Although many property/casualty personal lines offerings now are thought of as commoditized products, carriers with older or inferior rating systems have learned the hard way such thinking can be costly. Insurers that don't embrace newer rating systems often are doomed to choke on their competitors' dust.

Retention of old customers and attracting new business are affected dramatically by rating systems–for better or worse, asserts Larry Phillippi, manager of planning and project management at Penn National Insurance. Carriers with older rating systems frequently may acquire new business but at an incorrectly low price. At the same time, competitors with newer rating systems are able to price policies more accurately. “If [the competition] prices new business higher and the new business comes to you because you are lower priced, you probably are pricing it wrong,” he says. “Basically, with older systems you are looking at adverse selection on retention and new business.”

Heavily regulated insurance lines don't give insurers a pricing advantage, according to George Grieve, CEO of CastleBay Consulting, but an upgraded rating system makes implementation of those rate changes much easier. “If you have a difficult-to-use legacy environment, it is going to take you longer [to make the changes], and it is going to cost you more as an IT department to be able to implement those changes,” he says. “The issue is maintenance–the actual cost of making changes. Newer rating engines not only are more accessible because of SOA architecture but they often have nice development interfaces and testing tools.”