Dynamic insurance pricing—is it the solution to rampant cargo underinsurance?

Story by

Johnny Mccord

Tags /

  • Dynamic
  • Insurance
  • Pricing

For three hundred years, the insurance industry employed static insurance pricing models to serve their freight industry assureds. This old, labor-intensive way of doing business has driven insurance brokers to seek out the enterprise at the expense of the SMB to remain profitable. Meanwhile, assureds have been frustrated by wild pricing fluctuations and premiums that don’t accurately reflect their risk—if they’ve been able to purchase cargo coverage at all.

Loadsure is harnessing AI to deliver dynamic insurance pricing that’s responsive to market conditions and the unique specifications of each shipment.

This is a revolutionary step forward that will not only provide tremendous value to insurance brokers and the businesses that already rely on them, but also enable the SMBs who’ve long been underserved by the insurance industry to cost-effectively transfer their risk.

What is dynamic insurance pricing, exactly?

Dynamic pricing is a methodology for accurately pricing the risk at hand.

Leveraging AI engines that respond to rich, real-time data, dynamic pricing models can understand the actual risk attributes of any particular shipment. As a result, this insurance pricing strategy enables flexible premiums that move with the risk being insured, as opposed to the traditional flat rates currently applied to risks today—ensuring customers pay for only what they need..

In today’s traditional insurance market, flat rates are generated from historical data analysis, and then applied to a 12-month forecast for a book of business. It’s an exercise in best guessing—and a highly reactive approach. The result: Peaks and troughs in premium pricing that leave assureds frustrated.

High-resolution dynamic pricing, however, takes a proactive approach, directly addressing this challenge.

How does an AI dynamic pricing model work?

We all recognize that every shipment is different, and brings with it unique risk. From different drivers and modes of transport to commodities and crime zones, even data as granular as tire pressure—dynamic pricing analyzes all of it in real-time to create an accurate risk score for any single shipment.

Evolving over time, this insurance pricing model is far more responsive to risk in the environment, and it enables real-time adjustments for insurance products that are both sustainably priced and affordable.

Of course, becoming truly dynamically-priced doesn’t happen overnight—it’s a journey we embarked on a year ago when we acquired the data we needed to begin. By last quarter, we had billions of dollars of total insured value (TIV) to feed our AI engine. As losses came in, we applied this higher-resolution data and made an adjustment to our rating model—all to achieve cost-effective, sustainable pricing.

Now, our data is growing increasingly rich, and our adjustment cycles are providing us with an incredibly defined rating model. In time, these real-time adjustments through our machine learning algorithm will moderate the up and down pendulum swings in our pricing—smoothing into a flat line that delivers sustainable, dependable insurance premiums.

Already, this rich data is enabling us to reduce costs, allowing us to both reduce premiums and increase sales. As a result, our coverage is more accessible to SMBs, and we—alongside our insurance broker partners—are empowered to play a key role in reducing the massive amounts of underinsurance we currently see in the global cargo and freight industry.

Dynamic pricing advantages—what can insurance brokers expect?

Until now, the insurance industry has been unable to write transactional business at its true, warranted price. One-off risks have simply been too labor-intensive to underwrite and, as a result, premiums have been highly inflated to justify the economics.

Our dynamic insurance pricing strips these inefficiencies from the insurance distribution chain. Now, insurance brokers can underwrite any risk, at any time—regardless of size or economics.

Not only does that mean they’ll be better able to serve all of their clients’ needs, but they’ll also be able to serve new segments of business, boost sales, and create a passive revenue stream.

How will this dynamic pricing model positively impact the freight industry?

Dynamic pricing in insurance enables us to more accurately price any risk—and that pricing is dynamic to the customer level. Meaning, we can provide preferential pricing to clients and for commodities that are performing well, giving businesses greater control over their premiums. This is a big deal.

Not only will pricing trends become more transparent, dependable, and competitive, enabling every business to transfer risk, no matter how small, but businesses that demonstrate a commitment to safe operation will be able to reduce their annualized insurance costs.

This is an exciting time to be a part of the insurance industry

Until very recently, the insurance industry lagged in its adoption of cutting-edge technologies. In the wake of the pandemic, however, the need to become more responsive and efficient became tremendously clear. Now, innovation is accelerating far faster than anticipated and the insurance industry is open to embracing smart technologies, like AI dynamic pricing.

At the end of the day, this new pricing methodology will enable brokers to do more for their existing clients, while also opening the market to those that have been operating with broad risk exposure.

It’s been an exciting journey—and this is just beginning.