Opinion Piece: Access to accurate and dense data – an imperative for the insurance industry

The insurance industry is faced with the challenge of managing risk while providing efficient and cost-effective services. Controlling loss ratios, pricing products correctly to ensure the right balance of profitability and service, and differentiating in order to create competitiveness and to access new markets are all essential. Data underpins achieving these aims, and it benefits all insurers to become an active part of contributing towards a shared database of customer information.

The more information available on the customer and the more sophisticated the analytical model that can be applied, the more complete and accurate assessments can be. A 360-degree view of the consumer serves the insurance industry well in enabling them to better price services, differentiate their services according to customer requirements, and offer solutions to a wider segment of the local market.

Within the South African market, a large percentage of consumers do not have insurance. For example, while there are 10.5 million vehicles on the road, only around 3.5 million of these vehicles are insured. One of the reasons for this is that insurance products have typically been too expensive for the majority of consumers to afford. This is a result of insurers having to increase their prices to cover loss ratios – in other words to ensure that the premiums they receive exceed the claims that are paid out.

Insurers need to provide the right products at a suitable price for the market. Access to and insight derived from the vast repositories of available data play a significant role in achieving this. Data such as claims history, credit history and other information can inform and help predict customer behaviour, which enables more accurate risk assessment. Granular 360-degree information at an individual customer level allows insurers to tailor products to suit each customer, rather than just offering a generic service basket. This allows insurers to accurately price products for each customer to tightly control loss ratios and manage risk. It also allows for differentiated products to be delivered in order to service a wider market and create access to insurance products for more South Africans. Finally, it allows for greater transparency in terms of pricing for the consumer.

For insurers, this 360 degree customer view not only enables more effective and dynamic risk management and better pricing, it also helps to improve operational efficiency. For example, with access to accurate customer databases, application forms can - to a large degree - be pre-populated, which saves time and effort. In addition, access to information can help to mitigate the on-going risk of insurance fraud. It is estimated that claims fraud in South Africa costs the insurance industry between R4 billion and R6 billion a year. A complete picture of claims behaviour allows for more accurate and effective tracking of fraudulent claims activity across individuals and households. It also enables sophisticated fraud analytics products to be built on the data for more effective fraud prevention.

However, all of these benefits hinge on the ability to create a complete, comprehensive and accurate view of customers across the insurance industry. The industry-leading Insurance Data System (IDS), which has been developed under the auspices of the South African Insurance Association (SAIA), is a comprehensive database of all personal lines claims and policy information collated by participating members of the short-term insurance industry.

IDS enables participating insurance organisations to access an integrated view of claims prior to taking on further risk. The system holds over nine million claims records. With a significant focus not just on data density but also data quality, and the integration of data from other sources to cross-validate information and provide greater insight, IDS enables insurers to leverage a comprehensive view of the consumers they quote. The enhanced system now incorporates enough high quality validated information to create a country-wide view of claims behaviour according to a variety of criteria, such as the individual, vehicle type, claim type, frequency of claims, claim by geography and more. It effectively offers the first industry-wide consolidated view of claims behaviour in the local industry.

This information is immensely powerful, as it offers insurers a full picture beyond just their own information and experience – for example many territory risk rates are based on that insurers experience of risk only. This complete view, along with access to value-added solutions that help to expedite the claims process, reduce risk, predict loss ratios and more, offer the insurance industry more insight for improved decision-making ability and reduced risk.

Ultimately, however, the value of this data is determined by its density and quality, and the evolution of the insurance industry relies on the ability of its players to contribute to this shared repository of information. The perception that sharing data will damage competitive position has fast become out-dated, and today the benefits of contributing and accessing shared information far outweigh the benefits of holding onto data for exclusive use. A comprehensive, 360- degree customer view can be leveraged at all stages of the insurance process, from product and service development to applications and underwriting right through to the claims process. This is critical for competitive positioning, access to new markets, enhanced customer service, mitigated risk, reduced loss ratios, and at the end of the day, better profitability.