In the competitive landscape of insurance claims services, vendors often find their products underpriced and failing to reflect the true value they deliver, resulting in reduced growth and profitability. Specifically, we have found this issue in the professional claims' services (TPAs, managed repair networks, etc.) and claims technology providers (e.g. digital loss estimating solutions). Four key factors, in control of the seller, are resulting in unnecessary pricing pressures.
1. The Commodity Mindset
One of the most significant factors is the “commodity mindset”. This occurs when claims services vendors view their offerings as interchangeable with those of their competitors, believing that there is little to no differentiation. This mindset leads to price-driven competition, where vendors focus on lowering prices to win contracts rather than emphasizing the unique value they bring to the table.
For example, we find that many carriers are willing to pay more for better expertise, customer service, and claims outcomes once the service values are articulated more clearly. However, sales representatives at loss adjusting firms often see their product as a commodity that needs to concede on price to win a deal. As a result, prices remain lower than the carriers’ willingness-to-pay for firms with strong expertise, customer service, and claim estimation outcomes.
A solution for the Commodity Mindset is to compare internal vs. external perception of what value drivers are most important to customers, while also comparing the internal and external perception of a firm’s performance across that same set of value drivers. The difference between your firm’s perception and customers’ perception is often the reason for consistent underpricing, and once this becomes apparent, you're enabled to make the necessary adjustments.
2. Weak Value Articulation
Many claims' services vendors suffer from weak value articulation – they struggle to effectively communicate the unique benefits and advantages of their products. Without a clear and compelling value proposition, it becomes difficult to justify higher prices. Vendors need to align their marketing and sales messaging to highlight why their firm delivers the best on the value drivers that are most important to customers.
For example, in the property space, sales representatives selling claims estimating technology should highlight how their solutions improve the claimants experience and result in more accurate claims estimation because that is what Chief Claims officers care most about. Often, sales representatives make the mistake of leading with all of the amazing features their product may have, and the new things claim adjusters will be able to do with the software – although important, it is typically lower on a Chief Claims Officer’s priority list.
To increase value articulation, show your sales teams what customers believe your firm is better at than your competitors, and what your customers value most. You can then equip your sales teams with messaging frameworks to highlight those features during negotiations.
3. Lack of Pricing Target Calibration
When pricing targets are not appropriately set, sales teams may prioritize volume or retention over value, leading to underpricing. This misalignment can result from a lack of understanding of the market, or of the unique selling points of the product. Proper calibration involves setting differentiated value-based pricing targets that encourage sales teams to focus on economic pricing factors that measure both a client’s willingness-to-pay and ability-to-pay.
For example, we help both insurance professional services and technology services vendors better understand their pricing power in the marketplace. This is done by setting targets that use a set of criteria that scores a customer’s willingness or ability to pay, then allocating that pricing power across client books in the form of new business and existing business targets - all of which helps our clients capture and understand the market’s willingness to pay for their products.
4. Misaligned Sales Incentives
Misaligned sales incentives can further exacerbate the issue of underpricing. If sales teams are incentivized based on the volume of contracts closed rather than the value of those contracts, they are more likely to offer discounts and lower prices to secure deals quickly. This approach undermines the long-term profitability and sustainability of the business.
To address this, vendors should design incentive structures that reward value-based selling. This encourages sales teams to focus on higher-value contracts and building long-term client relationships.
Capturing the true value of claims services products requires us to address the underlying factors that lead to underpricing. By shifting away from a commodity mindset, strengthening value articulation, calibrating sales targets effectively, and realigning sales incentives, claims services vendors can better reflect the worth of their offerings in their pricing. These strategic adjustments not only help in achieving fair pricing but also contribute to sustainable growth and enhanced market positioning.
If you are ready to address underpricing and improve your market position, reach out to our experts today.
