Renewal Pricing: What the Claims Data Says That Your Gut Doesn't

The most common renewal strategy in travel and medical insurance is also the most expensive: take last year's rate, add a flat uplift, and send the notices. It feels prudent and it protects relationships. It also quietly reshapes your book in exactly the wrong direction, one renewal at a time.

The flat uplift is not neutral

A single percentage across the whole book treats every policy as if it carries the same risk. It does not. The claims experience underneath your renewal cohort varies enormously, and a flat rate over-charges your best risks while under-charging your worst. That is not caution. It is a slow, structural mispricing.

Adverse selection does the rest

Your profitable, low-risk customers are also the most price-aware. Over-charge them and they shop around and leave. Your loss-making segments, meanwhile, are delighted to renew at a rate that never reflected their risk. Repeat that for a few cycles and the book drifts steadily towards the customers you would least like to keep.

A flat uplift keeps the risks you should reprice and loses the customers you should protect.

Segment on experience, not instinct

The alternative is to segment the renewal book on its own claims experience and behaviour, score each segment for expected claims and lapse, and price accordingly: hold rate on the profitable and loyal, correct the segments that were never priced for their risk, and accept that some of those will, and should, leave.

Test it before you commit

The value of doing this analytically, rather than by feel, is that you can model the margin and retention impact of a rate change before a single notice goes out, and take the recommendation into a pricing committee with its rationale attached. Repricing stops being a gamble and becomes a decision you can defend.

Loyalty still matters. It is simply not a substitute for knowing what each segment of your book actually costs you to carry.