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In today’s session, we’ll cover:

• Global insights and learnings• Data-driven insights • Potential impact on the insured universe and

digital strategies• How to mitigate the risk of the COVID-19

pandemic and navigate this period of uncertainty

• Wrap-up

Nicola Peel: Head of Insurance SA

Robin Wagner: Senior Vice President: International Insurance


SPEAKERS’ DETAILS

Nicola PeelHead of Insurance SA, TransUnion Africa

Email: [email protected]: linkedin.com/in/nicola-nikki-peel

Robin WagnerSenior Vice President: International Insurance

Email: [email protected]: linkedin.com/in/robindata/

mailto:[email protected]

mailto:[email protected]


COVID-19 is the number one threat globally


South Africa cumulative COVID-19 confirmed cases# of confirmed cases

March 5 First SA case

confirmed

March 23 National

shutdown announced

April 23 President

announces phased opening

of economy

March 5First case confirmed in SA by Minister of Health Zweli Mkhize

March 15 President Cyril Ramaphosa announced his initial set of measures to stem the COVID-19 pandemic

March 23President Cyril Ramaphosa announced 21-day lockdown

March 22 SBSA1 announced payment holidays for select business customers & student debt relief

2021,655 2,173 3,300

4,7937,220

10,015

15,515

23,615

0

5,000

10,000

15,000

20,000

25,000

May.03Mar.12Mar.05 Mar.20 Apr.05 Apr.12 May.10Apr.20 Apr.27 May.17 May.251 17

+460%

March 29 & 30SBSA, ABSA, FNB announced direct relief via payment holidays for customer, business and corporates clients (rules vary)

1 – Nedbank announces that it will support its clients with suitable individual solutions to cash flow challenges

March 27t

Moody’s Investor Services cuts South Africa’s investment grade to Ba1

Source: World Health Organization (https://data.humdata.org/dataset/novel-coronavirus-2019-ncov-cases) & Press Searches

April 4 ZAR breached R19.00/$ mark following downgrade by rating agencies

April 3 Fitch downgraded SA’s credit rating to BB with negative outlook

April 6SARB announced 2-4% reduction in SA’s GDP & 370k job losses for 2020

April 9 National lockdown extended

April 14 SARB unexpectedly cuts Repo rate by 1.0% from 5.25% to 4.25%

April 20 Crude oil price crashes from $18 a barrel to -$38

May 1Level 4 regulations with phased economy entry begins

SA took swift action to flatten the curve, however, the impact of COVID-19 is expected to carry on for a significant period of time

https://data.humdata.org/dataset/novel-coronavirus-2019-ncov-cases


Lemonade is about businesses coming to terms

with and managing the impacts of COVID-19 as

part of their BAU strategies, with softness felt throughout

2020

I am Legend refers to a worst case scenario; likely

worse than ever experienced where

repercussions will be significant and long-lasting

Rocky is an underdog story that reflects SA being in a tough spot but bouncing back from this crisis by

Q3 2020

We followed a data-driven approach by baselining the trajectory of the banking, retail, telco andInsurance industries to a pre-COVID-19 world, with a view of how macroeconomic and new business activity would influence these industries

This led us to three scenarios:

Our data-driven analysis indicates three possible scenarios that may influence banking, retail, telco and insurance industries


GlobalGlobal insights and learningsal


How are insurance volumes fairing relative to aggregate bureau trading volumes in each of our regions?

**Volumes data based on April 2020 transactions

Heavily intermediated

Insurance penetration high, insurance legislated

Date of lockdown Feb. 28 Feb. 25 March 06

March23 Feb. 26 March

03

Impact on insurance quote volume during COVID-19


Digitally transformed and less intermediated regions are performing better – UK volumes most stable

Dis

tribu

tion

%

0

20

40

60

80

100

UK Canada Colombia Brazil India South AfricaDirect Broker Aggregator

Insurers using digital aggregators and digital direct distribution are struggling less during the Covid-19 pandemic due to online (and no in-person) interaction

Credit populations 22 million 28 million

GDP per Capita 6,654 46,209

Unemployment rate 30% 6%

Regulations Not mandatory Mandatory

Policies duration 1 month 12 months

Core LOB Majority auto 75% home

South Africa Canada


Life insurance carriers utilising data-driven underwriting are less impacted by COVID-19. Life product demand has been stimulated by the pandemic

Life insurance carriers in the US performing better and service customers more effectively due to: • Digital savvy and InsurTech• Data driven• Accelerated underwriting

• Credit-based decisions (Private)• Identity verification• Public/Criminal records

TransUnion insurance life client volumes YTD are up 76% on 2019 — through higher levels of STP enabled by: TRL, ID Verification, address history and beneficiary information.

The US life industry has seen an on average -7% decline.


Based on TransUnion’s US study, fraud in all markets andchannels have profitability challenges when identity is not verified

Source: TransUnion Industry & Production data analysis 2016-2019

69%73%

83%

16%23%

29%

12%10%

20%

30%

40%

50%

60%

70%

80%

90%

All Policies Unverified Idenities Unverified + Potential Synthetic

Loss Ratio Frequency % of Policies

●1%

Identity alerts across all markets and all channels (Frequency and LR)


InsightsData-driven insights


Our objective is to provide insurers with actionable insightsto help mitigate COVID-19’s impact on your business

We offer a playbook TransUnion Africa insurance clients can use to assess the effect of the pandemic on their portfolios. We provide fraud prevention and digitalstrategies that help you:

a) Understand new and heightened risk of bankruptcies and changing payment trends

b) Respond to consumer concerns, and prioritize accounts to offer customer-fit support and other targeted interventions

c) Define personalized engagement strategies tailored to customers

d) Reduce fraud losses in the midst of changing digital commerce and consumer behaviors


Only 45% of consumers

have reached out to lenders

to discuss payment options

82% of consumers are being negatively

impacted

31% of consumers have had their work

hours reduced

88% of consumers are concerned about paying current bills

14% of consumers have lost their jobs

Consumers feel they will be R7,065.80 short on

their bills

Consumers expect to not be able to service their obligations within the next 4 weeks

One in two consumers are not actively approaching lenders to overcome the financial pressure they’re feeling

Source: TransUnion Consumer Financial Hardship Study, week 2


37%25%

37%46%

19%20%

34%8%

15%15%

7%25%

UtilitiesPersonal loanCell phone billRent payment

Credit cardInsurance

Account with retail/clothing storeBond/home loans payment

Car paymentMedical bill(s)

OtherStudent loan

45%39%

37%47%

29%36%36%

13%26%

22%3%

10%





OtherStudent loan

55%47%

43%42%

37%30%

29%21%

19%18%

9%5%





OtherStudent loan

56%29%

38%33%

31%48%

13%15%

8%35%

15%4%





OtherStudent loan

Generation Z

Generation X

Millennials

Baby Boomers

Baby Boomers are prioritising insurance services over financial services obligations during COVID-19

Source: TransUnion Consumer Financial Hardship Study, week 2

Which bills and loans are you concerned you will not be able to pay?


South African’s have already been impacted by COVID-19-related Fraud

One in four South Africans surveyed confirmed they had experienced a COVID-19-related fraud scam

One in five of those who experienced a COVID-19 scam said they fell victim to fraud

Source: TransUnion Consumer Financial Hardship Study, of 4,065 South Africans over 3 weeks

© 2020 TransUnion LLC All Rights Reserved | 18Source: 2020 Global Identity & Fraud report

Prior to COVID-19, top five global fraud trends towatch for in 2020 were:

Transaction payment fraud

Account opening fraud

Synthetic identity fraud

Authorised push (or wire transfer) payment fraud

Account takeover fraud

Top 5 2020


Short-term insurance shopping behavior observed prior to COVID-19

Comparison shopping under standard trading conditions:• Twenty-eight percent of new policies lapse within six months from policy inception. Most movement within

the industry is not from new-to-insurance consumers but existing customers shopping around with other insurers. Less than 10% of new policies are from new-to-insurance customers

• Before a customer moves, they’ll get quotes from 2.3 other insurers, on average. A deeper analysis revealed younger consumers shop around up to 40% more than other generations before moving, with generational breakdowns as follows: Gen Z and Millennials get quotes from an average of 2.5 insurers; Gen X gets quotes from an average of 2.03 insurers; and Baby Boomers and the Silent Generation get quotes from an average of 1.8 insurers

• Lower-income consumers are less likely to shop around. While conventional wisdom would suggest lower-income consumers are more likely to shop around to save on premiums, our analysis showed this was not the case. In all demographics, middle-income and high-income consumers are the more active shoppers

• Customers are more likely to shop around on multi-brand platforms. Across demographic and income groups, we found shopping activity was up to 40% higher for insurers using multi-brand, or multi-quote, platforms as core distribution channels


• Most consumers are feeling the financial burden of reduced economic activity and increased social distancing

• They’re not forthcoming with organisations about their distress

• Insurance premiums rank 5th on the list of consumers’ concerning, impending payments due

• One in five consumers have been targeted by a fraud scam since the start of the pandemic

• Consumers will likely get 2.3 quotes from other insurers before moving

So, what does this tell us about consumer sentiment during the COVID-19 crisis?


ImpactPotential impact on the insured universe and digital strategies


Established customerNew customer

Tenure

Prof

itabi

lity

Downturn cycle customer profitability

Reduction in average margin per consumer

TTC Profit Curve

Downturn Profit Curve

It’s still cheaper to service existing customers through product offers than onboard new customers with volatile expected risk


Consumers who default on tradelines carry distress into short-term insurance premiums

Creditcard 87.8% of consumers could not maintain a portfolio

with insurance premiums post the default

Short-term insurance

Consumers who moved into default from Dec. 2019 to March 2020

93.5% of consumers could not maintain a portfolio with insurance premiums post the default


95.8% of consumers could not maintain a portfolio with insurance premiums post the default


Personalloan

Retail


While the physical world is at a standstill, the digital world is buzzing more than ever


Weathering the storm – what are fraud-related COVID-19 themes?

COVID-19 Response

• Must deliver efficiencies and reduce costs

• Clients looking for seamless, friction-right experiences

• Alleviate manual or offline process activity by bringing in digital authentication factors

Drive for operational efficiencies and

reduce costs

Shift focus in business tocustomer management

• Greater emphasis on existing customers

• First and third-party fraud will increase

• Right controls needed throughout the engagement process — without slowing consumers down

Changing landscape in a digital world

• Social distancing creates new challenges

• Increase in digital engagement and reduced usage of traditional, branch-based services and shops

• Adapt or cease to exist• Heightened need to act fast


• The economics of serving both new and existing consumers are getting worse, but focusing on your current customer base is still favored

• We’re moving into a downturn cycle of customer profitability

• When consumers fail to satisfy financial commitments on other tradelines, they’ll likely default on insurance lines too

• We expect customers to spend less and lapse more

• There’s been a large investment in digital transformation and we expect this to accelerate

• Protecting your business and customers against fraud is necessary as cybercrime is on the rise

• In these conditions, it’s vital to ensure a comprehensive view of your customer

What have we discovered about how consumer behavior will potentially impact your business?


MitigateHow to mitigate the risk of the pandemic and navigate this period of uncertainty


Insurers should be thinking of a three-phase response to the COVID-19 pandemic

H2 2020

Phase 2: Prioritise post-COVID-19

robustness

Now

Phase 1: Getting organisedand mitigating the

downside

2021 onward

Phase 3: Out the blocks first,

fast recovery

Monitor, monitor, monitor:• Implement extensive monitoring on your

base for changes in behavior (e.g., income reduction, payment holidays

• Partner with external entities to understand overall market and close gaps in your existing information (e.g., payment holiday data)

Targeted interventions:• Prioritise efforts to improve operational

efficiencies (e.g., collections prioritisation

• Improve retentions by applying targeted strategies (e.g., propensity to lapse insights, income reduction)

Manage and collect

Digital and fraudFriction-right engagements:• Authentication of new and existing

customers seamlessly (e.g., identity manager)


Three approaches to understanding your portfolio risk

Manage and collect

• Collections prioritisationmodels aimed at improving operational efficiencies and reducing number of policies lapsing or cancelling due to non-payment

ReactiveActive

• Real-time alerts that inform insurers as and when a customer’s bureau profile changes

• Continuous monitoring of your base for changes in behavior

• Partner with external entities to understand overall market and close gaps in your existing information

Proactive

• Account management solutions aimed at assisting insurers with protecting their active customer base

• Pre-lapse solutions to preempt excessive stress on customer book induced by financial distress

• CreditVision® trended credit data and payment variables to track customer trajectoryinto potential lapse cycles


Source: TransUnion internal analysis

Consumer CBalance Builder

Consumer APaying Down

Consumer BSteady User

0-4-8-12-16-20-24

695

Aggr

egat

e B

alan

ce

Number months to current month

Trended credit attributes offer insights not previously available with snap-shot credit data and are often better insurance risk predictors

Number of months with a non-mortgage balance decrease over the last 12 months

We not only consider where the customer is today but how they were able to improve their position over time.

Manage and collect


CreditVision Income Estimator predicts the net monthly income for a client and is not capped

• The model was developed using income data provided by TransUnion’s clients

• The model outputs net salary, salary band and a confidence level that prediction is within 30% from the midway of the band

47%

15%

7%

30%

1%Retail clothing

Retail furniture

FinTech

BankingunsecuredSecured

Actual Income

CV Income Estimator

Manage and collect


• Increase customer communications and updates to allow them to reach out, and provide a channel to identify early distress

• Identify consumers who are merely distracted vs. truly struggling and treat them appropriately

• Increase the frequency of customer insights and analysis — as conditions and circumstances change drastically when in distress

• Understand a consumers’ total wallet and behavior — as “off-book” behaviors severely influence your exposure

• Adopting proactive, active and reactive approaches is necessary when defining strategies to address your customers across the stages of distress

• Not all consumers are high risk in a downturn; there’s still room and demand for growth. It’s important to be targeted and intentional with these segments of consumers once they are identified

Your portfolio is an iterative process that’s constantly evolving…yet, there are some essential practices to adopt right now


Seamless onboarding: End-to-end point solutions for improved fraud prevention and consumer experience in digital channels

Biometric authentication

• Home affairs• ID mismatch• AVS

Identityvalidation

Avai

labl

e fro

m

Tran

sUni

on to

day

Com

ing

in 2

020

Are thereregulatory orcompliance

risks?

Is theidentity validor potentially

risky?

Is therepotential riskin the digital

footprint?

Is therevalid proofof identity?

• Bureaucheck

• Home affairs

Identityverification

Trustedidentity

• Device-basedreputation

Digital riskassessment

• KBA

Stepped-upauthentication

Are thereelevated

risk signals?

Does theidentity match

past fraudpatterns?

• Matching and predictive analytics based on application data

Matching against sanctions,PEPs and adverse media

AML/KYCchecks

Using document verification,facial recognition, livenessdetection

Digital risk assessment

• Email validation• Phone risk

Fraud models


• The COVID-19 crisis accelerated organisations’ need for digital transformation; as the physical world is at a standstill, the digital world is buzzing more than ever

• As the need for digital channels has increased exponentially, fraud is evolving, becoming more sophisticated with threats from external and internal sources

• Fraud defences in digital channels require balancing risk with customer experience — which insurers have struggled to achieve

• Businesses need to balance a ‘friction-right’, digital experience with protection against fraud — throughout the customer lifecycle

• Enabling channels of engagement that offer customers the right mix of automation and personalization is key to meeting expectations and perceived quality

A multilayered approach is required to manage evolvingfraud threats whilst ensuring seamless customer experiences


• Prior to the COVID-19 crisis, SA’s economy was already predicted to have a bleak 2020 — after ending 2019 in a technical recession

• Past crises and initial data suggest SA will see a significant reduction in the quality and volume of credit and insurance due to COVID-19

• To mitigate this, we recommend businesses think of their response to the COVID-19 pandemic in three phases: 1) getting organised and mitigating the downside; 2) prioritisingpost-COVID robustness; and 3) getting out of the blocks first and striving for a fast recovery

• Businesses should be aware of their competitors’ responses — and not just the impact of COVID-19 — as this can be a significant risk to future sustainability

Understanding your customers will help you implement targeted strategies to protect and grow your business


• This is the first of a series of webinars we’ll be hosting — details to be distributed via email and posted on our website at the end of the week

• Further insurance analyses are currently being prepared for the next iteration of the playbook and will be announced in due course

• Today’s insights study and links to this webinar will be emailed shortly and available on our website: https://www.transunion.co.za/insights-events

• For further information on this study, our solutions or insights, or requests for specific analyses, please reach out to our team via email [email protected]

Next up

https://www.transunion.co.za/insights-events

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