Short-term insurance: An insurance roadmap to growth in a strained economy
By Jonathan Lewarne, Senior Director Consumer Insurance Business Development
With continued economic pressure and the extent and rate at which the macro and regulatory environment continues to change, doing business in the country is extremely challenging. The impact of these challenges is reducing consumers’ disposable income and consequently, they are cancelling their insurance policies during a time where it is most valuable.
TransUnion’s quarterly Consumer Credit Index (CCI) studies SA’s consumer credit health and it shows that disposable income is reducing significantly. With that in mind, insurance is often considered a grudge purchase which exacerbates the challenge of retaining good policies. Accordingly, the industry sees an increase in lapsed policies which not only negatively impacts the top and bottom lines, but also increases the amount of the uninsured population which has the potential to cause significant socio-economic issues.
Margins in the industry are also under pressure due to a trending increase in the loss ratio over the last decade combined with an increase in the costs of running an insurance business in SA. The volatility in global equity markets means that insurers can no longer rely on investment income to compensate for poor underwriting results. This ultimately results in increased premiums to ensure the sustainability of an insurer.
Insurers have a limited amount of influence on the macro conditions and will need to focus internally on what they can control - managing the cost of doing business to assist in improving margins. This can be achieved through the effective use of data, assisting in better decision making around risk selection, workforce and system optimisation. The industry has spent a significant amount of capital to invest into technology, which makes data available to assist in achieving this objective.
Unfortunately, the traditional methods of collecting data are vulnerable and deliver inferior data which results in the following adverse outcomes:
- Reduced operational efficiencies;
- Increased client dissatisfaction;
- Reduced fraud detection;
- Increased risk of regulatory non-compliance.
Conversely, good quality data has the ability to assist in a number of aspects:
- Reducing management expenses through faster on-boarding processes;
- Better risk selection and pricing;
- Improvements in the client experience - fewer errors on documentation and less time spent on buying insurance;
- Improvement in operational efficiencies through process automation;
- Improvements in the reputation of the industry - fewer claims being rejected based on incorrect data.
The South Africa insurance industry has access to some of the best data assets in the world, available in real-time where the capacity to develop an integrated solution exists and through batch processes where system constraints make outward integration challenging. Data assets available to the industry consist of:
- Consumer credit and payment information;
- Claims and policy information;
- Asset information - vehicles, property and cellular phones;
- Driver’s license information;
- Identity authentication.
TransUnion makes access to this information a reality through hosting an extensive amount of data and through existing partnerships with third party providers that have robust processes in place to ensure the integrity of the data. TransUnion also has the ability of combining data from the various sources and transferring it to a client where the information can be used quickly and accurately pre-populate application.
Insurers have the ability to leverage this to completely transform their business – benefiting both clients and insurers through better pricing and improved fraud detection. If the industry can successfully implement a strategy to reduce their costs and reduce premiums, a more inclusive insured population which benefits the entire country becomes a distinct possibility.