Articles - Pricing governance: how much control is too much?

 

The challenge is finding a framework that keeps pricing decisions visible and intentional without trying to control every individual deal.

 

In many insurers, pricing governance tends to evolve in response to past experience. After a period of poor performance, it is common to see additional approval layers introduced, more committees created and tighter controls put in place.

 

These changes often start with good intentions. The aim is to ensure underwriting discipline and prevent under-pricing. Over time, however, governance can become overly focused on approving individual transactions rather than understanding the broader patterns emerging across the portfolio.

 

For example, a risk is written at 10 percent below technical price and requires approval. The committee reviews the case, discusses the individual risk and broker relationship and approves the deal. A few days later another similar risk is reviewed and approved for similar reasons.

 

Each decision is reasonable in isolation. But governance processes that focus only on individual deals can struggle to see what those decisions add up to over time.

 

Effective governance therefore needs to operate at two levels. Individual decisions should remain primarily with the underwriter (working within their underwriting guidelines), while governance focuses on the overall framework and understanding the trends that emerge across the portfolio.

 

It is also possible for governance to go too far. Underwriters often need to move quickly. If every deviation from technical price requires lengthy approvals, decisions slow down and underwriting teams may look for ways around the process.

 

In some cases this can lead to unintended consequences. Technical pricing models may be adjusted to produce numbers that are easier to approve, or underwriting judgement may simply shift into areas that are harder to monitor. For example, rather than reducing price directly, terms and conditions might gradually weaken. Deductibles fall, coverage expands or additional extensions are included. Each change may appear small, but the overall economic impact can be significant.

 

Governance that focuses only on price therefore risks missing a broader shift in risk. This is why governance works best when it focuses less on strict control and more on transparency. The aim should be to understand how pricing behaviour is evolving rather than attempting to approve every decision individually.

 

The most effective pricing governance tends to focus on patterns rather than single transactions. For example, governance forums might regularly review questions such as:

 

These types of questions shift the conversation away from whether a specific deal was justified and towards what the portfolio is telling you. A simple example illustrates the point. A portfolio may show that 15 percent of risks are written below technical price. On its own that number may not be concerning. But if the proportion increases steadily over several quarters, or is concentrated in specific segments, it may indicate that market pressure is starting to reshape the book. This kind of insight allows management to step in early, while they can still do something about it.

 

Good pricing governance does not need to be complicated. In practice, a few simple principles often make the biggest difference. First, governance should be clear about who owns the pricing decision. As discussed in the previous article, in the London Market, that decision typically sits with the underwriter. Governance should provide oversight and challenge, not replace that responsibility.

 

Secondly, deviations from technical price should be tracked against pre-agreed appetite ranges. Small differences are part of operating in a competitive market, but persistent or widening gaps should trigger discussion.

 

Thirdly, governance should capture the information behind pricing decisions. For example, separating risk-based adjustments from commercial ones helps reveal whether underwriting behaviour is changing as market conditions soften. Finally, governance discussions should focus on trends rather than individual approvals. Looking at patterns across classes, brokers or portfolios often reveals issues earlier than reviewing deals one at a time.

 

These practices do not prevent underwriters from responding to the market. Instead, they help ensure that those responses remain visible to the wider organisation.

 

Pricing governance is often discussed in terms of constraints and control, but in practice it is more about visibility. Soft markets inevitably create pressure to follow the market. Technical pricing provides the benchmark, and underwriting judgement determines how to respond. Governance ensures that those choices remain transparent and aligned with the business strategy.

 

Too little governance allows pricing discipline to drift. Too much governance risks slowing decisions and weakening underwriting ownership.

 

The most effective approach sits somewhere in between: a framework that supports commercial decision making while ensuring the insurer understands how its pricing behaviour is evolving, and the key ways to achieve this are to follow the principles set out above.