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It’s all about the money

23 September 2019 Jonathan Faurie
Anton Ossip

Anton Ossip

When brokers meet clients for the first time, the issue of price often takes centre stage within the conversation.

Price is often the deal breaker when it comes to onboarding, client retention and demonstrating value.   

On a global scale, the insurance industry is becoming more personalised. There is no doubt that there needs to be serious innovation when it comes to the future of pricing. In an exclusive interview with FAnews, Discovery Insure CEO Anton Ossip looks into his crystal ball and gives us the lay of the land. 

What are the future developments when it comes to pricing in the insurance industry?

Advances in machine learning and data analytics are likely to lead to more advanced algorithms in assessing risk. 

Big Data provides key insights into individual behaviour and machine learning is the capacity of a computer to learn from experience allowing it to modify its processing on the basis of newly acquired information. The combination of these factors means that insurance systems could make better predictions more efficiently, more accurately. This becomes a powerful tool for pricing. 

It is also likely that there will be a bigger move towards telematics. As the use of telematics becomes advantageous to some insurers, competitors might start adopting a similar approach in order to improve pricing model accuracy. 

As new players enter the market, there will also be an increase in competitiveness. Safety is also an important factor to clients purchasing short term insurance and features such as Impact Alert are a key selling feature. 

What will drive these developments?

Technology is the biggest driver of these developments. This is also being driven by the changing needs of clients in terms of the need for flexibility and transparency. 

The trends around mobility and vehicle ownership will also impact pricing in future. 

As technology improves, so do systems and processes used by insurers. This makes them easier to implement. We are also likely to see more people with the skills and knowledge for machine learning, artificial intelligence and big data science. These could lead to innovations in the industry over time. 

Consumers may also move towards wanting more value-added benefits and rewards-based incentives.  

There is a demand for the use of telematics as a real time differentiator of price in the US. Price will be a sliding scale and will differ from month to month as a client’s driving habits improve or deteriorate. What are the advantages and disadvantages of using this model?

This is the concept of dynamic pricing. Discovery has implemented this previously but found that the idea of variable premiums is not appealing. 

The ability to measure driving behaviour and link that to claims has significantly impacted the pricing and understanding of risk for insurers that make use of telematics. Driving behaviour is a significant predictor of risk. 

Our model is one where we price traditionally upfront as we do not have a client’s driving behaviour and then give the client cashbacks through good driving. This means clients pay a more accurate premium for their risk rather than risk determined by traditional pricing alone. 

There is a growing demand in the US for do-it-yourself insurance where customers build pricing from the ground up choosing individual components on an a la carte basis. Can this be effectively implemented in the South African insurance industry?

The South African insurance industry has traditionally chosen to only offer a limited differentiation in cover in the form of third party only, third party fire and theft and comprehensive insurance. 

Comprehensive insurance is regarded as an all risk benefit. Whilst the other covers are quite straightforward to understand. 

Anything inbetween starts to add complexity. An important consideration here is if the average client understands what they are buying. Information asymmetry occurs when one party to a transaction has more knowledge of the product that another. Insurers know more around frequency and severity of specific risks. An average client does not have this knowledge. This is where the role of the broker is invaluable in the South African market and will continue to play this role. 

A product that can address the consumer knowledge gap could potentially create a new market in the South African industry and attract people who are currently not satisfied with the current offerings. 

We also have to consider that South Africans live on financed cars which makes the need for comprehensive insurance all the more important. 

There is also a growing demand in the US for set your price insurance where clients specify what they can afford to pay (when it comes to premiums) and the insurer will inform them on the type of cover they would receive. Key cover that is missing can be added at a later stage. Can this also address the inclusivity issue?

This model of insurance was introduced in the US as a response to the recession in 2008 when people were most likely to cancel their insurance plans in order to save money. 

The concept of this type of insurance is simple to understand and appealing to clients. However, there is also an aspect of insurance asymmetry at play. This is because clients may opt for a lower premium in lieu of adequate cover. This means they are still left unprotected at claims stage. 

Again, brokers are superheroes in this instance. 

Editor’s Thoughts:
Price is important and can be a deal breaker. However, research indicates that if clients can see value, they do not mind paying high premiums. Is this going to be challenged in the future where price will be everything? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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