Ask any group insurance pricing actuary and they will tell you that better data means better pricing, and after telling you that, they might go on to tell you horror stories about group insurance tenders where the data was messy, inconsistent, incomplete or downright incomprehensible, and how difficult it was to come up with a competitive price.
Sadly, these stories happen more often than they should.
It is encouraging then to see the recent release of Financial Services Council (FSC) Guidance Note 33 – Best Practice for Group Insurance Data.
This new standard provides a detailed list of all data points that an insurer should maintain, and the format in which the data should be provided to the fund or to other insurers in the event of a tender.
What does this mean for insurers? Aside from bringing a smile to the faces of pricing actuaries, the new standards are likely to have system implications.
Until now, there has been little guidance for insurers and funds beyond the SPS 250 requirement that insurers and funds retain, for at least five years, the “claims experience, membership, sum insured and premiums paid in relation to beneficiaries”.
This leaves a lot open to interpretation, which inevitably means some insurers will simply store whatever data points their system captures by default.
Now that the data standards have been defined, insurers will need to review their systems and technology across claims, underwriting and administration to ensure they are maintaining the right data in the right format.
Those insurers who had the foresight to procure modern, best of breed claims management products should be able to capitalise on their investments, while those who have underinvested in technology may find they need to play catch-up to comply.
Thankfully, many of the leading Australian life insurers do now have flexible, configurable claims systems in their armoury, which should not require new core features to be developed or complex system upgrades to accommodate these changes.
For these insurers, the new standards bring the opportunity to look at how better data might be used to their advantage: how might it inform insurance product design? What new opportunities are there for predictive analytics? What insights might be gained into consumer behaviour, fraud or leakage?
These are the types of questions insurers need to be asking themselves when reviewing their systems in light of the new standards.
Superannuation fund trustees, being ultimately accountable for data retention under APRA's Prudential Standard SPS 250 - Insurance in Superannuation, need to be proactive in ensuring the new data standards are applied.
Trustees will need to work collaboratively with their insurer and fund administrator on any system enhancements, and should incorporate the new standards into service agreements and governance documents, including their insurance management framework.
Once implemented, the new data standards should make group insurance tenders run more smoothly and result in more accurate and sustainable pricing, which is a good thing for members.
There is, however, more to a group insurance tender than just pricing, and the new data standards in FSC Guidance Note 33, while useful for pricing, are not sufficient to allow funds and insurers to measure the key elements of good member experience.
In recent group insurance tenders, funds have been paying increasing attention to measures of member experience such as end-to-end cycle times, complaint trends, ‘underwriting not proceeded with rates’, and straight-through processing rates of underwriting applications.
Unfortunately, if you were to ask three different insurers today how to calculate these metrics, you might end up with four different answers.
This lack of consistency makes it very difficult for funds and their tender managers to compare apples with apples during a tender, and a lack of clarity on what exactly is being measured can make it difficult to pinpoint issues affecting the member experience.
In a similar vein to the Guidance Note 33 standards, funds and insurers need to work together to create holistic data and reporting standards for predictive metrics that impact on member experience.
Having these consistent metrics will allow insurers to genuinely compete on service offerings, as funds will be able to benchmark insurers on a quantitative, rather than qualitative, basis.
Insurers competing on service is a good thing for the industry, and not just because it leads to a better member experience.
The more insurers can compete on service, the less they will need to compete by offering lower prices and more generous product terms, both of which can lead to negative long-term consequences. It’s enough to bring a smile to the face of even the sternest pricing actuary.
Ruth Keaney is Sequential’s insurance, claims and underwriting partner.
