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Schalk Fischer | Data insights help ensure growth for insurers as consumers cut spending

Schalk Fischer | Data insights help ensure growth for insurers as consumers cut spending
27-03-24 / Sisanda Ndlovu

Schalk Fischer | Data insights help ensure growth for insurers as consumers cut spending

Johannesburg - South Africa’s latest cost-of-living crisis, marked by surges in the prices of essential goods and rising debt-servicing responsibilities in relation to wage growth, has resulted in a 14-year low in disposable income. TransUnion’s Consumer Credit Index (CCI) fell to its lowest level since 2011, from a high of 60 in Q3 2021 to a reading of 47 in Q4 2023. High interest rates are impacting the financial health of consumers across the spectrum, forcing them to cut discretionary spending in order to focus on essential items.

The challenge, for insurers, is that insurance is seen as a discretionary cost.

As far back as 2020/21, 24.5% of consumers surveyed by TransUnion indicated that they would not be able to pay their insurance premiums. Now, we are seeing that younger policyholders (aged 18-35; 30% of the insured market) are showing a higher tendency to cancel their household insurance. In addition, TransUnion’s Q4 2023 Consumer Pulse Study shows that 47% of consumers plan to cut down on non-essential spending, while 38% say they will decrease spending on large items – including new cars, which adds more strain for insurers.

Short-term insurers are seeing a year-on-year decline in enquiries of -9.1%, according to TransUnion data. Already, just three out of 10 vehicles on the road are insured. South Africa’s insurance market is highly competitive, thus enabling consumers to easily move their policies in order to save a few Rands every month. TransUnion data also shows that to help ensure their financial stability and offset increases in claims costs, short-term insurers are increasing premiums on new policies by 9.9% on average. Increasing premiums to protect financial stability, which enables claim payments, is a delicate balancing act versus the potential to lose customers.

Insurers are facing challenging times and need to be asking themselves: How best to retain existing clients during this period of financial distress; how to responsibly access the untapped insurable market; and how to curb fraud, which will ultimately make insurance more expensive for everyone.

New data insights drive new retention tactics

Reliable data can enable detailed, actionable insights into a customer base, in turn informing positive, pre-emptive customer management and the ability to respond rapidly with the right marketing, sales, retention and pre-delinquency solutions.

For example, understanding consumers with financial constraints, such as defaults on their credit reports, means that insurers can proactively support consumers with appropriate action based on potential payment behaviours, and risks associated with the client profile, to remain insured. At the same time, having access to affordability information, and generational spending priorities enables proactive prioritisation of collections as well as potential receptivity to value-adding up-and-cross-selling communications.

Data-driven insights that enable individual consumers to cover their risks and manage their insurance portfolios more effectively also help to build trust – and therefore loyalty – in a world where consumers don’t understand the depth of insurance products and have concerns about their claims actually being paid out.

Geo-location unlocks smarter book growth

The race is on to find and onboard the “good risks” within the current insured and insurable market. POPIA-compliant, data-based geo-location is enabling strategic insights into growth opportunities that in turn enable laser-focused marketing, product development to address specific needs, and the optimisation of broker networks to fill consumer demand – and more.

Geo-location is increasingly being used to overlay information on both credit-active and non-credit-active populations and demographics, with spatial location data. The financial and spending patterns of households in specific areas, including their income, credit risk profiles and credit utilisation, as well as age and gender, can now be combined with information on their wealth segmentation, property values and mobility patterns, as well as localised risks like the potential for fires and flooding, daily traffic flow and the crime rate, to help insurers refine their underwriting criteria and processes, price their products correctly, and enhance the customer experience from quote to claim.

Digital anti-fraud solutions reduce expenses

Two factors are influencing an increase in insurance fraud that, if left unaddressed, will lead to increased pricing across the spectrum. Firstly, as the macroeconomic landscape impacts consumers’ ability to meet their financial and debt responsibilities, more debt judgments are being issued, with a tracked tendency among consumers with recent debt judgments issued against them to submit fraudulent insurance claims.

Secondly, as consumers seek increased digital interaction as they buy and manage their policies, insurers are under pressure to provide client-centric digital solutions that mitigate potential fraud in the background. Insurers are looking at ways to authenticate their clients, verify documents and data, detect stolen or synthetic identities, and pinpoint warning signals before fraud happens.

Device authentication – a process of linking device intelligence and user behaviour to instantaneously modulate protocols and create friction-right individual-level experiences – can help to stop fraud in real time. This process means that manual reviews can be minimised, false positives reduced, social engineering detected, and other types of fraud mitigated.

As insurers fight for market share, in a world where consumers are fighting to prioritise spending on necessities rather than niceties, the ever-increasing cost of living and potential for fraud will continue to pose significant challenges. Consumer education remains critical if insurers are to persuade their policyholders that insurance is a necessity not discretionary, and data-driven insights are key for both stability and expansion.

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