Stripping to the bare minimum to design appropriate products
Market segmentation is an approach that is growing in popularity around the world as companies are looking for ways to cater for the unique needs of a specific market group. This is especially prevalent in the selfie generation where clients are no longer happy with blanket offerings. The best way to do this is through data analysis whereby companies sit down and look at the types of claims they received for a specific year.
Segmenting the client base
Liberty recently took this approach when analysing their 2015 claims statistics in an effort to design fit-for-purpose products. The company segmented their client base into young achievers, young parents, established providers and empty nesters.
- Young achievers.
- Young parents.
- Established providers.
- Empty nesters.
Segments by their products
Speaking at the release of the 2015 statistics, Nicolas van der Nest – Director of Risk Product Innovation at Liberty – says that segmenting the customer base was beneficial as it showed distinct purchasing patterns.
“The majority of claims for young achievers were for loss of income protection, mainly due to retrenchment. This is significant as with the current economic conditions we find ourselves in, we expect retrenchments to increase during the year,” said Van Der Nest.
He added that the majority of claims paid for young parents were for critical illness. This reflects the fact that incidence of critical illnesses are becoming a reality as you get older. “We are seeing an increase in the prevalence of cardiovascular diseases and cancer cases. Critical illness cover is vital for your clients,” said Van Der Nest.
The purchase pattern of established providers suggests that they may have the required insurance in place - although their life stage signifies an increase in disposable income - and an enhanced quality of life that is certainly worth protecting. Income protection claims make up a smaller portion of the overall claims, as established providers experience fewer retrenchments, although the relative risk of suffering a critical illness becomes more significant.
When it comes to empty nesters, their diminished need for income and critical illness protection leads to fewer claims in these categories compared to the other segments. Incidentally, claims paid to men relative to women also increased in comparison to the other segments – this can partially be attributed to the historical bias for men, as breadwinners, to buy life insurance.
To watch an in depth interview with Van Der Nest, please click here
Defining the watch points
As pointed out earlier, the main cause of claims among young achievers was retrenchment with 15.9% of all claims. Other causes of claims include cancer (12.3%), motor vehicle accidents (11.9%) and central nervous system claims (9.7%)
There is a significant shift when we look at the young parent segment. Here the main source of claims is cancer related claims at 22.5%. Cardiovascular conditions make their first entrance with 14.5% while central nervous system claims come in third with 8%. Retrenchments drop from the top position in the previous segment to fourth in this segment (8%) suggesting that job stability is more prevalent in this sector while young parents are working hard at providing for their families.
Cancer (26.9%) is once again the top cause of claims among established providers. Cardiovascular conditions (21.1%), central nervous system claims (8.7%), and motor vehicle accidents (4.3%) make up the rest of the top claims in this group. What’s interesting is that Van Der Nest points out that the motor vehicle accident survival rate among young achievers is significantly more than among established providers. This despite the GTI Bump a phenomenon that Van Der Nest describes as young people with fast, high powered cars, getting into more accidents than established providers.
Cancer (25.6%) and cardiovascular conditions (25.3%) are the top source of claims among empty nesters. Here we see the entry of respiratory diseases (7.9%) and urogenital disorders (3.6%) being other main sources of claims.
The effect of having a gap
We are all aware of the insurance gap in South Africa and how it is ever increasing as clients are plunged further into a tough economic climate.
Consider what would happen if a young parent did not have income protection cover in place and they did lose their job? What effect will this have on their families? What effect will it have on their retirement savings?
Through comprehensive financial planning, clients will not have gaps in their insurance and should not suffer the above effects. This is happening in the market as Van Der Nest points out that there are many clients purchasing a number of products.
Editor’s Thoughts:
The value of the adviser in this market cannot be underestimated. If you show your value to your clients, they will continue to do business with you, no matter what changes there may be to your future income. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
