What is a differentiation strategy?

How will advances in ratemaking affect strategy and differentiation in the insurance industry?

• With the emergence of price optimization, increasing usage of GLMs (and other advanced statistical modeling), the emergence of "big data", technological innovations (telematics) it seems that insurers will start to converge on the "actuarially appropriate" rate.  To what extent will insurers seek to differentiate themselves in the market through additional business offerings, etc. (instead of through rate), as a result?

• Answer:

  Would not characterize it as advances in ratemaking per se. More like technological advances in general. The more disruptive one is going to be driverless cars typified by Google's prototype. It will make the market for auto insurance much smaller than it is now. That has implications for insurance companies focused on that sector, though more diverse ones would benefit as the liability shifts from the driver to the vehicle manufacturer (though net net, it would be smaller in terms of premium IMHO). This would probably happen over the next 20-30 years. Shorter term (next 10 - 15 years), your points on telematics and other remote sensing technologies are in alignment with industry trends. In terms of differentiation, that will become more acute. The problem exists today though to a lesser extent. At the end, differentiation is based on customer experience when it comes to key 'moments of truth' - claims being the one that matters to most. In the US, no one does that better than https://www.usaa.com/inet/ent_logon/Logon?redirectjsp=true. The other differentiation can be risks that are not covered by others (atleast for awhile) - for instance for your delivery drone...