Price change versus retention

Where is retention strengthening, and at what price?

Pricing teams need to understand how customers respond to renewal prices. Retention and price change provide a useful starting point for that discussion. However, strong retention after an increase can still leave a group underpriced, while a group average can conceal customers whose renewal behaviour is changing.

The Decision Question

Which risk groups are retaining their customers at an adequate price, and where do we need to investigate pricing, retention or the mix of business?

Default practice

Published actuarial practice considers retention alongside renewal price changes when assessing customer response. For example, a 2024 practitioner article in Actuarial Review illustrates retention against premium increases in a discussion of rate decisions. The relationship helps explain the potential loss of business following a pricing change.

The simplified example below shows that relationship for six motor risk groups using illustrative data. Each point compares the group’s renewal retention with its average offered price change.

Suggested upgrade

The proposed chart compares price adequacy with the change in retention against a comparable prior-year cohort. Each risk group has a vertical strip showing the retention changes across its subcohorts. The additional detail supports a discussion of the price offered and the customers renewing at that price.

How to Read the Chart

Horizontal position: An adequacy ratio below 100% means offered premium is below the technical requirement. At or above 100%, it meets or exceeds that requirement.

Vertical position: A positive change means retention has improved against the comparable prior-year cohort, while a negative change indicates weaker retention. For example, a move from 86% to 82% is −4 percentage points.

Width and colour: Each strip represents a driver-risk tier and mileage band. Width shows expiring premium, colour identifies risk tier, and darker bands represent a larger share of offered policies.

White bar and vertical spread: The white bar marks the group’s average change, while the vertical spread shows variation across matched subcohorts. A strip crossing zero contains both improving and weakening subcohorts.

What This Immediately Reveals

Higher-risk, low-mileage drivers have below-technical prices and a 2 percentage-point improvement in retention. More of the offered policies are renewing, but the price remains below the technical requirement. The retention result therefore gives limited reassurance about the return on that business.

Lower-risk, high-mileage drivers have above-technical prices and retention has improved by 1 percentage point. However, part of the distribution extends below zero, so some subcohorts have weakening retention despite the positive group average.

Medium-risk, high-mileage drivers have below-technical prices and a 7 percentage-point decline in retention. A further discount would deepen the adequacy shortfall, so the reasons for the decline need investigation. Higher-risk, high-mileage drivers have adequate prices and a 4 percentage-point decline, which raises a different question about competitiveness and the expected return from retaining that business.

Keep the Measurement Consistent

Adequacy is total offered premium divided by total technical premium for the same renewal offers, including declined offers. Technical premium includes expected claims, expenses and a capital/profit allowance on a consistent exposure, coverage and tax basis.

Retention is renewed policies divided by policies offered renewal, measured 30 days after renewal in both periods. The driver-risk tiers exclude mileage, which is shown separately as low mileage up to 15,000 km per year and high mileage above that level.

Trade-offs and risks

·         The subcohorts need sufficient volume and a comparable basis.

·         Changes in channel, tenure, coverage or risk mix can affect retention independently of price. Adequacy also depends on the technical model, and group averages may conceal

underpriced pockets.

·         These descriptive comparisons cannot establish a causal response to pricing.

·         An anti-selection assessment requires a comparison of retained and departing risks. Improving retention below technical price warrants investigation, but cannot establish anti- selection on its own.

Decision Boundary

Use this when…	Don’t use this when…
You need to report retention alongside offered price changes.	You need to establish how much of the retention change was caused by price.
You have credible technical prices and comparable cohorts to assess adequacy and retention together.	Technical prices are unreliable, or changes in the cohort mix make comparisons misleading.
You need to identify risk groups and subcohorts for further investigation.	You need a standalone rate recommendation or proof of anti-selection.