Short-term

May 7, 2020

Cellular Cash in Lieu Madness

By: M. Clark

I hope that you are safe and well as we approach the end of our first phase of the COVID-19 lockdown period. I am told that the “new normal” will be different.

I write this article as the MD of both <a href="https://insrap.com/2019/">Insurance Replace a Product</a>, (INSRAP), and <a href="https://www.adminplus.co.za">Administration Plus</a> (Pty) Ltd, (Admin Plus). Between both entities, we manage over five hundred replacements of electronic mobile devices per month on behalf of multiple insurers and intermediaries. Cellphones are our main stock in trade.

The main theme of this message has been relevant for a long time, but the COVID-19 scenario has created an urgency to share this message. Thousands of our friends, family and clients will find themselves unemployed or behind on payments. The subject of cash in lieu will become an even bigger challenge. Moving into this “new normal” is a good time to recalibrate and reset our business systems and models.

Cell phones display wealth and a trendy social image (especially with Millennials and Generation Z). Research, findings show that “the smartphone has truly become an extension of young people’s hands”. Today, it’s very hard to find a person who does not own a mobile phone. Not only have these devices become the No.1 necessity in life, it has also become a symbol of success, wealth, (and therefore social acceptance),image reflecting constant “connectedness” and allow people to be active on social media platforms while on the move. Everyone wants the latest cell phone with the most up to date features. It is probably the most “personal” insurance that exists today, and most people cannot survive a day without their phone. Go on, try it….

Yet from the numerous discussions I have with our business partners, the feeling is that between 50 – 60% of all claims are being settled “cash in lieu” within our industry. If nothing else this makes us significant funders of the cell phone industry. Cash in Lieu is highly attractive. It’s a deposit and a sure-fire quick way to get the next generation smartphone with a limited outlay in cash- sometimes just an excess payment yet cell phones are expensive items.

“Easy-peasy” – claim and I get an upgraded new phone almost immediately.

So, why would I not want the cash?

In my businesses, we are managing approximately R4 million of insurers' claims funds every month. If my business associates are correct R4 million represents our 50% of the pie, meaning cash in lieu activity represents +/- R48 million cash spend every year. What’s more we will spend more next year.

When considering the effects of Rand /Dollar exchange and junk status cell phones will become an even bigger expense for strapped consumers and potentially insurers.

Insurers can save themselves significant money by –

<ul><li>Repairing before replacing</li><li>By adopting an accurate like-for-like replacement policy</li></ul>

<ul><li>Valuing phones correctly and empowering their intermediaries to provide the correct advice. Especially for those phones that are provided on a contract.</li><li>Take a leaf out of the expert's book – Bet Vodacom/ MTN/Telkom are NOT handing out the moolah. </li></ul>

Why is that?

With desire and high costs of handsets driving cash in lieu behaviour insurers can no longer afford to give out cash to clients, especially with new-age models pouring into the market annually. These new models are a “must have” and are backed up with massive marketing campaigns that leave consumers hungry for the latest model.

Right now, we are answering one question, and that is - "how do I, (the insured) get the latest iPhone/Samsung/Huawei quickly?"

<ul><li style="font-weight: 400;">Insurers need to indemnify clients and replace the lost cell phone with an identical device. </li><li style="font-weight: 400;">Our service must remain exemplary, delivering the device to their client's doorsteps. </li><li style="font-weight: 400;">Our business goal and commitment must be to ensure that we place the insured back in the same position as before the loss occurred, supported with good customer service. </li><li style="font-weight: 400;">Providing this while positively ticking all the boxes in terms of TCF.</li></ul>

I have many friends, (far too many in our industry), that call me for a quote on the "latest arrivals" but when they come online. A small percentage of them actually place the order when they realise the costs of what they are asking for and often I hear - “Don't worry I have a contact that managed to get me X/Y/Z at a discount.”

In this scenario, my mates are not acting any differently to the man/lady in-the-street.

That same person we are helping with cash in lieu, yet I would argue as an insurer we “must protect our clients”.

<ul><li>Cash in lieu has a short- term benefit to the insured and down the line, does not meet the commitment of insurers for Treating Customers Fairly. </li></ul>

I believe our current behaviours are creating and encouraging more exposure to fraudulent activities. and cash in lieu supports the fraudulent activity, one might argue it invites such behaviour.

<ul><li>In South Africa there is a large “grey market” for cell phones, often manufactured of inferior quality, (in short, they break easily and become Beyond Economic Repair – BER), with no manufacturers’ warranties. </li></ul>

Once one of these handsets are acquired from X/Y/Z above – These items are insured with us and when the claim occurs – it becomes easiest to cash in lieu. R20,000 passes hands.

By supplying replacement handsets following a claim, we ensure clients receive a genuine replacement phone that is fully functional and subject to Warranty.

<ul><li>We must ensure the best service. By maintaining a nationwide dealer network and a nationwide courier service, we can replace clients' phones quickly and efficiently. This is particularly significant, considering how important the cell phone has become in everyone's life. By avoiding lengthy delays in replacement, our goal is to keep clients connected, yet 50% of insureds get an EFT. This practice has increased dramatically during lock down – I wonder how people are staying in contact without a phone?</li></ul>

Now more than ever we need to not only look after our client’s wellbeing but watch that cellphone insurance remains affordable especially when a lot of the comprehensive domestic policies may well be cut back. As an industry we are spending a lot of money on cell phones let’s do it prudently.

<ol><li style="font-weight: 400;">Firstly, make sure sums insured are correct – we find this the biggest challenge in cellular. If a client is over insured or under insured there tends to be a lot of noise at point of claim. </li><li style="font-weight: 400;">Change to like for like as a behaviour.</li></ol>

These two simple points will start a journey and if our Co’s can help you with this journey, let us know.

We can offer full valuation services, online replacements, national repair networks/delivery services and can read full phone diagnostics confirming the handset exists and what model it is.

Handsets are expensive, and we are giving out cash. Somehow it just doesn’t feel right.

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