Consolidation of insurance products has benefits and innovative attributes that are especially relevant to the South African insurance industry.
In South Africa, policyholders often have several different funeral plans, usually with different insurers. While it is important to ensure that you and your family are safely covered, there may be more cost-effective ways of doing this.
When taking out different funeral policies, there are a few things that need to be considered. Each policy you have is treated separately, which could lead to some unknown administrative and pricing consequences. Each policy you have is usually debited separately, often at different times of the month. Each policy usually also carries its own administration costs, creating a duplication when policyholders have more than one plan. When policyholders run into administrative difficulties, it becomes difficult to manage their various plans with each insurer. If they are exposed to financial difficulties, they might find themselves needing to cancel policies, exposing themselves to the risk of not having enough cover for themselves or their families.
Consolidating insurance products is about bringing a range of cover together under one offering, usually managed by a single insurer. The practice began in the South African insurance industry in the early 2000s as a mechanism to reduce the administrative burden and overall cost of insurance for policyholders.
A mechanism to attract customers
Consolidation also allows larger traditional insurers to offer additional, original, or unique benefits into their product ranges. Many of these value-added benefits are provided by third parties. By being able to enhance their product offerings, insurers can help to create access for smaller, newer market entrants who offer these types of services.
In South Africa, for example, larger insurers have partnered with smaller providers to offer cattle as part of traditional funeral cover. Other collaborations include providing mobile data, vehicles to be used on the day of the funeral, or repatriation of remains, should the insured die away from home or outside the country. With many different options available, policyholders are able to choose the cover that suits their specific needs, rather than needing to take out generic cover and benefits that might not apply to them.
Consolidating policies into one offering also ensures that policyholders do not need to duplicate the cover they already have. For example, a policy will usually require the policyholder to be insured and take out a certain level of cover before additional lives can be insured. If the person is already covered under a different policy and only looking to cover additional family members, they might be required to purchase cover for themselves again first, increasing their premiums. A consolidated product will usually allow for many different lives to be ensured on the same policy, ensuring each life is only covered for exactly what they need. A consolidated product will also have only one set of administration costs, reducing premiums further.
Since consolidation can result in a reduction of premiums of anywhere between 5% and 15%, consolidation also provides savings for customers, assisting them with affordability, and ensuring that they retain their policies so that they can claim when they need it most. It also provides the insurance industry with a mechanism to attract and retain more customers with discounted packages.
In some cases, consolidation can eliminate gaps in insurance cover, as during the process of consolidation a single provider can assist a customer with spotting gaps between policies, or overlaps causing duplication of policies and costs.
Unique and innovative attributes
Compared to other markets globally, South Africa’s consolidation industry has many unique and innovative attributes – driven largely by our diverse cultures. Our funeral products, for example, are very different from what you see in the United Kingdom, the United States or Australia. South African funerals are large events – usually involving the entire community. They also include benefits such as monthly payments to assist with ongoing expenses after the funeral, cattle, marquees and even live music and choirs – all ensuring that a person is able to receive the dignified funeral they deserve.
Consolidation provides the insurance industry with a way to compete beyond just price. This has led the local industry to develop a product-agnostic approach, where insurers no longer design product-specific channels. Instead, consolidation led to the evolution of products where each channel provides the opportunity to sell more and different products.
The way the insurance industry designs products has also been changed by consolidation. Today, for instance, insurers need to listen to the market and then design – not design and then push products to market. If we look at life cover, for example, this traditionally allowed four or five additional adult dependents. Today, our consolidated products cover up to 21 dependents, because this is what clients wanted and what the market told us. As insurers, we need to ensure that we continue to cover the needs that our customers have, rather than telling them what their needs are.
Consolidation, however, is more than just a string of unique benefits. Insurers need to make sure that the foundation is right for consolidation. Systems and processes should enable a seamless consolidated product offering that enhances the client’s experience of all the products in the offering. We have seen many providers introduce consolidated offerings with some fanfare – and later experience serious decline because the foundations were not correct.
Consolidation takes skill
Insurers often try to retain their clients by making the sharing of client information unnecessarily lengthy or difficult. As such, consolidation takes a lot of skill and experience, as incorrectly cancelled policies can be a costly exercise for both insurers and the insured.
If consumers choose to consolidate their cover in a single policy underwritten by a single provider, it is important that they do this with a reputable provider with sufficient financial strength to underwrite all the risks covered. It is also important that insurers remain committed to covering all the risks listed in the consolidated policies, and don’t discontinue certain covers over time.
Established and reputable providers that have maintained the same or similar policies in the market, for many years, are better bets for policy consolidation than newer, less well-established firms with shorter track records of delivery.