Higher levels of technology, particularly in the areas of rating and pricing, are needed for United Kingdom insurers to keep pace with marketplace demands, according to a new Celent report.

The report, "Rating in the UK General Insurance Market," notes that the soft market conditions as well as the breadth of models in pricing have created a challenging and complex environment for insurers.

Additionally, the report notes, "the evolution of pricing and rating approaches is now starting to overwhelm the largely bespoke technology that supports it."

As insurers apply new strategies, and add external data sources, the complexity of the underwriting process increases, according to the report. "And even if yesterday's technology can be cranked up to support these new approaches, doing so often drives development and maintenance costs to unreasonable levels, or requires long lead times that insurers are unwilling to accept."

The report recommends that insurers update supporting technology, particularly in the area of rating and pricing, to meet the increasing complexity in the market.

"The key word here is more," said Catherine Stagg-Macey, senior analyst with Celent's Insurance Group and author of the report. "There are more data sources to consult, more channels to sell into, more market strategies to implement. Insurers need high levels of technology to be able to process this changing world effectively."

As for technology solutions, the report recommends three types of technology that could support pricing and rating:

o Price optimization tools, the report said, can support sophisticated pricing models used in the UK market, and they also "[consider] price elasticity by customer segment and point of contact."

o Business rules engines are "[solutions] that [enable] the design, integration, automated execution and optimization of decisions within processes and process steps." The report called these engines "broad-stroke tools perfectly suited to support rating in the underwriting process."

oAlong that same rationale, the report also mentions rating engines, which are a type of business rule engine used specifically for the process of rating.

The report cited a survey that Celent conducted which found that many insurer respondents had four or more rating engines and different rating approaches for each distribution channel.

"Inconsistencies across channels and cost of implementing changes mean higher than necessary underwriting expenses," the report stated.

Insurers should consolidate rating logic to a single solution if possible, or at least a reduced number, the report recommended. "Technology has been used in rating for many years," the report states, "but now is the time for rating to take its own place in the enterprise architecture - for rating to be a discrete, parameterized component that offers flexibility to the business."

The report also points to a shift in pricing approach for UK insurers, particularly with respect to the direct channel. Historically, pricing was based on risk groups or tiers, where the market was divided into a number of groups, and rates were assigned to each group on the assumption of broadly consistent behavior. This process was necessitated by the limitations of technology.

Now, the report continues, insurers are able to price risks on an individual basis. "This is most pertinent in the direct channel, where the insurer has complete control over the systems and technology."