Techno tools help ease the squeeze

South African short-term insurance companies can beat the current profitability squeeze if they are smart in their use of technology, says Rhys Collins, Financial Services Manager (Insurance), Computer Sciences Corporation`s Financial Services Group`s operations in South Africa.

"The current cycle of declining underwriting profits being pressured by increasing claims need not challenge the profitability of insurers because technological tools can assist strategies of dynamic product pricing, boost efficiency and costs of claims management, and pinpoint fraudulent claims."

Collins says that in the recent past SA insurers "made significant profits which should now cushion their investment in working smarter. Space has been created for insurers to become innovative in developing ways to use technology to gain insight into client needs and choices and mitigate the effect of expense leakage". I agree with this sentence.

Price optimisation and dynamic pricing - risky techniques that were avoided in the past when the technology was not there to support them - are now viable for insurers to use to personalise their clients` cover. European insurers have used these techniques to advantage for sometime.

Price optimisation uses the insurers` and brokers` knowledge of the customer base to help predict likely behaviour in a given situation. This helps create price-elasticity curves on customer segments which can then be used in tandem with the company`s strategy to optimise the price for each customer.

It is a decision-support tool that gives insurers the confidence to be creative. It underscores the realisation that not all customers behave in the same way and that price elasticity curves are not linear functions, equal in all segments, in all situations and points-of-contact.

Collins says that price optimisation "can be hooked into all quotation processes on top of an existing solution. It receives the calculated risk-based price from the existing process and returns, in real time, an optimised alternative price to the same process".

South Africa`s increasing motor vehicle accident rate is adding pressure to insurers` profitability.

"Processing motor accident claims is responsible for about 50% of annual motor accident claims expenditure," Collins says. "Inadequate control and organisation of claims assessors` time wastes valuable resources and increases claims handling costs. Technology that enables better control and use of management information can achieve considerable cost savings and reduce the time taken to inspect damaged vehicles."

While these tools have proved their effectiveness in the motor industry, they are increasingly being used in the property sector for the management of property assessments and valuations.

A smart and persistent strategy to identify potentially fraudulent claims will help insurers gain market share because they will no longer need to share the cost of these losses among all their policyholders.

"Because they need to cover their losses through fraud, most premiums are more expensive than they need be," says Collins. "By using technology to identify suspicious claims when they are submitted and forwarding them to the insurers` special investigation units, companies can, over time, lower the premiums of law-abiding policyholders."

He stresses that use of a combination of smart technological tools enables insurers to be more dynamic in their product offerings without increasing risks in times of down cycles.