As ‘plastic' takes global precedence in commerce, an Italian credit card company has made simplified coverage available to its elite cohort. Kate Coburn explains why.
The introduction of money as a means of acquiring needed or desired items, otherwise known as commerce, has undergone profound change over the past three millennia.
About 3,000 years ago, coins were introduced as exchangeable units of value in China and Greece, supplanting barter as the means of exchange. By 2,000 years ago, coins had reached their ascendancy, and by the year 1000 paper money had come to the fore.
Today, it is almost safe to say that the act of handing a wodge of bills and coins to a merchant for an item will soon be a tale to tell one’s grandchildren.
Most of this change has taken place over the past 60 years, during which the units of value we call ‘money’ transmuted from bills and coins to the ‘ones’ and ‘zeros’ of electronic currency.
The first appearance of e-money’s precursor came in the 1950s with the emergence of credit cards (familiarly known as ‘plastic’), which could be used in lieu of cash.
Credit cards today are one of the primary vehicles of commerce’s digitisation, so much so that at the end of 2011, according to The Nilson Report, an organisation that conducts proprietary research on consumer payment systems, there were more than 6.54bn credit, debit and pre-paid cards in circulation.
Consider that at 2011’s end, the world’s population, according to the World Bank, was 6.97bn. The day of more than one credit card for every man, woman, and child on Earth is fast approaching.
Elite credit cards
Currently, more than 25,000 companies conduct business over the internet, accepting electronic cash in digital forms ranging from credit cards to accounts such as PayPal and others. Credit cards range from pre-paid, secured and reloadable cards to elite cards charging high membership fees.
Elite credit cards require a more stringent application process, charge membership (and sometime initiation) fees, and aim to serve the business and financial needs of a select cohort of affluent consumers through a broad range of features.
These can range from, in addition to the usual battery of credit card value-adds, items such as no spending limits and no foreign exchange fees, dedicated concierges and travel agents, complementary companion tickets, unrestricted memberships to flight clubs, to personal shoppers international mobile phone rental, reward points, cash refunds for attaining specific spending levels and programmes where the issuing company donates a percentage of each purchase to specific charities.
How can this trend impact the creation and selling of life insurance products? Look at it this way: the members of these elite cohorts generally have highly desirable mortality and morbidity characteristics.
People who have such credit cards generally do so because they are highly active in their business lives and use their cards often.
As a class of individuals they are physically fit, highly mobile globally and in the upper reaches of affluence. Indeed, some elite credit cards are only made available to private-banking customers of the issuing bank. These people are also more likely to be able to afford medical treatment when needed.
Given all these characteristics, it can therefore be argued that this group is likely to have stronger mortality and morbidity than even the general population of credit card holders, which would make them an attractive potential target market for which to develop targeted life or critical illness insurance products.
About a decade ago, an elite credit card provider in Italy took steps to quietly offer a simplified-issue guaranteed acceptance product. The product had a pre-existing condition exclusion and a waiting period, both of which could be reduced or even waived, if the customer was willing to be underwritten.
According to several informal surveys we have undertaken in life insurance sales, members of high-net-worth cohorts place strong value upon as simplified a process as possible.
Today the increased availability of mortality data, and research and analytics using this data that is available about this target group of customers, can enable insurers to team with credit card partners and offer a similar product.
A complex predictive underwriting framework supported by a customer-centric tele-underwriting process would greatly simplify both the underwriting and sales processes.
Risk segmentation can also be improved through such a strategy. Targeting cardholders with strong repayment histories can also improve persistency statistics for a long-term product book, which can either be passed to the customers as a benefit or retained as profit.
Overall, this can be a genuine win-win, for both the insurer and their customers.
Kate Coburn is a client account manager at RGA UK
