The future of actuarial pricing

Integrating AI into actuarial pricing models

Actuaries have a unique opportunity to leverage AI-powered technology to drive business outcomes, particularly through enhanced actuarial pricing and greater pricing sophistication. By adopting these capabilities, they can take a leadership role in shaping broader business strategies. Actuarial work relies on sophisticated analysis and large, diverse data sets, making AI in insurance a natural partner for extending impact. Leading organizations are already using AI to develop robust actuarial pricing models, price products more accurately, and assess risk. Actuaries should be at the forefront of this transformation.

While technology fuels this transformation, success depends on actuaries embracing new roles and collaborating across functions like claims, underwriting, product, and marketing. Greater integration supports strategic planning beyond siloed operations and secures the actuarial function in key business decisions.

Remaining tied to traditional methods is no longer viable, given AI’s analytical and efficiency gains. Actuaries must transition from back-office roles to become central players at the strategy table. This evolution requires new skills and approaches but promises significant opportunity and greater enterprise value.

Agility in pricing sophistication

Despite strong combined ratios in many insurance lines, recent events have revealed important gaps in forecasting and response. Some actuarial teams showcased agility by quickly adapting their actuarial pricing models and updating strategies, leading to better outcomes, while others were slower to react. For example, personal auto physical damage coverage costs surged nearly 40% in recent years. Insurers that lagged in adjusting their pricing sophistication saw underwriting results decline by more than 10%. Had these loss costs risen similarly across all US property and casualty insurers for just six months, the industry could have faced nearly $18 billion in lost written premiums.

The spike in auto claims stemmed from supply chain disruptions and market imbalances—issues accentuated by pandemic-related shortages, pent-up demand, and increased monetary supply. These drivers weren’t always immediately apparent to every function, but actuarial teams who worked closely across departments and harnessed the power of AI in insurance identified these shifts sooner, allowing them to respond ahead of the market. This underscores the critical role of cross-functional coordination and agile actuarial practices in adapting to volatility.

AI-driven innovation in pricing models

AI-powered tools are driving unprecedented pricing sophistication in actuarial pricing, especially in competitive markets like cyber insurance. With limits on rate changes, insurers increasingly rely on strict underwriting and the removal of unprofitable business, while agile actuarial teams rapidly adapt to emerging claim patterns, such as spikes in ransomware attacks.

Leading cyber insurers use AI-driven analytics for pricing, risk assessment, and claims response, enabling more precise models and strategic decision-making. The influx of data helps actuaries better match price to risk and guide business actions to protect profitability.

AI also boosts competitive intelligence by analyzing competitors’ filings in real time, although this transparency can reveal sensitive pricing strategies. As analytical capabilities and exposures grow, adopting smart, careful approaches to AI in insurance becomes more critical than ever.By providing stronger tools to anticipate disruption, inform underwriting, and support business objectives, advanced AI enables actuaries to rapidly test multiple pricing models, identify key rating variables, and simulate different economic scenarios.

The importance of strategic collaboration

Actuaries are taking on more forward-looking, strategic roles instead of only analyzing past events. They advise marketing teams on customer segmentation to maximize lifetime customer value and help refine underwriting guidelines with greater rigor. Actuarial techniques now apply across a wider range of activities, from pricing and rate indication to designing and monitoring strategies in marketing, distribution, and other core functions.

Collaboration is essential for impact. Pricing leaders who closely engage with underwriting, reserving, claims, sales, and marketing can share new information, explore options, and track performance versus expectations. This teamwork allowed some insurers to respond quickly to post-pandemic inflation, while those working in silos fell behind. The difference was collaboration, not just data quality.

Looking forward

Our new report takes a closer look at why it’s essential for actuaries to master AI and emerging technologies, and what that process looks like. In turn, they can help businesses anticipate a wide range of outcomes, pinpoint the key drivers of loss ratios, and manage both opportunities and risks. As their role evolves, actuaries are uniquely positioned to guide and safeguard the business in an increasingly complex environment.