Opinion Piece: Lowering underwriting risk, protecting the consumer
Auto insurers face a number of challenges in South Africa and perhaps chief among them is the fact that approximately 3.5 million of the 11 million vehicles on the road are insured. The stakes are clearly high for all concerned. Greater access to data can improve the odds for everyone and the clear benefits have led insurance regulators, in the form of Treating Customers Fairly (TCF)1 to mitigate risk for insurers – they are now requesting that insurers take greater care to clarify their own risk prior to underwriting by interrogating data available to industry players. This measure will not only further embed governance within the insurance sector, but also better protect consumers.
Greater access to data eliminates many of the uncertainties that affect risk assessment and that have in the past led to repudiation of claims by insurers who site “lack of full disclosure.” This is in fact a primary reason that the Insurance Data System (IDS), an information-sharing platform for the benefit of the short-term insurance industry at large, was established by the South African Insurance Association (SAIA) in partnership with TransUnion more than a decade ago.
TransUnion’s Insurance database currently holds over nine million claims and six million policies submitted by participants such as leading insurance companies and underwriters. This data offers quick and easy verification of previous claims and policies and directly enhances decision-making. It also assists insurers to address key trends and challenges in the industry, such as:
- A significant increase in the churn of motor policies. Policies often lapse within the first six months, many times due to affordability. This impacts the risk of the insurer, as well as the vehicle financier. TransUnion’s Insurance lapse models, through the use of credit bureau data and analytics, greatly assists insurers to identify high churn clients and price accordingly. With better insight into the policyholder’s behaviour and ability to pay, the insurer can identify a more appropriate solution or refuse to underwrite the risk.
- Full declaration of previous claims at policy inception. Individuals are often vague about previous claims. If insurers do not fully investigate these claims, risk cannot be accurately assessed. This affects the premiums paid, and can potentially lead to repudiation of the policyholder’s claim. Regulations now place the onus on insurers to make all reasonable efforts to assess claim history, of which the IDS can provide factual and explicit data.
- Obtaining accurate information on the vehicle insured. Insurers often do not have all the necessary information to accurately identify and value the vehicle – i.e., the engine and VIN number, make, model, engine size, vehicles codes (e.g. code 3 or 4). TransUnion’s Auto Information Solutions database is 13 million-strong hosting a vehicle’s pedigree from manufacturing throughout the vehicle lifecycle and can correctly identify the actual vehicle to provide all related data.
- Under-recovery from uninsured clients. With only one third of the vehicles on the road being insured, it is inevitable that the insured pool ends up paying for all the damages. To assist insurers in identifying those uninsured drivers who can afford to pay for damages to other vehicles they were responsible for, TransUnion has developed a highly sophisticated collections model, enabling insurers to collect payment or part payment for debts owed.
- Insurance fraud. Insurance fraud in South Africa is currently estimated at about 20%, which costs the industry about R10 billion annually – a significant portion of this resides within motor claims. TransUnion’s claims database, identification and fraud solutions helps identify duplicate claims and other fraudulent activities.
TransUnion is currently on a major drive to ensure industry-wide participation and increase awareness of the value of accurate and comprehensive submission of data to the IDS. The benefits of access to accurate and up-to-date information are significant, strengthening not only the industry but the trust, and claims, of the consumer.
Treating Customers Fairly (TCF) is an outcomes based regulatory and supervisory approach designed to ensure that specific, clearly articulated fairness outcomes for financial services consumers are delivered by regulated financial firms. Firms are expected to demonstrate that they deliver the following 6 TCF Outcomes to their customers throughout the product life cycle, from product design and promotion, through advice and servicing, to complaints and claims handling – and throughout the product value chain:
- Customers can be confident they are dealing with firms where TCF is central to the corporate culture
- Products & services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly
- Customers are provided with clear information and kept appropriately informed before, during and after point of sale
- Where advice is given, it is suitable and takes account of customer circumstances
- Products perform as firms have led customers to expect, and service is of an acceptable standard and as they have been led to expect
- Customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint.