Page 50 - Harvard Business Review, Sep/Oct 2018

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The
Good -

Better -

Best

Approach to

Prıcing RAFI
MOHAMMED
Founder, Culture of Profit

or decades the auto insurance industry
operated on a simple assumption:
Consumers are highly price-sensitive,
and most will buy the least-expensive
plan they can find. But in the early 2000s
Allstate conducted some research that
caused it to revisit that assumption. Price
does matter, it learned, but there’s more to
the story: Many drivers worry about being
hit with premium hikes if they’re in an accident. And drivers
with clean records want to be rewarded.
Armed with those insights, in 2005 Allstate launched Your
Choice Auto. The program relied heavily on modifications to a
feature in the company’s standard policy (which it continued
selling) called accident forgiveness, in which drivers who went
five years without accident claims would have no premium
increase after their first accident. It introduced a Value plan,
priced 5% below Standard, that didn’t include accident for-
giveness. A new Gold plan, priced 5% to 7% above Standard,

106 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2018 Art by Dan Saelinger