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IAI Actuarial Core Principles · Business Economics · Pricing strategies in the financial services sector

A life insurer sets the premium for a standard term product mainly by matching the rates already charged by the three largest competitors, because customers compare quotes on price aggregator sites and the products are almost identical. Which pricing approach is the insurer using?

The insurer is using going-rate, or competitor-based, pricing. It sets its premium by copying rivals' prices because products are nearly identical and prices are easily compared, rather than starting from its own costs or deliberately undercutting competitors.

  1. AGoing-rate (competitor-based) pricingCorrect
  2. BCost-plus pricing
  3. CPrice discrimination by customer segment
  4. DPenetration pricing
  5. Predatory pricing

Explanation

Setting price by reference to what rivals charge, particularly where products are near-identical and prices are transparent, is going-rate or competitor-based pricing. Cost-plus starts from the firm's own costs, and penetration and predatory pricing involve deliberately low prices to gain share or remove rivals, which is not described.

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