Insurance has traditionally been known as a safety net for when things go wrong. But with so much data at insurers’ disposal and ever-increasing data analysis capabilities, insurers can also help clients prevent a bad situation.
Insurance, like new tyres, visits to the dentist, and kale, is typically seen as a grudge purchase. And, like kale, it’s something people spend money on, hoping they never have to use it. What the average person doesn’t see, however, is the vast amount of data science that goes into the insurance business behind the scenes. It puts insurers in a position to enrich clients’ lives in ways that go far beyond a payout in the event they suffer a tragedy – insurers can empower clients to lower the chances of tragedy striking in the first place.
“In the traditional insurance transaction, the value of the product sold is only really realised at claim stage. Claim events are tough for the customer and the insurer as it’s a lose-lose situation,” says Chris Charlton, MD of Consort Technical Underwriters. “The cost of a claim hits both the customer and the insurer. Insurers need to start positioning themselves to provide value to the customer prior to the claim event. Risk management is often touted as the method to reduce the claim impact for the insurer but it could also be utilised to bring value to the client.”
A step ahead
Data has been one of the biggest trends to emerge in recent years, thanks to advances in digital technology. For many industries, the fairly sudden influx of data points is as perplexing as it is exciting. Like the growing collection of glass jars in the back of a kitchen cupboard, data is collected and stored, everyone knows it will be useful, but no one is quite sure what to use it for.
The insurance industry doesn’t have that conundrum. Insurers were in the business of data analysis long before the rest of the world realised its value. What’s more, insurance data is incredibly broad, ranging from personalised insights (say, your smartwatch tracking your heart rate and sending the information to your health insurer) to global phenomena, such as climate change. New data sources are quickly assimilated if deemed to be credible and the information they provide put to good use in innovative ways.
Indwe, for example, is using geolocation data. “We have been investigating and applying geolocation data for some time now and have used it successfully on our larger property clients but also assisting in the event of formulating accurate assessments of clients exposed to specific catastrophes such as fire or flood,” says Chief Executive Officer, Peter Olyott.
Meanwhile, Jacques Pienaar, Head of Commercial Underwriting at King Price Insurance, shares how the company is using data-driven innovation in the agriculture sector: “We’ve developed a motor rating tool specifically for our agri book, which looks at the real risks that farm vehicles are exposed to. We’re the only insurer in the sector that has partnered with Map Scientific Services to help farmers benefit from data insights related to fires. In terms of livestock management, we’ve partnered with VeePlan – a network of 300 vets that inputs data on every sickness in an area – and we’ve also partnered with IDScan, which enables farmers to scan the unique nose-prints of their cattle via a phone app into a database to enhance the traceability of stolen livestock.”
These are just a snapshot of the ways insurance companies use data to manage risk. But risk management has broader implications beyond being good for business. The data that insurers have at their disposal can also help enrich clients’ lives. Take, for instance, a routine medical for a life policy – picking up that a client has high blood pressure might affect their policy underwriting, but more importantly, it could save their life.
Similarly, when clients’ house insurance premiums are higher because they live in a flood-prone area, that could be the warning they needed to be proactive about protecting their home or perhaps even moving to a lower-risk area. And vehicle telematics that monitors a client’s driving behaviour can help them behave more safely on the roads.
But is it the role of the insurer to protect clients from their own decisions?
Power and responsibility
“The responsibility of insurers to use their knowledge and powers for good cannot be overstated,” says Kali Bagary, CEO of The Data Company. “With great access to data comes great responsibility, and we believe that insurers should leverage this power to positively influence the lives of their clients and the communities they serve. By proactively identifying and addressing potential risks, insurers can help clients avoid the need to file claims altogether, ultimately leading to better outcomes for all parties involved.”
Charlton has a similar view. “All companies should feel some responsibility to use their knowledge and power for good,” he says. “The private sector has the opportunity and resources to effect positive change – even more so in a country where the government is not quite there to provide for its people. Insurers, in particular, are well positioned to effect positive change, especially as the ability to gather more granular data improves. Insurers can identify trends and potential adversities much earlier than before. With this potential foresight, the weight of responsibility becomes heavy. The upside for insurers is that, as insights and trends are actioned to the benefit of their customer base, the goodwill capital of the insurer grows and loyalty and trust towards the insurer is fostered.”
Robert Attwell, CEO of Discovery Insure, notes that South Africa faces its own set of unique challenges over and above the global risks highlighted in the World Economic Forum’s 2023 Global Risk Report, in which rising cost of living, natural disasters and extreme weather events top the list.
“In South Africa, over and above these global-wide risks, consumers and insurers are also battling with load shedding, potholes and other country-specific risks,” he observes. “The South African Insurance Association’s 2023 annual review report identified fire, localised flooding and potential national grid and water systems failure as critical systemic risks facing the country. This is in addition to natural disasters and cyber risks that other economies are also worried about. The Association and the industry are clear that while it might be commercially tempting to exclude these risks, it may not be in the best interest of the country. South Africa already has a wide protection gap, with the Automobile Association of South Africa (AA) estimating that 65-70% of the registered vehicles on the country’s roads are driven without any insurance.”
Attwell also believes that the insurance industry has a responsibility to use the resources at its disposal to help people: “Right now, there’s a lot that our customers are experiencing. I think we need to ask ourselves more often as the industry, ‘what can we do better?’”
Good for business
Of course, the strategy also needs to make business sense. Olyott believes it does. “Initially, implementing a risk management model strategy could have an adverse effect on acquisition and retention costs but the longer-term view is that it will reduce claims costs,” says Olyott. “If the risk management model is effective, claims costs will reduce as the insurer will have early intervention opportunities as well as the ability to build trust and relevance with its customer base.”
That concept of a relationship based on trust is key. And demonstrating real value for what may feel like a grudge payment goes a long way towards cultivating it. “Proactive engagement with customers not only fosters loyalty but also builds a relationship of trust between insurers and their clients,” says Bagary. “By demonstrating a commitment to actively safeguarding their interests and providing value beyond the traditional scope of insurance coverage, insurers can earn the trust and confidence of their customers. Transparency, communication, and personalised support are key pillars in establishing and maintaining trust, ensuring that clients feel empowered and supported in their financial decisions.”
One way the industry is leveraging data to enhance the customer experience is through usage-based insurance. “Usage-based insurance is a growing global trend,” says Pienaar. “People don’t want to pay full premiums for assets that are used infrequently – and rightly so. In South Africa, a growing number of companies are bringing usage-based products to market, basing car premiums on the number of kilometres that clients drive per month, the value of their cars and their personal risk profiles. And this is where technology is playing an increasingly important role. For example, the pay-as-you-drive product that King Price developed when car usage was so much less than normal during the Covid lockdown used car odometer photo uploads which we pushed through image recognition algorithms to confirm the kilometres travelled, as well as the authenticity of the photos.”
Usage-based insurance is also extending into areas like agriculture, he adds, with the business seeing a steady uptake of its “pay as you farm” agri insurance product. “It offers farmers comprehensive cover for their agri vehicles all year round, linked to an annual rebate based on the time that the vehicles are actually used,” Pienaar explains. “While the product was designed to help farmers save on their insurance premiums, lower their capital risk and maximise their profits, we’re also enabling precision farming, in terms of which farmers are relying more and more on data collected from their farm vehicles. Yield per hectare insights from a harvester, for example, determine the next season’s seed requirements and optimise fertiliser usage during the growth process.”
Influential insurers
You’re a lot less likely to act on information when it comes from a source you’re already sceptical of, but if you have a good relationship with someone, you’ll be more inclined to listen to what they have to say. Similarly, if insurers are to share insights that can enhance the customer’s life, the customer must be willing to accept those insights and able to recognise the value they add. As with any relationship, that takes time.
“Customers’ loyalty and trust is gained over the long term, once they realise and subscribe to the value proposition,” says Charlton. “It will be some time before the trust can be measured following the implementation of a more risk management focussed approach. Again, if value can be shown for traditional insurance spend, it should equate to trust and loyalty.”
However, if they get it right, insurers can draw on the data at their disposal to influence customers in numerous positive ways. This can lead to a mutually beneficial partnership where the client and insurer are working together to take proactive steps that lower the client’s risk profile and, therefore, reduce their need for a claim.
“Insurers can play a crucial role in influencing customers’ decisions and behaviour to align with their best interests,” says Bagary. “Through targeted education, personalised recommendations, and innovative incentives, insurers can empower customers to make informed choices that not only protect their assets but also promote their overall well-being. By leveraging data to understand customer preferences and behaviours, insurers can tailor their approaches to effectively engage and motivate clients towards positive actions.”
Pienaar believes the key to building that partnership simply comes down to fulfilling promises: “The Urban Dictionary (sadly) defines insurance as ‘a business that involves selling people promises to pay later that are never fulfilled’. There’s an inherent lack of trust in the industry, which King Price strives to change at every client touchpoint, and especially at claim-stage, which has the potential to be a pain-point,” he says. “Essentially, all policyholders really want from their insurers, apart from low premiums and relevant products, is the minimum of fuss and a pain-free claims process.”
Olyott believes trust is also built with education: “At the heart of developing a triumvirate relationship is trust, through education of the parties involved. This ranges from explaining exactly how insurance covers are constructed and priced to the impact of insuring predictable losses and inherent risks in the sector or industry the client operates in together with a national and international view of emerging risk trends. Balancing this with being provided with more insight into the client’s own business and risk assessments will allow all three parties to better craft a suitable solution to meet the client’s specific risk profile and requirements.”
Supporting the client
If a client has to submit a claim, it means they’ve suffered some kind of misfortune. And while insurance is there to help with the financial burden of the incident, there are often other consequences of a claimable event that are not so easily rectified. These include emotional trauma, permanent disability, loss of a loved one or loss of irreplaceable items with high sentimental value.
Insurers have the data available to lower the client’s risk of experiencing such an event, but advisers are the ones who have the necessary rapport with clients to help them make the best decisions.
“Advisers play a critical role in leveraging insurer data to better advise their clients,” says Bagary. “By staying informed about the latest data-driven insights and utilising advanced analytics tools, advisers can offer personalised recommendations and strategic guidance that align with their clients’ goals and risk profiles. Collaboration between insurers and advisers enables a holistic approach to risk management, ensuring that clients receive comprehensive support and tailored solutions that meet their evolving needs.“
Johanni Jennings, Head of Marketing for Auto & General Insurance, stresses the importance of supporting the client before they reach the point of having to claim. “The claims process represents one of the most critical interactions a current policyholder has with an insurance company. It is a moment when clients are vulnerable and rely on the insurer and their financial adviser to fulfil the promises made at the time of policy sale. This necessitates a certain commitment from both the insurer and the financial adviser to honour the claim because commitment is what turns a promise into reality.
“However, being there for the client at the payout stage is not the sole requirement. If we genuinely aim to bring societal value into play, we must support clients long before a claim payout and even at the forefront of a disaster. It is crucial, as insurers and financial advisers, that we assist clients in preparing for claims. This not only helps minimise the likelihood of a claim but also ensures the smooth and prompt processing of a claim once submitted.”
In a world where data availability is at an all-time high and still increasing, it’s important to remember that business is not about numbers – it’s about people. And that behind those figures and percentages are individual human beings with plans and aspirations; families and friends. Crunching numbers should not only be about lowering operational costs and protecting profit, but equally about enriching the lives of those individuals who have chosen to be clients.
“The insurance sector is in an exciting transition phase that is being fuelled and enabled with the advancement of data and technology,” says Charlton. “Traditional insurance models are being enhanced and future proofed to the benefit of the customer. Stakeholders that are willing to evolve and embrace the changes will be instrumental in seeing the full benefits of the advancements come to be and ensure their longevity in the industry.”