May 15, 2024

🎙 Expert Insights: Why insurance pricing is more strategic than ever - Interview with José María Castelo Marín

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José María Castelo Marín (Pepe), Senior Advisor at Akur8

José María Castelo Marín (Pepe), with a long career as an actuary, technical director, and managing director of several international insurance and technology companies and now, in more strategic responsibilities such as independent Board Member, President of the Audit Committee at IMA Ibérica Asistencia, and Senior Advisor at Akur8, looks back at the rapid evolution of insurance pricing challenges in recent years. One sure thing in this uncertain environment: actuarial expertise is now key for insurers who wish to remain competitive.

Taking a step back, what was unique about 2023 in the insurance field, and how did it impact new trends and challenges?

While Digital Transformation was one of the key topics in previous years, in 2023 Combined Ratio became top of mind. During COVID, with fewer drivers on the road and economic activity significantly slowed, insurers reduced premiums across the board. Just one year later, economic activity restarted, leading to more active drivers and increased mileage and frequency. Just a little after that, geopolitical challenges with Ukraine and Russia took center stage and kickstarted hyperinflation, leading to a macroeconomic storm. This scenario was something the world hadn’t experienced in the last 20 years. As a result, the cost of claims increased dramatically while premiums grew at a much slower pace. This had a significant impact on the Loss Ratio and Combined Ratio.

To face this complex situation, there are 3 key levers to manage the Combined Ratio: increasing premiums, reducing frequency, and controlling the cost severity. These levers are now crucial, and this is why Akur8 is so successful: by fostering more pricing sophistication, Akur8’s pricing platform allows insurers to increase prices thoughtfully and select better risks with lower frequency. 

How do you see new technologies opening up opportunities for innovation and driving growth in the insurance industry?

Artificial intelligence (AI) is now the main technology innovation that every insurance company is exploring and trying to leverage in their processes. 

Akur8, for example, provides transparent AI to help actuaries and pricing specialists be more efficient. This allows them to spend more time analyzing results, instead of handling data and building models. There has always been this ‘80-20’ rule where actuaries spend 80% of their time handling data or going through painful modeling processes, and only 20% exploiting the results. With this new technology, actuaries can flip this rule on its head and now spend 20% of their time managing data and modeling, and 80% understanding results, and explaining to other stakeholders why different scenarios are better (from a technical and commercial point of view), thereby increasing their impact on insurers' decisions - and their profits. 

Time to market is also critical now more than ever. In the past, most insurance companies changed prices once or twice a year, whereas, in today’s world, it’s a much more continuous process. While actuaries can — and should — be more efficient to meet the new market standards and remain competitive, transparency remains extremely important. Years ago, adapting the base premium by one or two percent from time to time was enough. Today, actuaries need both speed and transparency to discuss their recommendations in non-actuarial language with their stakeholders on a regular basis.

How do you anticipate the actuarial profession will evolve over time, particularly in relation to the integration of data science principles and techniques?

Both actuaries and data scientists´ skills are needed in an insurance company. 

Data scientists are more specialized in analyzing data, regardless of its purpose. They may be dedicated to analyzing pricing, but their main focus is analyzing other topics such as conversion rates, renewal rates, identifying potential fraudsters, etc.. They are, basically, generalists. Their multidisciplinary skills and creativity are strengths that insurance companies need today, as they can analyze data effectively even without a deep knowledge of the business. 

An actuary is a specialist – they don’t see just numbers, they see what is the business issue behind the numbers. Understanding what the data is telling you in terms of business benefits is key in this industry. Actuarial profiles need deep insurance knowledge, which data scientists typically don’t have. 

The way I see it, data scientists can build incredible models with large and varied datasets, while actuaries have the expertise to deeply understand the results of those numbers and decide which option to move forward with.

In your opinion, what is the position of Akur8 in this evolving ecosystem?

Akur8 is in the right place, at the right moment. Previously, actuaries used to interact with C-level executives every other month. Now CEOs are in regular contact, often weekly, with actuarial management. This shift highlights the increasing strategic importance of pricing in insurance operations.

Akur8 is not only a technical partner for actuaries: it offers a common language to all insurance stakeholders. If an insurer wants to improve time to market, achieve modeling transparency, and make data-driven collaborative decisions, Akur8 is a must-have solution.

I would like to take the opportunity to congratulate the Akur8 team for the amazing 2023 performance. I foresee a great 2024! 

Read Roger Arnemann's interview: "Unveiling the Future of Insurance"

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