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Build the Challenge Process for Expert Pricing Adjustments

# When Unchecked Expert Overrides Turn Pricing Models Into Strategic Risk

Pricing models with unchallenged expert adjustments are the technical pricing frameworks—the actuarial models that produce the loss-cost estimate, the pure premium, and the rate indication—whose output is modified by an expert underwriter or actuary applying judgment-based adjustments that are not subject to a defined challenge process, documented justification, peer review, or post-placement performance test. Each adjustment is individually defensible—the expert believes the technical price does not reflect a nuance of the risk, a market condition, or a broker relationship—and each is approved individually through the referral process. The cumulative effect, across hundreds of treaties and multiple renewal cycles, is a portfolio whose actual achieved pricing has drifted from the technical basis by an amount that no one has aggregated, measured, or governed. For CUOs, chief actuaries, and pricing-governance professionals, the unchallenged expert adjustment is the mechanism by which a manageable individual exposure—a single pricing concession—becomes a strategic portfolio problem—a systematic pricing drift that the CUO governs on a theoretical price, not the actual one.

## Why does the unchallenged-expert-adjustment problem matter more now?

The unchallenged-expert-adjustment problem matters more now because the hardening market is increasing the technical price, and the commercial pressure to adjust it downward is increasing proportionally. The gap between the technical output and the market-clearing price may be wider in a hard market, and the expert adjustment—the judgment that the technical price is too high for the market—is applied more frequently and in larger magnitudes. The [enterprise risk framework](https://insurnest.com/blog/enterprise-risk-strategic-reinsurance/) that depends on the technical price as the basis for the portfolio's profitability governance is undermined by adjustments that the framework does not capture.

The second reason is the increasing sophistication of the technical pricing models themselves. AI-driven models, machine-learning algorithms, and advanced actuarial techniques are producing technical prices that are more data-driven and less intuitive, and the expert's intuition may diverge from the model's output more frequently. The challenge process—the mechanism that tests whether the expert's intuition or the model's data is more accurate—becomes more important as the model becomes more sophisticated, but the process is often absent. The [AI in reinsurance underwriting](https://insurnest.com/blog/ai-in-reinsurance-underwriting/) platforms that produce the technical price require a governance framework that the expert adjustment should be subject to.

The third reason is the board's governance of the portfolio's pricing discipline. The board approves a target combined ratio and a minimum return on capital, and the CUO reports performance against those targets based on the portfolio's actual achieved price. If the achieved price is the technical price minus the expert adjustments, and the board does not see the adjustment volume, the board governs on a pricing outcome without governing the adjustment process that produced it. The [pricing of unknown risk](https://insurnest.com/blog/pricing-unknown-risk-reinsurance/) is amplified when the risk being priced is adjusted by an expert whose adjustment has not been challenged.

## What goes wrong when expert adjustments are unchallenged?

When expert adjustments are unchallenged, five failures emerge: the portfolio's actual pricing drifts from the technical basis, the adjustments are not tested against loss experience, the pricing model's calibration is undermined, the CUO governs on a theoretical price, and the board's pricing-governance is incomplete.

### 1. How does the portfolio's actual pricing drift from the technical basis?

The drift occurs incrementally: each adjustment reduces the achieved price relative to the technical price by a small amount, and the aggregate across the portfolio is a systematic reduction that no one measures because no one tracks the adjustments in aggregate. The CUO reports a loss ratio against the target, but the loss ratio is calculated on the achieved price, not the technical price, and the drift is invisible in the reported metrics.

### 2. Why are the adjustments not tested against loss experience?

The adjustments are applied at the point of pricing, but there is no feedback loop that compares the adjusted price to the subsequent loss experience of the treaties to which the adjustment was applied. The expert's judgment is never validated—did the adjustment improve the portfolio's profitability, or did the technical price prove more accurate? Without the feedback loop, the expert's credibility is assumed, not demonstrated.

### 3. How is the pricing model's calibration undermined?

The pricing model is calibrated to historical data and is updated periodically. If the model's output is consistently adjusted downward by experts, but the adjustments are not fed back into the model's calibration, the model continues to produce a technical price that the organisation systematically undercuts. The model becomes an irrelevant benchmark, and the portfolio's pricing discipline is based on the adjustments, not the model.

### 4. How does the CUO govern on a theoretical price?

The CUO reviews the pricing model's output, the rate-adequacy analysis, and the combined-ratio target, all of which are based on the technical price. But the portfolio's actual pricing is the technical price minus the adjustments, and the CUO governs on a price that the portfolio is not achieving. The governance is of a theoretical pricing discipline, not the actual one.

### 5. How is the board's pricing-governance incomplete?

The board reviews the CUO's report on the portfolio's pricing discipline, and the report is based on the technical price. The board governs on a pricing signal that the expert adjustments have changed, and the board does not see the change because the adjustments have not been aggregated and reported.

> **Build the challenge process for expert adjustments before the adjustments redefine your portfolio's pricing discipline**
>
> [Talk to Our Specialists](https://insurnest.com/contact-us/)

## What do CUOs and chief actuaries actually need from the expert-adjustment governance?

CUOs and chief actuaries need a governance framework that documents every expert adjustment, requires peer review, tracks the aggregate, tests the adjustments against loss experience, and reports the adjustment volume to the CUO.

Rajiv is the chief actuary at a multi-line reinsurer. He noted that the technical pricing model's output was being adjusted by the underwriters at the point of pricing, but the adjustments were not documented, not reviewed, and not tracked. He proposed an expert-adjustment governance framework: every adjustment must be documented with a justification, peer-reviewed by a second actuary, approved at the defined authority level, and tracked in a database that aggregates the adjustments by line and by underwriter. The CUO now receives a quarterly expert-adjustment report, and the adjustments that are consistently applied without loss-experience justification are challenged.

That is what every CUO should be demanding: a governed view of the adjustments my portfolio's pricing is absorbing.

- **A documented justification for every expert adjustment to the technical price.** "Why is the adjustment being applied, and what is the evidence supporting it?"
- **A peer-review requirement for adjustments above a materiality threshold.**
- **An authority framework that defines who can approve adjustments of different magnitudes.**
- **A database that tracks every adjustment by type, magnitude, underwriter, and treaty.**
- **A quarterly expert-adjustment report presented to the CUO, showing the aggregate adjustment by line.**
- **A performance test that compares the loss experience of adjusted treaties to the technical-price expectation.**
- **A feedback loop to the pricing model's calibration from the adjustment-performance data.**
- **A board-level summary of the expert-adjustment volume and its profitability impact.**
- **A CUO-directed target for the maximum acceptable aggregate adjustment as a percentage of technical premium.**
- **An annual review of the adjustment-governance framework's effectiveness.**

## How can CUOs and chief actuaries build the expert-adjustment governance?

By defining the adjustment-documentation standard, implementing the tracking database, establishing the peer-review process, and embedding the adjustment report in the quarterly pricing-governance review.

## What does the expert-adjustment governance deliver in practice?

A CUO who governs the portfolio on the actual achieved price, a pricing model whose calibration is informed by the adjustment-performance data, and a board that sees the gap between the technical price and the achieved price.

The broader pricing-governance reflection is that the technical price is the enterprise's statement of what the risk is worth, and every adjustment to that statement is a decision that should be governed. The governance framework ensures the adjustments are intentional, documented, and tested, and the CUO who builds it governs the portfolio's actual pricing discipline.

## Conclusion

For CUOs and chief actuaries, pricing models with unchallenged expert adjustments are a governance gap in the portfolio's pricing discipline, and the CUO who builds the adjustment-governance framework builds the control that connects the pricing model's output to the portfolio's actual achieved price.

## Frequently asked questions

### What are pricing models with unchallenged expert adjustments?
Pricing models whose technical output is modified by expert judgment-based adjustments that are not subject to a defined challenge process, documented justification, or performance test.

### How does an unchallenged adjustment turn manageable exposure into a strategic problem?
Each adjustment is individually small, but the aggregate shifts pricing away from the technical basis into a strategic drift the CUO does not see.

### What is the first sign that expert adjustments are unchallenged?
Adjustments are not documented with justification, not peer-reviewed, not tracked as variance from technical price, and not tested against loss experience.

### Why do expert adjustments go unchallenged?
Because the expert's judgment is respected, the adjustment is commercially necessary, and the governance framework does not require documentation, review, or testing.

### What is the CUO's exposure to unchallenged expert adjustments?
The CUO governs on the technical price, but the actual price is the technical output plus adjustments, and the gap is a drift the CUO has not governed.

### How should the challenge process operate?
Every adjustment should be documented, peer-reviewed, approved at the appropriate authority, tracked as a variance, and tested against subsequent loss experience.

### What is the governance consequence of not challenging expert adjustments?
The pricing model's output is not the price the portfolio achieves, and the governance is of a theoretical price, not the actual price.

### How can the CUO detect whether expert adjustments are material?
By requiring the actuarial function to report the aggregate adjustment by line and by underwriter, as a variance from the technical price.

## About the author

**Hitul Mistry** is the Founder of Insurnest, an InsurTech company that engineers end-to-end technology exclusively for the insurance industry serving carriers, TPAs, MGAs, brokers, and reinsurers across India, the UAE, and the US. With more than a decade of insurance domain experience, he has built systems spanning underwriting automation, AI-powered underwriting intelligence, claims management, rating and quoting, broking and agency platforms, and reinsurance automation across Health/GMC, Group Life, Motor, P&C, and Reinsurance. Insurnest doesn't adapt generic software to insurance; it builds from the workflow up.

Connect with Hitul on [LinkedIn](https://www.linkedin.com/in/hitulmistry/).

How a Manageable Exposure Becomes a Strategic Problem Through Pricing Models With Unchallenged Expert Adjustments

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Build the Workflow Design That Governs Expert Pricing Adjustments

# Embedding Discipline Into the Expert Adjustment Workflow

Better workflow design reduces pricing models with unchallenged expert adjustments by embedding the adjustment-governance framework—the justification requirement, the peer-review routing, the approval-authority enforcement, and the tracking and aggregation—directly into the underwriting system so that every adjustment is governed as part of the pricing workflow, not as a separate governance exercise that the underwriter may or may not complete. The system enforces the governance: a treaty cannot be bound unless the adjustment has been documented, peer-reviewed if required, approved at the correct authority level, and logged in the tracking database. For underwriting-operations architects, CUOs, and pricing-governance professionals, workflow design is the operating control that converts the adjustment-governance policy from a document in the compliance folder into an enforced step in the underwriter's daily workflow, and it is the mechanism that ensures the governance is applied to every adjustment, not just the ones the underwriter remembers to document.

## Why does workflow design for adjustment governance matter more now?

Workflow design matters more now because the volume of pricing decisions—and therefore the volume of potential adjustments—has outgrown the manual governance that relied on the underwriter's compliance with a policy. An underwriting organisation processing hundreds of treaties per renewal cycle cannot govern adjustments through a policy that relies on the underwriter to voluntarily document, seek peer review, and track each adjustment. The governance must be enforced by the system, not requested by the policy.

The second reason is the availability of the workflow technology. Underwriting platforms with configurable pricing modules, peer-review routing engines, and approval-authority matrices can now embed the adjustment governance into the pricing workflow without adding significant friction to the underwriting process. The [AI-driven underwriting intelligence](https://insurnest.com/blog/ai-in-reinsurance-underwriting/) platforms that provide the technical price can also provide the governance overlay.

The third reason is the governance data that the workflow system generates. When every adjustment is logged, justified, and routed through the system, the data that is produced—the adjustment volume, type, magnitude, and performance—is the CUO's pricing-governance data, and it is produced automatically, not compiled manually. The [enterprise risk framework](https://insurnest.com/blog/enterprise-risk-strategic-reinsurance/) that depends on the pricing-governance data is strengthened by the workflow system's automatic data generation.

## What goes wrong when the workflow design does not enforce adjustment governance?

When the workflow design does not enforce adjustment governance, the governance depends on the underwriter's voluntary compliance, the adjustments are inconsistently documented, the peer review is bypassed when the underwriter is busy, the tracking data is incomplete, and the CUO governs on adjustment data that is partial and unreliable.

> **Embed the adjustment governance in your workflow and make it enforced, not voluntary**
>
> [Talk to Our Specialists](https://insurnest.com/contact-us/)

## What do CUOs and operations architects actually need from the workflow design?

CUOs and operations architects need a configurable pricing module that enforces the adjustment-governance steps, integrates peer review, enforces the approval matrix, and captures the adjustment data for aggregation and reporting.

Karthik is the head of underwriting technology at a reinsurer. The CUO had issued an adjustment-governance policy, but compliance was inconsistent because the policy was not enforced by the system. Karthik configured the underwriting-workflow platform: the pricing module now requires the adjustment and justification to be entered, routes for peer review above the threshold, requires CUO approval above the higher threshold, and logs every adjustment. The CUO now receives a quarterly adjustment report generated automatically from the system.

That is what every CUO should be demanding: a workflow system that enforces the adjustment governance, not a policy that requests it.

- **A configurable pricing module that requires adjustment entry and justification before the treaty can be bound.**
- **A peer-review routing engine that automatically routes adjustments above the threshold to a second pricing professional.**
- **An approval-authority matrix that routes large adjustments to the CUO.**
- **A tracking database that logs every adjustment with its type, magnitude, justification, and approval trail.**
- **An aggregation engine that produces the quarterly adjustment report by line and by underwriter.**
- **A CUO dashboard that presents the adjustment volume and trend.**
- **A performance-test link to the claims system for post-placement validation.**
- **A feedback loop to the pricing model calibration from the performance-test data.**
- **A continuous-improvement cycle for the workflow design based on user feedback.**
- **An annual review of the workflow enforcement's effectiveness.**

## How can reinsurers build the adjustment-governance workflow?

By configuring the underwriting-workflow platform, defining the adjustment-entry requirements, setting up the peer-review routing, deploying the approval-authority matrix, and building the aggregation and reporting engine. The deployment is a technology-configuration project managed by the underwriting-operations function with the CUO as the governance sponsor.

## What does the workflow design deliver in practice?

A CUO whose adjustment governance is enforced by the system, an underwriting team whose adjustments are governed as part of the workflow, and a board that receives adjustment data generated automatically, not compiled manually.

The broader operating-control reflection is that a governance policy that is not enforced by the system is a policy that is applied inconsistently, and the consistency of the governance is the consistency of the system's enforcement. The workflow design is the enforcement.

## Conclusion

For CUOs and operations architects, better workflow design is the operating control that reduces unchallenged expert adjustments by embedding the governance into the system, and the CUO who configures the workflow builds the enforcement that the policy alone cannot provide. The practical path is to configure the pricing module, set up the routing, and deploy the enforcement.

## Frequently asked questions

### How does workflow design reduce unchallenged expert adjustments?
By embedding justification, peer review, approval authority, and tracking directly into the system so governance is part of the workflow.

### What workflow steps should the system enforce?
Enter adjustment and justification; route for peer review if above threshold; route to CUO if above higher threshold; log in tracking database.

### How does the system prevent adjustments without governance?
A treaty cannot be bound unless the adjustment has been entered, justified, and approved at the required level.

### What data does the workflow system capture?
Adjustment type, magnitude, justification, underwriter, peer reviewer, approval authority, date, and treaty identifier.

### How does the workflow system produce the aggregate adjustment report?
The aggregation engine pulls data, calculates the aggregate by line and underwriter, and presents it in a dashboard.

### What technology is required?
A configurable underwriting-workflow platform with pricing module, peer-review routing, approval-authority matrix, and aggregation engine.

### How does the workflow connect to the performance-test feedback loop?
Adjustment data is linked to subsequent loss experience, and the performance-test engine compares outcomes to expectations.

### How does the workflow design mature?
Justification templates refine, peer-review criteria become more specific, thresholds are calibrated, and performance feedback tightens governance.

## About the author

**Hitul Mistry** is the Founder of Insurnest, an InsurTech company that engineers end-to-end technology exclusively for the insurance industry serving carriers, TPAs, MGAs, brokers, and reinsurers across India, the UAE, and the US. With more than a decade of insurance domain experience, he has built systems spanning underwriting automation, AI-powered underwriting intelligence, claims management, rating and quoting, broking and agency platforms, and reinsurance automation across Health/GMC, Group Life, Motor, P&C, and Reinsurance. Insurnest doesn't adapt generic software to insurance; it builds from the workflow up.

Connect with Hitul on [LinkedIn](https://www.linkedin.com/in/hitulmistry/).

How Better Workflow Design Reduces Pricing Models With Unchallenged Expert Adjustments

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Quantify the Compounding Cost of Unchallenged Expert Adjustments

# The Renewal Carry-Forward Cost of Unchallenged Pricing Adjustments

The cost of carrying pricing models with unchallenged expert adjustments into the next renewal is the compounding margin erosion that occurs because the renewal negotiation typically starts from the previous year's achieved price—which already includes the prior year's unchallenged expert adjustment—rather than from the current technical price. The year-one adjustment reduces the premium below the technical basis. The year-two renewal, negotiated from that reduced base, applies the year-two adjustment to an already-reduced premium, compounding the reduction. By year three or four, the cumulative premium foregone relative to the technical price can be material, and the margin on every vintage of the treaty is below the technical-return expectation. For CFOs, CUOs, and pricing-governance analysts, the cost of carrying unchallenged adjustments is the compounded difference between what the portfolio earned and what the technical price said it should have earned, accumulated across renewal cycles, and it is a structural margin drag that the standard pricing-governance reporting does not capture.

## Why does the compounding cost of unchallenged adjustments matter more now?

The compounding cost matters more now because the hardening market is increasing the technical price, which means the base from which the compounding operates is larger, and each compounding cycle reduces a larger absolute premium. An unchallenged adjustment of five percent on a technical premium of one million reduces the premium by fifty thousand in year one; the year-two adjustment of five percent on the achieved premium of nine hundred and fifty thousand reduces it by a further forty-seven thousand five hundred, and the cumulative reduction across three cycles is material.

The second reason is the capital-allocation consequence: the CFO allocates capital based on the expected return at the technical price, and if the compounding adjustments reduce the actual premium cycle after cycle, the actual return on the allocated capital is below the expected return, and the capital is deployed inefficiently across multiple renewal vintages. The [solvency relief that reinsurance provides](https://insurnest.com/blog/solvency-relief-reinsurance-capital/) is eroded by the compounding effect.

The third reason is the renewal-negotiation dynamic. The broker presents the renewal terms based on the prior year's achieved rate, and the underwriter, under pressure to retain the business, accepts the prior-year rate as the starting point rather than re-anchoring to the current technical price. The [enterprise risk framework](https://insurnest.com/blog/enterprise-risk-strategic-reinsurance/) that depends on the portfolio's pricing discipline is undermined by a renewal process that perpetuates the prior year's concessions.

## What goes wrong when the compounding cost is not measured?

When the compounding cost is not measured, five failures emerge: the margin erosion compounds undetected, the return on capital declines across vintages, the capital allocation is based on a return expectation the compounding has reduced, the earnings guidance is missed, and the board's pricing-governance is based on achieved prices that are below the technical basis.

> **Measure the compounding cost of unchallenged adjustments before it compounds across another renewal cycle**
>
> [Talk to Our Specialists](https://insurnest.com/contact-us/)

## What do CFOs and CUOs actually need from the compounding-cost analysis?

CFOs and CUOs need a renewal-vintage analysis that compares the technical-price premium to the achieved premium for each renewal cycle, calculates the cumulative margin erosion, and quantifies the return-on-capital impact.

Meena is the CFO of a reinsurer. During a capital-allocation review, she noted that the casualty line's ROE had been declining for three years, and the investigation traced the decline to compounding expert adjustments. Each renewal had been negotiated from the prior year's achieved rate, and the adjustments had compounded across three cycles, reducing the line's premium base by twelve percent relative to the technical price. Meena built the compounding-cost analysis and presented it to the CUO, and the renewal-negotiation process was changed to re-anchor every renewal to the current technical price.

That is what every CFO should be calculating: what is the compounding cost of the adjustments my portfolio is carrying?

- **A renewal-vintage premium comparison: technical price vs. achieved price, by vintage.** "For each treaty, show the premium that would have been earned at the technical price and the premium actually earned, vintage by vintage."
- **A compounding-effect calculation across vintages.** "Quantify how much of the current year's premium reduction is attributable to the prior years' adjustments being carried forward."
- **A return-on-capital impact of the compounding effect.** "Calculate the ROE at the technical premium and at the achieved premium, and the difference is the compounding cost."
- **A capital-allocation adjustment for lines with material compounding effects.**
- **A board-level presentation of the compounding cost and its impact on the portfolio's ROE.**
- **A renewal-process change: re-anchor every negotiation to the current technical price, not the prior year's achieved rate.**
- **A CUO directive to the underwriting team on the re-anchoring requirement.**
- **A quarterly compounding-cost review as part of the pricing-governance cycle.**
- **A target for reducing the compounding cost, included in the CUO's performance objectives.**
- **An annual review of the compounding-cost trend and the effectiveness of the re-anchoring process.**

## How can CFOs and CUOs build the compounding-cost analysis?

By directing the actuarial function to produce the vintage comparison, calculating the compounding effect, reporting the impact to the executive committee, and implementing the re-anchoring process in the renewal workflow.

## What does the compounding-cost analysis deliver in practice?

A CFO who can quantify the margin the portfolio is losing to the compounding of prior-year adjustments, a CUO who negotiates renewals from the current technical price, and a board that sees the structural margin drag.

The broader financial reflection is that every pricing concession is not a one-time cost; it is a recurring cost that compounds if the renewal is negotiated from the conceded base. The compounding-cost analysis quantifies the recurring cost, and the quantification enables the governance that stops the compounding.

## Conclusion

For CFOs and CUOs, the cost of carrying unchallenged expert adjustments into the next renewal is the compounding margin erosion that the standard pricing-governance reporting does not capture, and the CFO who quantifies the compounding cost quantifies the structural margin drag. The practical path is to produce the vintage analysis, re-anchor the renewal negotiations, and stop the compounding.

## Frequently asked questions

### What is the cost of carrying unchallenged expert adjustments into the next renewal?
The compounding margin erosion when the renewal is negotiated from the prior year's achieved price rather than the current technical price, reducing the premium base year after year.

### How does the compounding effect work across renewal cycles?
Year one: adjustment reduces premium. Year two: renewal from reduced base compounds the reduction. Year three: further compounding. The cumulative erosion grows.

### How can a CFO quantify the cost of carrying unchallenged adjustments?
By comparing the premium at the technical price versus the achieved price across renewal vintages, the difference is the cumulative margin cost.

### What is the capital-consequence of the compounding effect?
Capital allocated to adjusted treaties earns a below-target return, and continues to do so cycle after cycle.

### How does the compounding effect affect return on capital?
ROE declines year-over-year as compounding reduces the premium base, and the decline is not attributed to adjustments because they are not tracked.

### What is the earnings-guidance consequence?
Guidance assumes a premium base that may be higher than the compounded-adjusted base, and the guidance is missed.

### How should the CFO present the compounding cost to the board?
By showing the technical-price premium versus the achieved premium by renewal vintage and the cumulative margin erosion.

### What action should the CUO take at renewal to prevent compounding?
Re-anchor every renewal to the current technical price, not the prior year's achieved price, and challenge adjustments based on prior-year concessions.

## About the author

**Hitul Mistry** is the Founder of Insurnest, an InsurTech company that engineers end-to-end technology exclusively for the insurance industry serving carriers, TPAs, MGAs, brokers, and reinsurers across India, the UAE, and the US. With more than a decade of insurance domain experience, he has built systems spanning underwriting automation, AI-powered underwriting intelligence, claims management, rating and quoting, broking and agency platforms, and reinsurance automation across Health/GMC, Group Life, Motor, P&C, and Reinsurance. Insurnest doesn't adapt generic software to insurance; it builds from the workflow up.

Connect with Hitul on [LinkedIn](https://www.linkedin.com/in/hitulmistry/).

The Cost of Carrying Pricing Models With Unchallenged Expert Adjustments Into the Next Renewal

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Run the Scenario That Stress-Tests Your Expert-Adjustment Governance

# Scenario Analysis to Expose Unchecked Expert Adjustment Risk

The scenario that reinsurance leaders—the board, the CUO, the CFO, and the CRO—should run for pricing models with unchallenged expert adjustments is a stress test that assumes the expert adjustments across the portfolio are consistently adverse: the technical price was more accurate than the adjusted price, and the adjustments that were applied to win or retain business were unnecessary. The scenario calculates the impact on the portfolio's combined ratio, return on capital, and earnings under plausible assumptions about the adjustment rate, magnitude, and accuracy, and it answers the governance question: are the expert adjustments the portfolio is absorbing a manageable pricing variance, or are they a material risk to the portfolio's profitability that the governance framework must control? For boards and risk committees, the scenario is the stress test that reveals whether the enterprise's pricing-governance framework is adequate for the actual adjustment volume the portfolio is experiencing.

## Why does the adjustment scenario matter more now?

The adjustment scenario matters more now because the hardening market is increasing both the adjustment volume and the financial consequence of adverse adjustments. A scenario that was benign when adjustments were small and infrequent may become adverse when adjustments are larger and more frequent, and the board that does not run the scenario in the current market does not know whether the portfolio's pricing governance is still adequate.

The second reason is the board's governance responsibility: the board approves a combined-ratio target and a minimum ROE, and the board must be able to assess whether the portfolio's actual pricing—which includes the expert adjustments—can deliver those targets under adverse adjustment assumptions. The [enterprise risk framework](https://insurnest.com/blog/enterprise-risk-strategic-reinsurance/) requires the board to stress-test the assumptions that drive the portfolio's profitability.

The third reason is the regulatory expectation that the board governs the enterprise's pricing risk. A regulator reviewing the board's governance will expect the board to have stress-tested the pricing assumptions, and the adjustment scenario is a direct test of the pricing-governance framework. The [solvency relief that reinsurance provides](https://insurnest.com/blog/solvency-relief-reinsurance-capital/) depends on the pricing governance being robust.

## What goes wrong when the board does not run the adjustment scenario?

When the board does not run the adjustment scenario, the board does not know whether the adjustment volume is a material risk, the governance framework is not stress-tested, the CUO's adjustment governance is not independently assessed, the board's risk-appetite decision is based on an unverified assumption, and the discovery that adjustments were material is made after the loss experience reveals it.

> **Run the adjustment scenario before it runs your portfolio's profitability**
>
> [Talk to Our Specialists](https://insurnest.com/contact-us/)

## What do board members and risk committee chairs actually need from the adjustment scenario?

Board members need the scenario parameters, the base case and adverse case results, the impact on the key financial metrics, and a governance recommendation.

Aditya is the chair of the board's risk committee. The CUO reported that the adjustment volume had been increasing, and the committee asked: what is the financial impact if those adjustments prove to have been unnecessary? The CUO could not answer. Aditya directed the CFO to produce the adjustment scenario: the base case at the current adjustment pattern and the adverse case at a higher rate. The adverse case showed a two-point combined-ratio impact that would breach the board's tolerance. The board directed the CUO to strengthen the adjustment governance.

That is what every board should be directing: run the scenario that tells us whether our adjustment governance is adequate.

- **A scenario analysis directed by the board, with defined parameters and a timeline.**
- **A base-case scenario using the current adjustment rate, magnitude, and accuracy.**
- **An adverse-case scenario with a higher rate and adverse accuracy.**
- **The impact on the combined ratio, ROE, and earnings under each scenario.**
- **A comparison of the adverse-case impact to the board's combined-ratio tolerance and minimum ROE.**
- **A governance recommendation: if the adverse case breaches the tolerance, what governance strengthening is required.**
- **A board review of the scenario results and a decision on the governance recommendation.**
- **A regulatory-readiness demonstration that the board has stress-tested the pricing assumptions.**
- **An annual update of the scenario parameters to reflect the current adjustment pattern.**
- **Integration of the scenario into the ORSA process as a pricing-risk stress test.**

## How can boards build the adjustment-scenario capability?

The board directs the CUO and CFO to produce the scenario within a defined timeline, reviews the results at the risk committee, and based on the results, directs the strengthening of the adjustment governance if needed.

## What does the adjustment scenario deliver in practice?

A board that knows whether the adjustment volume is a material risk, a governance framework that has been stress-tested, and a documented board review that can be demonstrated to regulators.

The broader governance reflection is that every assumption that drives the portfolio's profitability should be stress-tested by the board, and the expert adjustment is an assumption—that the adjusted price will produce the target return—whose validity the scenario tests.

## Conclusion

For boards and risk committees, the adjustment scenario is the stress test that reveals whether the portfolio's expert adjustments are a manageable variance or a material risk, and the board that directs the scenario and acts on its results governs the pricing risk that the adjustments create.

## Frequently asked questions

### What scenario should reinsurance leaders run for unchallenged expert adjustments?
A scenario assuming adjustments are consistently adverse—the technical price was more accurate—and calculating the impact on combined ratio, ROE, and earnings.

### How does the scenario test pricing-governance resilience?
It asks: if the adjustments prove unnecessary, what is the financial consequence, and can the governance framework detect and correct it?

### What parameters should the scenario vary?
The adjustment rate, magnitude, and accuracy—the proportion of adjustments that prove unjustified when tested.

### What is the board's role in the scenario analysis?
Direct the CUO and CFO to produce it, review the results, and direct governance strengthening if the scenario indicates material exposure.

### How does the scenario inform the risk-appetite decision?
If a plausible adjustment pattern would breach the board's tolerance, the board must tighten governance or adjust appetite.

### What governance question does the scenario answer?
Are the expert adjustments a manageable variance or a material risk the governance framework must control?

### How should results be presented to the board?
As a stress-test: base case, adverse case, and the impact on combined ratio, ROE, and earnings.

### What action should the board take based on scenario results?
If the adverse case breaches tolerance, direct the CUO to strengthen adjustment governance.

## About the author

**Hitul Mistry** is the Founder of Insurnest, an InsurTech company that engineers end-to-end technology exclusively for the insurance industry serving carriers, TPAs, MGAs, brokers, and reinsurers across India, the UAE, and the US. With more than a decade of insurance domain experience, he has built systems spanning underwriting automation, AI-powered underwriting intelligence, claims management, rating and quoting, broking and agency platforms, and reinsurance automation across Health/GMC, Group Life, Motor, P&C, and Reinsurance. Insurnest doesn't adapt generic software to insurance; it builds from the workflow up.

Connect with Hitul on [LinkedIn](https://www.linkedin.com/in/hitulmistry/).

The Scenario Reinsurance Leaders Should Run for Pricing Models With Unchallenged Expert Adjustments

Get the executive governance framework that establishes who can adjust the technical price and under what conditions. Talk to our specialists.

Define the Decision Rights for Expert Pricing Adjustments

# Allocating Clear Decision Authority Over Expert Pricing Adjustments

The decision rights needed to control pricing models with unchallenged expert adjustments are the defined authorities, accountability, and governance processes that determine who can adjust the technical price, at what magnitude, with what justification, subject to what peer review, and with what post-placement performance test. Without defined decision rights, adjustments are made at the underwriter's discretion, approved through a referral process that does not specialise in pricing adjustments, and not aggregated into a governed view of the portfolio's pricing discipline. With defined decision rights, every adjustment is a governed decision—made by the right authority, justified with evidence, reviewed independently, and tested against the outcome. For CEOs, CUOs, and chief actuaries, the decision-rights framework is the governance mechanism that converts the expert adjustment from an ungoverned practice into a controlled parameter, and it is the foundation of the portfolio's actual pricing discipline.

## Why do defined decision rights for expert adjustments matter more now?

Defined decision rights matter more now because the volume and magnitude of expert adjustments is increasing as the technical price rises in the hardening market and the commercial pressure to adjust it intensifies. An adjustment governance framework that was adequate when adjustments were small and infrequent is not adequate when adjustments are larger and more frequent, and the decision rights must be strengthened.

The second reason is the executive-accountability question: the board holds the CUO accountable for the portfolio's pricing discipline, but the CUO cannot be accountable for adjustments that are made without the CUO's knowledge, at levels below the CUO's visibility, and not aggregated into a CUO-governed report. The decision-rights framework ensures that every adjustment is made within the CUO's governance, even if the CUO does not approve each one individually. The [enterprise risk framework](https://insurnest.com/blog/enterprise-risk-strategic-reinsurance/) requires the executive accountability for pricing to be clear.

The third reason is the regulatory expectation that the underwriting-governance framework includes a defined pricing-adjustment authority. A regulator reviewing the pricing governance will expect that the authority to adjust the technical price is defined, documented, and enforced. The [ten forces reshaping reinsurance](https://insurnest.com/blog/reinsurance-2026-ten-forces/) include governance-formalisation expectations.

## What goes wrong when the decision rights are not defined?

When the decision rights are not defined: adjustments are made without consistent standards, the aggregate volume is invisible to the CUO, no single executive is accountable for the portfolio's actual pricing, the performance of adjustments is not tested, and the board's pricing-governance is based on the technical price rather than the achieved price.

### 1. How are adjustments made without consistent standards?

The underwriter applies an adjustment based on judgment and commercial necessity, but there is no standard for the justification required, the documentation expected, or the peer review mandated. Two underwriters in the same line may apply different adjustments for similar commercial situations, and the inconsistency is not visible.

### 2. Why is the aggregate volume invisible to the CUO?

The adjustments are logged as part of the referral process, but the referral data is not aggregated by adjustment type, magnitude, or justification, and the CUO does not receive a report that shows the aggregate adjustment volume across the portfolio.

### 3. How is the executive accountability unclear?

The CUO is accountable for the portfolio's pricing discipline, but if the CUO does not define the decision rights—does not specify who can adjust, at what magnitude, with what justification—the CUO's accountability is for a process the CUO has not defined, and the CUO cannot be held accountable for its outcome.

### 4. Why is the performance of adjustments not tested?

Without a defined decision right that includes a performance-test requirement, the adjustments are applied and the treaty is written, but the subsequent loss experience is not compared to the adjusted-price expectation, and the adjustment is never validated.

### 5. How is the board's pricing-governance based on the technical price?

The board receives the CUO's pricing report, which is based on the technical price, and the board governs on a price the portfolio is not achieving.

> **Define the decision rights for expert adjustments and make the pricing governance real**
>
> [Talk to Our Specialists](https://insurnest.com/contact-us/)

## What do CEOs and CUOs actually need from the decision-rights framework?

CEOs and CUOs need a documented authority framework, a justified and peer-reviewed adjustment process, a performance-test requirement, and an aggregate adjustment report.

Neelam is the CUO of a multi-line reinsurer. During a pricing-governance review, she discovered that the specialty line's underwriters were applying adjustments of various magnitudes without a consistent standard or peer review. She defined the decision-rights framework: small adjustments below two percent require documented justification; medium adjustments up to five percent require peer review by a second actuary; large adjustments above five percent require her approval. Every adjustment is logged, and the quarterly aggregate adjustment report is reviewed by the executive committee.

That is what every CUO should be building: a decision-rights framework that makes every pricing adjustment a governed decision.

- **A documented authority framework defining who can approve adjustments at each magnitude level.**
- **A justification standard: every adjustment must include the specific reason and the evidence supporting it.**
- **A peer-review requirement for adjustments above a defined threshold.**
- **A performance-test requirement: every adjusted treaty's loss experience is compared to the adjusted-price expectation.**
- **An adjustment-tracking database that logs every adjustment by type, magnitude, underwriter, and justification.**
- **A quarterly aggregate adjustment report presented to the CUO and the executive committee.**
- **A CUO-defined maximum aggregate adjustment as a percentage of technical premium.**
- **A board-level summary of the adjustment volume and its profitability impact.**
- **An annual calibration of the adjustment thresholds based on the performance-test data.**
- **A regulatory-readiness demonstration that the decision-rights framework is documented and enforced.**

## How can CEOs and CUOs build the decision-rights framework?

The CUO drafts the authority framework, consults with the chief actuary and the CFO, and presents it to the executive committee for approval. The CEO approves the framework and communicates it to the underwriting organisation. The framework is documented in the pricing-governance policy and included in the underwriting guidelines.

## What does the decision-rights framework deliver in practice?

A CUO who governs every pricing adjustment, an underwriting organisation whose adjustments are made within defined authorities, and a board that sees the governed gap between the technical price and the achieved price.

The broader governance reflection is that the technical price is the enterprise's baseline, and every departure from the baseline is a decision that requires a decision right. The framework defines those rights and makes every departure a governed decision.

## Conclusion

For CEOs and CUOs, the decision rights for controlling expert adjustments are the governance mechanism that ensures every pricing departure from the technical baseline is a defined, justified, and tested decision. The CUO who builds the framework builds the pricing-governance that the portfolio's actual profitability requires.

## Frequently asked questions

### What decision rights are needed to control expert adjustments?
Rights defining who can approve an adjustment at what magnitude, what justification is required, what peer review is mandatory, and how the adjustment's performance will be tested.

### How should the authority framework be structured?
Small adjustments: lead underwriter with documented justification. Medium: peer review required. Large: CUO approval.

### Who owns the decision to adjust the technical price?
The underwriter initiates; the approval authority depends on magnitude; the CUO owns the aggregate governance.

### What is the CUO's role?
Define thresholds, delegate authorities, review aggregate adjustment reports quarterly, and be accountable for the portfolio's pricing discipline.

### How does the board govern the decision-rights framework?
By approving the CUO's pricing-governance policy and reviewing the aggregate adjustment volume quarterly.

### What is the consequence of unclear decision rights?
Adjustments are made without consistent standards, aggregate volume is not governed, and pricing drifts without executive accountability.

### How does the performance-test requirement operate?
The adjusted treaty's loss experience is compared to expectations, and the adjustment is classified as justified or not.

### How does the decision-rights framework evolve?
Thresholds are calibrated based on performance-test data; unjustified adjustment thresholds are tightened.

## About the author

**Hitul Mistry** is the Founder of Insurnest, an InsurTech company that engineers end-to-end technology exclusively for the insurance industry serving carriers, TPAs, MGAs, brokers, and reinsurers across India, the UAE, and the US. With more than a decade of insurance domain experience, he has built systems spanning underwriting automation, AI-powered underwriting intelligence, claims management, rating and quoting, broking and agency platforms, and reinsurance automation across Health/GMC, Group Life, Motor, P&C, and Reinsurance. Insurnest doesn't adapt generic software to insurance; it builds from the workflow up.

Connect with Hitul on [LinkedIn](https://www.linkedin.com/in/hitulmistry/).

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