By Austin Winton, Data Analyst, Marketing Metrix
Logic dictates that long-standing insurance policyholders ought to be rewarded for their loyalty with cheaper premiums relative to new customers. If people are willing to continue using your brand or service, they will more than likely expect a reward for doing so.
This is especially true in today’s financial services market where price comparison sites dominate, constantly encouraging churn with high-profile brand awareness campaigns.
In fact, the opposite is often the case – existing customer premiums are slashed over time. In some cases, the disparity can be significant in order to attract new policyholders. The UK’s Financial Conduct Authority (FCA) has estimated that 6 million people with home and motor insurance policies are being overcharged; in particular policyholders enrolled in auto-renewal, eliminating the opportunity for a review of their premium every year.
The result? Swathes of policyholders quit because they can find a better deal elsewhere, and the cycle of churn starts all over again. In the case of motor insurance companies, some organisations are losing up to 50% of their customers each year.
Aside from the obvious financial loss this causes, it also presents problems when it comes to number crunching to determine patterns relating to why people leave. A particular modern-day difficulty is the disruption caused to machine learning lapse modelling.
A lapsed model identifies policyholders who are most at risk of lapsing, considering their demographics and interaction with the insurance company. These can include:
- additional products
- number of years a policyholder has remained with the company
The fact is that more expensive policy renewals means customers can grab massive savings on offers from other insurers for new policyholders. They are attracted to savings from a cheaper plan elsewhere. This inevitably weakens lapse prediction models to the point of these models being worthless: someone’s likelihood of lapsing is massively correlated to cost saving and little else.
But change is in the air. A recent initiative from the FCA means the picture could change completely. In an interim statement released in October, the FCA noted, “competition is not working well for all consumers in these markets. It sets out concerns about how pricing in these markets leads to consumers who do not switch or negotiate with their provider paying high prices for their insurance”.
The FCA statement added: “We have set out a package of potential remedies to ensure these markets are truly competitive and address the problems we have uncovered. We expect the industry to work with us as we do so.”
The regulator’s ideas to stamp out the issue are now being discussed in consultation with insurance industry stakeholders, including the companies that sell policies to customers.
Proposed remedies include:
- Tackling high premiums for consumers – this could include banning or restricting practices like raising prices for consumers who renew year on year, or requiring firms to automatically move consumers to cheaper equivalent deals
- Stopping practices that could discourage switching – including restricting the way that firms use automatic renewal
- Ensuring firms are clear and transparent in their dealings with consumers – including improvements to the way firms communicate with their customers. The FCA is also considering whether firms should publish information about price differentials between their customers
- Harnessing the benefits of innovation in the longer-term – so that general insurance markets benefit positively from technological developments including Open Finance
In essence, the plans mean insurers will have far less flexibility on price setting and will be obliged to offer loyal customers cheaper deals when they come to renew, in line with what they offer new policyholders.
If the FCA decides on implementing these restrictions – and a final decision appears to be imminent – existing customers will be naturally less likely to search for new deals elsewhere. It’s fairly easy to switch companies these days, but many consumers would presumably be happy to do nothing and remain with the same insurer if it wasn’t hitting them in the pocket.
Citizens Advice estimate that 6.9 million policies are switched each year – the removal of the loyalty penalty, which saves them on average £500 a year, will significantly reduce the switching.
All of this would now leave customers, old and new, on a level playing field. What does this mean for lapse prediction modelling?
It’s good news for data folk, and for the sector as a whole. Insurance companies will ultimately have significantly more accurate models that can identify at-risk customers at scale.
By removing the ‘unknown’ of fed-up existing customers jumping ship because of unfair pricing, data analysis will improve these models greatly to make them more powerful in understanding why customers leave. This means organisations can call on marketing solutions to try to fix the problem of customer retention.
It seems fair to predict that with the combination of a reduction in premiums for existing loyal customers and the subsequent improvement in the power of lapse modelling, the net effect will be an increase in customer retention.
Suddenly, lapse modelling will not just be about price but other factors, too. The anticipated FCA adjudication is a win-win for insurers and their customers alike. Now it’s up to companies to ensure they have the necessary skills on hand to make the most of this new landscape.
On the Frontlines of Fraud: Tactics for Merchants to Protect Their Businesses
By Nicole Jass, Senior Vice President of Small Business and Fraud Products at FIS
Fraud isn’t new, but the new realities brought by COVID-19 for merchants, and the rising tide of attacks have changed the way we need to approach the fight. Even before the pandemic broke out earlier this year, the transition to digital payments was well underway, which means fighting fraud needs a multilayered, multi-channel approach. Not only do you want to increase approval rates, you want to protect your revenue and stop fraud before it happens.
A great place to start is working with your payment partners to refresh your company’s fraud strategies with emerging top three best practices:
- AI-based machine learning fraud solutions helps your business stay ahead of fraud trends. Leveraging data profiles to model both “good” and “bad” behavior helps find and reduce fraud. AI-based machine learning will be increasingly essential to stay ahead of the explosive and sophisticated eCommerce fraud.
- Increasing capabilities around device fingerprinting and behavioral data are essential to detect fraud before it happens. While much of the user-input values can be easily manipulated to look more authentic, device fingerprinting and behavioral data are captured in the background to derive unique details from the user’s device and behavior. Bringing in more unique elements into decisioning, can help authenticate the users and determine the validity of the transactions.
- Prioritize user authentication. User authentication is a vital linchpin in any fraud defense and should receive even greater priority today. Setting strong password requirements and implementing multi-factor authentication helps curb fraud attacks from account takeover.
As well as working with your payment partners it’s more critical than ever to protect online transactions while not jeopardizing legitimate purchases. Fortunately, there are a few things you can do right now to address these concerns:
- Monitor warning signs
Payment verification is an important part of protecting your business. There are a variety of strategies to employ including implementing technology utilizing artificial intelligence and machine learning to help catch certain patterns. In addition to technology, here are a few other tips that may serve as warning signs. These are not a guarantee fraud is occurring, but they are flags to investigate.
o The shipping address and billing address differ
o Multiple orders of the same item
o Unusually large orders
o Multiple orders to the same address with different cards
o Unexpected international orders
- Require identity verification
Finding a balance between protection and ease of purchase will ultimately help you protect your customers and your business. The following tactics can make it more difficult for fraudsters to be successful:
o For customers that have a login, require a minimum of eight characters as well as the use of special characters in your customers’ passwords
o Set up Two-Factor Authentication that requires a One-time Passcode (OTP) via SMS or email
o Use biometric authentication for mobile purchases or logins
- Monitor chargebacks
Keeping good records is essential for eCommerce. If a customer initiates a dispute, your only available recourse is to provide proof that the order was fulfilled. Be prepared to provide all the supporting information about a disputed transaction. Worldpay’s Disputes solutions can connect to your CRM and provide you dual-layer protection against friendly fraud, first deflecting them before they arise and then fully managing chargeback defenses on your behalf.
- Monitor declines
Credit card issuers mitigate fraud by automatically declining payments that look suspicious, based on unusual card activity such as drastic changes in spending patterns or uncommon geolocations of spending. You can check your own declined payment history to help spot a potential problem. When volumes increase, the help of a payments fraud management partner is beneficial.
- Protect your own wallet
While you take the steps to protect your business, it’s also important to be mindful of your own protection—it’s incumbent on all responsible consumers to be vigilant about their data. Whether it’s simple awareness of how the fraudsters are operating today, sticking to trusted brands when shopping online, and thinking twice about what data you share and who you share it with, you’ll soon see how often you are sharing personal information about yourself.
Using payments to streamline everyday transport
By Venceslas Cartier, Global Head of Transportation & Smart Mobility at Ingenico Enterprise Retail
Once upon a time the only way to get from A to B on public transport was with cash – and likely a pre-paid ticket bought from a physical office. Nowadays, thanks to technological developments, options range from contactless and mobile payments, to in-app tickets and more. As payment methods advance, consumers and merchants are naturally moving towards Mobility as a Service (MaaS) systems, integrating various forms of transport services into a single mobility service, accessible on demand.
This move towards MaaS does not only streamline the consumer experience, it has other positive impacts too. Incentivising public transport use reduces environmental pollution, improves mental wellbeing by reducing travel-related stress, and aids productivity by freeing up time otherwise spent driving. With this in mind, let’s take a look at the current trends affecting the transport sector, as well as how payments can optimise transportation for both operators and consumers alike.
Optimising transport with payments
The payment process is integral to any service. A payment service provider (PSP) can provide a range of key benefits to operators by proving a gateway to the transportation open payment ecosystem, and ensuring they meet objectives in 3 key areas.
- Environmentally, by reducing the use of personal cars and alleviating pollution and congestion.
- Societally, making urban mobility more inclusive in terms of improving access to all areas and for all socioeconomic classes.
- Economically, by optimising investment in eco-structure and fostering financial transactions, therefore improving the wealth of the city.
Payments professionals’ expertise and technological solutions can make payments easy again for transport operators. They can provide a range of options so that the customer can choose which one is right for them, leveraging the capabilities of the mobility services’ infrastructure (contactless, mobile wallets, P2P, closed-loop, QR code, and blockchain).
Furthermore, they can help promote inclusion and sustainable urban development. For example, methods such as prepaid virtual cards, or mobility accounts linked to a prepaid account can reduce the risks of excluding the unbanked. The environmental impact per kilometre can also be reduced, along with the use of vehicles with lower emissions per person per kilometre.
Finally, PSPs can put merchants’ minds at ease, providing payment liability, allowing aggregation of all due amounts from all mobility service providers, and collecting payments in one single transaction from users while dispatching revenue between mobility service providers.
COVID-19’s disruption to the travel industry cannot be overlooked. In fact, research suggests that public transit ridership is down 70% across the globe since the onset of the virus, longer distance travel has seen reductions of up to 90%, and payment by cash has seen a 60% drop.
Being realistic, these behavioural shifts are unlikely to revert anytime soon, so it’s important for merchants to keep this in mind when thinking about payment methods. More than 70% of consumers and travellers say they are likely to avoid the use of cash over the next six months. As a result, more than 40 countries have already raised their contactless payment threshold, further helping consumers to avoid contact with frequently touched pin pads.
However, the pandemic has only accelerated the way things were heading already and highlighted the benefits. Within the context of the pandemic, transportation needs to reinvent itself and adapt its processes to suit the shift in commuter habits that we’ve already seen and will continue to see in the future.
Other trends to keep an eye on
Contactless has been steadily growing on the transport scene, as have mobile payments and in-app purchases. In fact, the recent move to mobile and online ticketing is the most promising method so far, having seen significant growth in the last few years and having been accelerated by COVID-19 as discussed above. Once consumers move to these easy, convenient, and seamless methods, it’s rare that they revert – so it’s a good idea for operators to think how they can cater to these preferences.
Speed and convenience are a must for busy travellers – but not at the expense of data security. Finding the right payments partner is therefore crucial so operators can safeguard their customers’ personal data, while also keeping on top of other security regulations/features such as P2P encryption, PCI certification, and tokenisation.
Next steps for operators
Public transport is essential for many peoples’ everyday lives – COVID-19 or no COVID-19. As such, mobility service providers can make a great difference to their service and operations by implementing the right solutions.
Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime
By Dhanum Nursigadoo, ComplyAdvantage
With the summer drawing to a close, many countries who rely significantly on warm weather tourism will be assessing the impact of Covid-19. Being a small island in the middle of the Mediterranean you would expect Malta to be taking a significant economical hit – just like we are seeing in other popular European holiday destinations – but this doesn’t take into account the strength of the Maltese economy.
Emerging from the eurozone crisis with one of the most dynamic economies strategically positioned between three continents, Malta has had one of the lowest unemployment rates in the EU and has recently seen its GDP growth expand year-on-year. But perhaps the most important aspect of the Maltese economy has been its attraction for foreign businesses with only a 5% tax on profits. It is no secret that Malta is a tax haven, probably one of the most effective tax havens in the world.
But you can’t pick and choose who takes shelter, and it’s no secret that money launderers have been taking advantage of the regulatory landscape in this archipelago.
The conditions of a tax haven suit criminal enterprises, who can take advantage of the opaque environment and blend their illegal activities with the same operations enjoyed by high net worth individuals and corporations who are looking to reduce their tax bill. And last year Malta’s keenness for secrecy and avoidance resulted in a damning report by Moneyval – the Council of Europe’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) body – which found that while the nation had made some efforts to curb money laundering there was still much to be desired in order to bring the tax haven up to standard. Overall, they were of the opinion that Malta viewed combating money laundering as a non-priority and this resulted in branding Malta with low to partial ratings for 30 out of the 40 Financial Action Task Force (FATF) recommendations.
The findings of the report were stated to have the potential to “create within the wider public the perception that there may exist a culture of inactivity or impunity”. This follows on from a series of international high-profile stories regarding Malta and financial crime. Most shocking was the murder of journalist Daphne Caruana Galizia – who investigated corruption and money laundering in her native country – and was killed by a car-bomb three years ago leading to international outrage and condemnation.
Now Malta is in a race against time to turn their reputation around or they will suffer genuine consequences. The FATF have threatened to place Malta on a “greylist” of high-risk jurisdictions unless they have shown a genuine commitment to combatting financial crime and implemented the recommendations of the Moneyval report. If they fail, this would make Malta the first EU country to make the list and join others such as Panama, Syria and Zimbabwe.
The pandemic has actually given Malta more time to meet these obligations, and it has been widely reported that an initial summer deadline has now been moved to October due to the widespread disruption.
As we head into the autumn, there are signs that Malta has begun to take action. The Malta Financial Services Authority (MFSA) has created and established an empowered AML now headed up by Anthony Eddington, formerly of the UK’s Financial Conduct Authority and who has previous experience of tackling anti-financial crime at Deutsche Bank. This team has already begun working closely with international experts, specifically partners in the US through the US embassy in Malta and the United States Commodities Futures Trading Commission (CFTC). In May this collaboration led to 25 new cases focused on money laundering in particular, and with plans to increase standard inspections and on-site investigations into businesses in Malta, it appears there is a change to the country’s priorities.
Importantly, the report highlighted a problem for countries that choose to become tax havens. In some cases it was not that the Maltese authorities deliberately turned a blind-eye, but simply that they did not have the necessary knowledge to effectively tackle financial crime in the first place. Law enforcement appeared unable to even recognise when crime was occurring.
But this blurring of financial compliance will not help businesses if Malta does indeed become “greylisted” this year. While not as devastating as being blacklisted (the two occupants of this list are Iran and North Korea) there are significant detrimental effects to being put on the FATF greylist. Although this signals that the country is committed to developing AML/CFT plans (unlike the blacklist) it still sends out a warning signal to the world that this is a high-risk area, with the country in question subject to increased monitoring and potential sanctions from the IMF and the World Bank. Make no mistake, being put on the greylist will be catastrophic for Malta’s economy.
It remains to be seen how the work to avoid such a calamity will affect Malta’s tax haven status. Perhaps with an increased fight against financial crime there will be less ability to defend one of Europe’s most competitive tax regimes. But if Malta does not show they are genuinely committed to tackling this problem, then the pandemic disruption to the island’s tourism may be minor in comparison to the grey clouds that now approach their shores.
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