Privacy or public property?

Not so long ago, the trend was to guarantee consumers that their information would remain confidential and would not be divulged to or shared with third parties. Today, consumers face an entirely new situation and FAnews investigated why.

The sharing of information, within a closed user group, is not a new trend at all, says
Chris van Rensburg, the TransUnion Executive for Insurance, Healthcare & Telecommunications. "The concept of information sharing is a working practice around the world.

"As technology and systems infrastructure improve, the quality of data sets and the ability to share information has increased. With increased access to information, better decisions can be made faster than ever," he explains.

Fraud is a major factor

The impact of fraud affects the economy, the insurance industry and every consumer. In a concerted effort to combat this serious threat, the insurance industry has worked together in a data sharing initiative since 2001, under the auspices of SAIA. The system used is called the Insurance Data System, managed by TransUnion, which is a centralised database of claims and policy information to help the short term insurance industry manage their risk and fraud.

"By supplying claims information, the insurers and intermediaries can accurately manage their claims processes and identify fraudulent and duplicate claims with access to claims information from across the short term insurance industry," explains van Rensburg.

Information sharing

Since the inception of the data sharing initiative within the insurance industry, the policy documentation that is provided to the consumer has included a clause on information sharing, in effect stating that the policyholder waives any right to privacy in any insurance policy or claim made or lodged by him and consents to such information being disclosed to any other insurance company or its agent.

"When the initiative started in 2001, insurers only shared claims information with the specific intent to identify potential fraud; thereby decreasing losses due to fraud that in turn, results in higher premiums to the consumer," says van Rensburg. "In 2003, the insurers also started sharing policy information with the intent to better identify risk at underwriting and to make underwriting processes more efficient."Access to the National Transport Information System also provides insurers with a mechanism to verify vehicle registration, vehicle ownership and driver's license information.

Banks now included

"A new development, due to start by the middle of 2007, will make use of insurance policy data to notify the banks when insurance on a financed vehicle is cancelled," explains van Rensburg.

"Consumers are obligated by law to have insurance cover on financed vehicles. As many consumers cancel their insurance cover shortly after purchasing a vehicle, it is estimated that there are 1.3 million uninsured financed vehicles on South African roads. "The result is up to R25 million loss per month for the banking industry due to total loss situations on uninsured financed vehicles. This also results in a loss of profit and premium income to the insurers as policies are lapsed within a short time after inception."

Impact on the insurance industry

Collaborative data pooling makes it possible for insurers to have a single view of a policyholder. Both insurers and brokers have access to information on how consumers have conducted their insurance cover with other insurers or brokers. In the past, a company would only know how a consumer has behaved or performed within its own portfolio, and where it is the first time that they deal with the consumer, they would have nothing to base a risk decision on. Numerous calls were made to confirm past insurance and claims behaviour, with high costs and resource implications and often without success.

"Now," says van Rensburg, "participants have access to this factual behavioral information so that informed underwriting decisions can be made. Insurers and brokers are also in a better position to identify and manage fraud as claims information is shared and they can identify where duplicate claims are submitted to various insurers."

Service levels

Service levels to consumers can be improved as claims and underwriting decisions can be made quicker and more accurately and information such as drivers' license information can be verified in split seconds.

Insurers and brokers can also identify consumers who only take insurance for short periods of time (for example when they go on holiday). The administrative cost around underwriting a policy is very high and if the consumer cancels his policy within a short period of time, this results in a direct loss to the insurer and the broker.

Benefits to the consumers

Consumers who conduct their insurance policies in an honourable way will benefit from this as they no longer have to pay for the consumers who abuse their insurance for inflated or duplicate claims. They can now be identified as "good" risks and receive the best possible service at the most reasonable premium."Through information sharing underwriters can now move away from basing rating solely on pooled risk information, to more scientific rating models based on individual performance," explains van Rensburg. "Consumers get the premium benefit of ‘good' insurance behaviour compared to pooled risk where everyone gets the same premium."

The back-end

TransUnion hosts and manages this information sharing system known as the Insurance Data System, working closely with the industry to ensure it meet the criteria of managing the insurers risk, improving claims processing and minimising the risk of fraud. This information sharing initiative is based on closed user group principles - you need to be a participating member to supply information in order to access information.

TransUnion is currently in discussions with SAFSIA and its members to get more brokers involved in the initiative. The company is also currently working on a solution to provide consumers with direct access to their insurance information on the Insurance Data System - with the intent to ensure the accuracy of the information. This should be available early next year.