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How much is non-disclosure costing the industry

06 November 2017Jonathan Faurie

One of the biggest problems that the life insurance industry faces is non-disclosure. This problem does not only affect profitability, but there is a knock-on effect in increased policy lapses as insurers implement measures to deal with the problem.

Just how bad is this this in the South African market? There have been various reports in the past discussing high profile cases of non-disclosure; it seems as if the industry is at times ill equipped to effectively deal with the issue.

Under the spotlight

The issue of non-disclosure came under the spotlight at the recently held Actuarial Society’s 2017 Convention.

Delivering a presentation on the issue, Duane Hoffeldt – Chief Underwriter at SCOR – feels that a lot still needs to be done when dealing with the issue.

“Consistent industry feedback shows that non-disclosure is a problem and that current remedial actions yield inconsistent results. A key differentiator was the calculation of the future cost of non-disclosure already embedded in the book of business and recommendations on how to proactively reduce the incidence going forward. However, their effectiveness is coming into question,” said Hoffeldt.

What is our approach?

One of the major problems with the South African life insurance industry, according to a survey done by SCOR, is that the industry is reactive when it comes to dealing with instances of non-disclosure.

“The survey found that when it comes to non-disclosure, South African insurers largely take the approach of we will deal with it as and when we find it. The most obvious place to become proactive is during the underwriting stage. However, underwriters only act on non-disclosure found during the underwriting process,” said Hoffeldt.

The other obvious place to deal with non-disclosure is at claims stage. However, because these actions are taking place during the claims process, it is very much a reactive process.

“What about the rest of the portfolio? What happens to non-disclosure that is not picked up at underwriting or claims stage? Additional methods are required to reduce unknown non-disclosure that ends up being embedded in the experience. This has a significant impact on insurers, clients and products,” said Hoffeldt.

Significant impacts

it is not only the consumer that is facing the harsh reality of doing business in a tough economic climate. The revenue streams of most insurers, especially smaller ones, are tight. It is at times like this that insurers need to pay particular attention to the cost of doing business.

“The cost of non-disclosure needs to be covered by the insurer,” said Pedrie le Roux, a Business Development Actuary at SCOR. He added that this usually means higher premiums for everybody. “Does the lack of understanding of the non-disclosure rates indirectly result in a more difficult onboarding process? This means that insurers will be asking for medical evidence at the outset. This may lead to possible improvements to application form questions and reduced uncertainty and inconvenience of disputed claims,” said Le Roux.

Multiple battle lines

By the sounds of things, it seems as if the war against non-disclosure is one that is being fought on multiple fronts.

“Although companies are monitoring non-disclosure it happens  largely on an ad hoc basis. Not enough post issue sampling is being done, and not enough multiple imputation analysis is being done or shared with appropriate parties. Increased industry collaboration is required to detect non-disclosure and alternative methods of obtaining risk assessment data should be utilised to detect non-disclosure,” said Hoffeldt.

He added that the results from improved non-disclosure checking must be fed back into the pricing, onboarding and claims processes.

Declaring the winner

Le Roux pointed out that reducing the true underlying non-disclosure rate will save the customer money, improve the customer journey through the onboarding process, and ensure less uncertainty at claims stage.

In addition, it will increase the insurers profit margin, reduce Ombudsman and legal disputes and reduce the insurer’s reputational risk.

Editor’s Thoughts:
However, all these efforts need to be done in an environment where the insurer must work extra hard to source new business. And at the same time, they must deal with regulatory reform. It seems as if exhaustion in the insurance industry is a real thing. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by KG, 06 Nov 2017
Very interesting and worrying reality. And yes there definitely needs to be more industry consensus in terms of sharing and detecting non-disclosure in the same industry "shares" medicals done. But, "what's in it for me" syndrome [this means a lot more admin and perhaps a longer process in terms of issuing the business] may hamper these efforts for those with a short-term view.

Thanks for sharing.
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