while making the reasons for different decisions visible. Its value depends on how well it fits the business, how clearly responsibilities are defined and how effectively information flows through the pricing process.

MatBlas brings together actuaries, database architects and programmers to review existing workflows and pricing frameworks, enhance established approaches and design new frameworks. Our consultancy services for insurance companies also cover systems implementation, management reporting and portfolio segmentation.

Planning to develop or improve your technical pricing framework? Get in touch to discuss your current approach and the changes you want to make.

Ana Mata

Managing Director and Actuary