Santam: Insurance aggregators not a one-size-fit-all solution

Santam: Insurance aggregators not a one-size-fit-all solution

10 Jan 2012

Other

Santam, South Africa's largest short-term insurance company, urges customers to do their own research before opting for online insurance 'one-stop' shops that offer cheap insurance products, such as aggregators.

The company warned today that whilst it understood the attraction to Aggregators, especially in today's Internet-aware environment, convenience and price alone should not be the only considerations when purchasing insurance.

"The online utilities promise to find multiple insurance quotes for individual consumers based on a risk profile generated on the site in less than five minutes.  Unfortunately, in many instances, quotes that consumers are given offer a very rudimentary insurance cover," says Shehnaz Somers, Head of Personal Lines Underwriting at Santam.

"This would be a very effective way to compare quotes if the aggregators are sourcing and comparing like-for-like products offered by various insurers. This is, of course impossible to do and disregards the differences in cover, which are often tailored to meet specific circumstances, location or lifestyle, or which include additional benefits. Often, the policies offered are extremely stripped down to be able to return a quote on minimal risk information so that price alone can be compared," warns Somers. Proper upfront underwriting cannot be done by aggregators hence the final premium charged may sometimes differ from that quoted.

Santam also says that the trend to calculate risk scientifically through telematics, meaning on actual risk posed by an individual as opposed to a general assumption, will also be a test for aggregators whose quotes are premised on generalisations.

South Africans are becoming more comfortable and familiar with e-Commerce. A survey conducted by MasterCard Worldwide, in which 8,500 consumers participated, revealed that 89% of South African online shoppers are satisfied with their overall online shopping experience. Fears about online safety and security are subsiding as more simple transactions are concluded with relative ease and convenience. This has lead to an increase in online financial product purchases; a trend that has already benefitted some in the short-term insurance market such as Direct insurers.

Spurred by consumer confidence in e-Commerce, the industry has also witnessed a sharp increase in insurance aggregators, also known as short-term insurance price-comparison service providers.

Santam says consumers leaning towards online insurance purchases should exercise caution and do research before soliciting the services of 'insurance-one-stop-shops'.

"There have been significant increases in the amount of insurance contracts concluded via the internet globally, a trend that has undeniably hit South Africa," says Somers. "Aggregators are developed with the growing online insurance market in mind and are marketed as 'ultimate online one-stop insurance shops' that find fast, affordable and multiple insurance quotes."

Somers continues that the proof of these marketing offers is in the type of insurance policy consumers end up with once the transaction is concluded: "Sometimes, the type of cover the consumer ends up with is not tailored to suit the consumer's specific risk needs and falls remarkably short of the marketing offer." As aggregators compare insurance policies on premium or price, most of the products being compared have been stripped down so that they can compete on price alone. The insurance quote, based on limited consumer information, may not be sufficient cover to suit specific or even complex risk needs.

The potential online insurance policyholder may also be unaware that with over 40 known short-term insurance providers in South Africa, it is impossible for an aggregator to source and compare all possible quotes on their behalf. "Aggregators cannot provide quotes from every insurer, they can only offer quotes from insurers they have agreements with. The aggregator is paid a referral fee for policy contracts concluded based on the client information provided to the insurers by the aggregator.

The insurance giant says that it recognizes the growth of e-Commerce and the preference of certain consumers to go online for their financial needs. "We are currently developing an e-Commerce channel that will cater for these consumers but our online offering will not compromise on our single minded focus of delivering insurance thoroughly, with due diligence and properly," says Somers.

The MasterCard survey also shows that the majority (89%) of those shopping online conduct research about their purchases on the Internet before buying, that 69% use the respective company's website for their research and that 57% speak to family or friends beforehand. "It is vital and commendable to do research especially when purchasing financial products. We strongly recommend speaking to a broker or advisor who has the expertise to inform consumers on a wide range of issues specific to their risk profile and not just offer them the cheapest quote," says Somers.

Somers concedes that it would be myopic for insurers to deny the benefits of a web based insurance offering, especially with South Africa's emerging ICT sector and consumer's growing familiarity with eCommerce. "We understand that a lot of people are finding it easier to do their transactions online especially younger people who are digital natives. We advise consumers to double click on all the terms and conditions and exercise more caution when making online decisions about who will ultimately insure their hard-earned assets," concludes Somers.