By Laura Hobern, Partner, LCP
It provides a consistent reference point for pricing decisions, but it can’t fully reflect the dynamics of the market or the nuances of individual risks. At some point, judgement inevitably enters the process.
In practice, judgement appears in more places than you may realise. It can start in the model itself. Assumptions about trends, exposure adjustments or credibility all involve judgement. It appears again when technical prices are adjusted for individual risks, and also when underwriters respond to broker behaviour or competitive pressure.
None of these decisions are purely technical, but together they shape the price that is ultimately written.
When underwriters adjust pricing, that judgement typically falls into two broad categories. Some adjustments reflect the underwriter’s view of the risk itself. For example, an underwriter may believe a particular client is better managed than the average account in the portfolio. Or, the underwriter may feel that recent improvements in the risk are not yet reflected in the model. In those cases the adjustment is risk based.
Other adjustments are driven by commercial realities. A broker relationship may be important, a client may be strategically valuable, or the wider market may simply be pricing more aggressively than the technical price suggests. Soft markets amplify this and technical and market prices begin to drift further apart.
For example, a model might indicate that a renewal requires a 5 percent increase to maintain the equivalent pricing level, while the broker indicates the market is flat. Writing at the technical price may mean losing the business, while matching the market would mean accepting lower margins.
The pricing model provides the starting point but judgement is needed to decide how to respond.
It is also worth remembering that price is not the only lever that changes in softer markets - terms and conditions can also weaken. Having a simple framework to assess the expected cost of those changes helps ensure they form part of the wider pricing decisions.
Where the decision really sits
In many insurers the final pricing decision for an individual risk sits with the underwriter (subject to any overall underwriting risk appetite controls). The technical price provides the reference point, but it does not dictate the outcome.
Underwriters see aspects of the risk that simplified models cannot easily capture. They understand broker relationships, client behaviour and how competitors are approaching a renewal.
At the same time, pricing teams and portfolio managers often see patterns that are harder to identify at individual deal level. They may notice when certain brokers consistently push pricing lower, when particular classes are drifting away from technical levels, or when risk-based adjustments are becoming more frequent.
Bringing these perspectives together helps ensure individual pricing decisions still make sense at the portfolio level. Stronger firms also track how far pricing moves away from technical levels against pre-agreed appetite ranges. Small deviations on individual risks are expected, but if pricing regularly falls outside those ranges it prompts a wider conversation.
In practice, following the market is sometimes the right commercial decision. The key is having the information available and making that choice deliberately, in line with your strategy, rather than letting it happen gradually through lots of small, unmonitored adjustments.
Supporting judgement with structure
The goal is not to remove underwriting judgement, but to ensure pricing decisions remain visible and intentional. Take a simple example. Writing one risk slightly below technical price may be a sensible commercial decision but if an entire class of business consistently writes 10 percent below technical levels, that is no longer about individual deals. At that point the conversation shifts. Are we deliberately following the market? Are the technical assumptions too conservative? Or is pricing discipline slowly drifting?
Another dynamic that often appears as markets soften is how adjustments are described. Commercial adjustments are usually quite visible. Everyone understands that sometimes you follow the market to keep a good client or maintain a broker relationship.
Risk based adjustments can be harder to interpret. An underwriter may genuinely believe a particular client has better risk management than average. But as competition increases, those adjustments can start appearing more frequently. Over time more and more risks end up being described as “better than average”.
The challenge is that if those adjustments are not captured clearly, it becomes difficult to distinguish genuine risk differences from market driven pricing. Collecting the data and tracking how often these adjustments occur can provide useful insight into how underwriting behaviour is evolving as market conditions change. It also allows those insights to feed back into technical pricing, portfolio steering and governance discussions.
In practice, a few simple habits can make a big difference:
Being clear about who owns the final pricing decision avoids confusion about responsibility.Separating risk based adjustments from commercial ones helps everyone understand what is actually driving pricing changes.Stepping back to review patterns across the portfolio helps spot when market pressure is quietly reshaping the book.
When that visibility is in place, technical pricing and underwriting judgement tend to work well together.
Closing thoughts
Soft markets inevitably create tension between technical pricing and market reality. Judgement is what allows insurers to deal with it. The key is making sure those decisions remain visible and intentional.
In the final article in this series, we look at pricing governance and how firms balance flexibility with discipline when markets soften.
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