Lessons insurers should learn from Ticketmaster’s dynamic pricing

Insurers trying to juggle providing consumers with a safety net, satisfying shareholders, meeting the Financial Conduct Authority’s fair value requirements and Labour MPs criticising the cost of motor insurance must have been staggered by Ticketmaster’s approach to pricing.

Any Oasis fan working in the industry who has addressed price walking or overhauled legacy systems in recent years to ensure claims inflation data fed through to the cost of cover would surely have been livid had they spent hours in the online queue trying to purchase Oasis tickets.

At its heart, dynamic pricing [in insurance] is about offering customers better value through a personalised product born out of better accuracy and efficiency, not taking advantage of high prices to boost profits

Ticketmaster used dynamic pricing, also known as surge pricing, to push up prices at times of peak demand, resulting in Oasis fans who spent a long time in the online queue discovering that tickets initially advertised for £148.50 would actually cost them double that.

Insurers who have suffered MPs and regulators questioning if they provide “fair value” probably cheered when Culture Minister Lisa Nandy pledged to probe “issues around the transparency and use of dynamic pricing, including the technology around queuing systems which incentivise it”.

Dynamic pricing

While Adam Denninger, global insurance industry leader at Capgemini, informs me that pricing in insurance products is sufficiently different to the entertainment industry as “there is no constraint on supply that can be used to drive prices higher”, it is worth noting that dynamic pricing does exist in the sector.

Earlier this year, an insurtech CEO showed me how he could raise the price of - to save his blushes, I'll say tool insurance – for tradespeople who repeatedly came back to the company’s site to check the price of a policy.

He observed this “dynamic pricing” could be used when a provider identifies a customer segment and predicts the likelihood of purchase at different price points, and prices accordingly.

When I asked Jamie Wilson, head of pricing and innovation at Hyperexponential, how prevalent this practice was in the industry, he said that while 99% of “dynamic pricing” in insurance is very different to the approach taken by Ticketmaster and travel companies, “price optimisation” algorithms are present.

“Insurance wanted to jump on the dynamic pricing label but has done this by broadening out what it means. In insurance it often comes down to one or two things,” he says.

“The first is tailored pricing. I go to try to get some insurance and someone else with the same kind of input details may get a different price because they’re bringing in third party data and that type of thing.

“Sometimes people talk about telematics, real-time data, to amend pricing even if their pricing algorithm isn’t necessary changing in real-time.”

Lessons to learn

Ultimately, the fallout about failing to get Oasis tickets means insurers should think twice about any system that would update pricing automatically without anyone being involved in that process.

“Ticketmaster doesn’t have someone in the backend saying: ‘Now raise [the price]’. They’ve gotten algorithms automatically deploying that change,” Wilson said.

“In insurance, how many insurers are allowing their prices to change purely upon an algorithm without someone kind of checking that, seeing what impact that has in their portfolio, et cetera?”

Going back to the technology demonstrated to me by the Insurtech CEO earlier this year, Wilson said questions could be asked if a tailored insurance premium price is pushed up by repeatedly returning to your site. 

Checks for bias, to make sure algorithms are not discriminating against certain groups, are essential, according to Wilson.

After eight hours, I bet there weren’t nearly as many teenage girls left in the Ticketmaster queue who only know “Wonderwall” as there were bucket hat-wearing men aged 40-plus who bought the band’s albums in the 1990s angrily hollering “‘Roll with It’, my arse” as the ticket prices went supersonic before their eyes.

René Schoenauer, director of EMEA product marketing at Guidewire Software, agreed that while insurers will not see a direct impact from the scrutiny of Ticketmaster, the probe should act as a warning to insurers considering their own pricing approaches.

“At its heart, dynamic pricing [in insurance] is about offering customers better value through a personalised product born out of better accuracy and efficiency, not taking advantage of high prices to boost profits,” said Schoenauer.

So long as dynamic pricing delivers better pricing accuracy, operational efficiency and thus profitability for insurers and their customers, there is nothing to fear.

If it is being used to get away with pushing up the price because you can tell this is a customer unlikely to shop around, or they can only get cover from you, then expect the regulator to be less than happy with your pricing approach.