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TransUnion Newsletter

December 2007
In This Edition

Insurance Sector's Need For Risk Predictive Technology

Who Says Marketing Can’t Be Scientific?

Instalment To Income (ITI)

TransUnion's Analytic and Decision Services
Editorial Contributions

Insurance Sector's Need for Risk Predictive Technology

Courtesy of Risk SA

Who Says Marketing can't be Scientific

Marco Lopes mlopes@transunion.co.za

Instalment to Income (ITI)

John Fourie jfourie@transunion.co.za


We have been creating advantages for South African businesses since 1901. The gradual evolution of our service offering has been accompanied by many local and international acquisitions and brand developments. In 2006, we combined all of our operating divisions, including Credit Bureau, Analytical & Decisioning Services, Auto Information Solutions, Receivables Management and Cheque Guarantee Services, as well as our network of local subsidiaries throughout Africa, into one integrated company – TransUnion “Registered with the National Credit Regulator: NCRCB4”



Dear Valued Customer,

A warm welcome to the 2nd edition of our monthly ADS (Analytics and Decision Services) newsletter.

As 2007 draws to a close and the new year awaits us with all it's new and exciting challenges, one can only look back and observe the phenomina of this year. For ADS, it has been an increadible year that has been filled with strong organic business growth, focused customer delivery and the design and release of some amazing analytical solutions for our customers. 

We would like to take this opportunity to thank you for all your loyal support throughout 2007 and may the new year be filled with success and everything of the best.

Happy holidays and we look forward to seeing you in 2008!

Best wishes,

The Editor  - Derek van Wyk

Insurance Sector's Need For Risk Predictive Technology

Increased competition in the local insurer and broker market has focused more attention on the impact that predictive risk models can have on the bottom line.

Surveys recently conducted in the USA show a strong statistical relationship between a person’s credit ratings and his or her likelihood to file an insurance claim. By accurately predicting the performance of policyholders, analytical experts are assisting SA insurers and brokers to increase decision accuracy regarding claims and policy risk, while helping to balance the premiums charged, effectively. This constant yet deliberate balancing act has resulted in real bottom line results from auto insurers in the USA, which is one reason why more than 92 percent of them are using risk predictive analytics.

“Locally, this development means that it is also now possible for insurers to incorporate advanced analytics and decisioning based on credit data into the quoting system,” said Chris van Rensburg, TransUnion Sales Executive: Insurance

“In the last six years, we have developed both generic and custom built credit data models, specifically for the short term insurance industry in SA, helping to reduce risk and the loss ratio as well as predict the potential lapse rate of a policy holder.”

In addition to managing loss ratios effectively, premiums can be aligned accurately with the individual risk of each policyholder. This is a key competitive advantage encouraging customer loyalty in a time of high churn rates.

Giving insurers and now brokers access to advanced predictive modeling empowers them with the double edge of premium flexibility over their competition, while reducing their own risk.

Sustained profitability is key in any business today and the insurance sector in the USA has found customised risk prediction to be one tool that can help them achieve it.

Locally, it appears that the SA market is due for a further shake up as custom predictive modeling will now raise the bar higher for insurers and brokers who want to offer the latest in risk models reduction and appropriate market pricing, for both them and their customers.

Who Says Marketing Can’t Be Scientific?

In today’s diverse media environment, efficient and effective marketing is much more difficult. Media prices continue to increase across all major media, particularly print and TV, putting pressure on financial directors to increase marketing budgets by the same percentage. Then considering that the same media continues to fragment more and more each year, suddenly trying to market something to an middle-upper class suburban female becomes a little expensive when you have to place the same advert in Cosmopolitan, Sarie, Rooi Rose, Glamour, Elle, Fair Lady, Femina and so forth. Each placement potentially costs anywhere between R25 – R50k individually, suddenly one campaign can cost you well over a few hundred thousand a month, especially if you practice the law of frequency and make use of several mediums to carry your message.

Add to this, the challenges with the growing cost of acquisition of new customers, who tend to be very fickle with their loyalty, not to mention the growing questions about accountability and the extent to which marketers need to show a return on investment for their activities (especially above-the-line), suddenly you find that the shoes of a marketer aren’t as comfortable to wear as they were yesterday.

So where are the solutions for marketers? One solution is direct marketing which can be data driven, measurable intelligent marketing campaigns to both new and existing customers with cross-selling, convergence and consolidation, all taken into account.

Many organisations have already discovered the significant benefit of using data and analytics to create marketing campaigns that use historical data intelligently to optimize marketing at a one-on-one level to create mass customization. However response rates are often low. TransUnion took up the challenge to apply the science hinted at in marketing textbooks to the direct marketing process.

TransUnion’s Intelligent Marketing Solution implements a scientific, consistent and above all, measurable approach to direct marketing campaigns. The solution uses analytics and modeling technology to answer some very simple questions:

  • Who is my customer?
  • What is their risk profile
  • What can they afford?
  • Are they likely to respond?
  • Where / how can I reach them?
  • Which strategy works best?

TransUnion’s Intelligent Marketing Solution brings to life the science behind textbook marketing theory, using powerful models and analytics to optimize marketing segmentation, product assignment and campaign response, effectively reducing wastage of costs and ensuring the target customer is an excellent prospect – not only from a risk perspective – but above all from a marketing context.

Instalment To Income (ITI)

In the past, the South African main stream Credit Industry has not really focused on the utilisation of income, or for that matter affordability, in their credit granting practices. To some extent credit granting policies in the mortgage and asset based finance disciplines have previously utilised cut-off at around a maximum % to Gross Income on the primary and co-applicant. By and large the Micro-Finance industry under the Micro Finance regulation has utilised an affordability structure for some eight years in their credit granting practices.

All this has changed with the promulgation of the National Credit Act. While most of the credit grantors are utilising scorecards, rules or hybrids (which determine Willingness to Pay) few understand the affordability aspect (Capacity to Pay) and its impact on the granting process.

While there may have been reservations around the affordability / reckless lending aspects, as governed in the National Credit Act, this may well prove to be a blessing in disguise given the Sub Prime contagion running through the USA Credit Markets. Had an ITI index been applied in the USA credit market, the picture may well not have been so gloomy for them and ultimately the Global Industry

TransUnion has for the past twelve months been actively engaged with numerous initiatives with Blue Chip and other credit grantors in field of affordability. One of the key trends that have emerged from the engagement and various ad hoc analysis, is indicating that Instalment To Income Ratios have consistently increased month on month. This is supported by the graph attached at the bottom of the page.

The graph depicts the Instalment to Income ratio for the consumers within the personal loans industry covering the months Jan 2007 to October 2007.


The graph clearly indicates the consistent increase in the Instalment To Income ratio month on month with the exception of the 20 to 29% band.

The increase in the > 90% band is far greater than that of the lower bands.

Utilising the base line of > 60% the observation is that 18% of consumers in these bands are potentially over committed.

The effects of the interest rate hikes along with the pre-NCA credit offers are clearly contributing to the increased Instalment To Income ratio’s

Generally the trend that is emerging across all industries is as follows:

  • The higher the Instalment To Income ratio, the higher the probability of delinquency
  • There are pockets of clients that have exceptionally high IT ratios that are performing well in some industries versus other.

To this end, TransUnion ADS is embarking on a full blown analysis utilising our Income Estimator as proxy for the gross income together with the sum of the CPA and NLR instalments by month, by industry as well as by consumer.

This analysis will support the development of a capacity or Instalment To Income Index across the various industries.

The application of this index will allow credit grantors to greatly enhance and augment their strategies across the credit life cycle. This has been evidenced in the application of the base Instalment To Income Ratio analysis carried out on an ad hoc basis and deployed in our client base as follows:

The Instalment to Income ratio retro-fitted month on month is proving to be a lead indicator in that it identifies “capacity” deterioration and or improvement by consumer. This is therefore a powerful lead indicator and is typically deployed as follows:


  • The ITI is a strong trigger in the account application process
  • The ITI is a strong trigger in the account management phase and is typically deployed to in strategies around: credit line increases, credit line decreases, re-issue for credit cards, re-activation dormant accounts, up-sell opportunities, cross sell opportunities, insurance impending lapse indicator and account management run strategies

Portfolio analysis:

  • The ITI is utilised to access portfolios as follows:
    • Portfolio analysis on the ITI in relation to the risk profile
    • Overall ITI

The New Year will see some further explorative analysis and potential development of a household Instalment To Income Ratio. This development will further augment the value proposition when utilised

To leverage off this exciting lead indicator, please contact your TransUnion representative.

Please click on the link below to view the ITI graph:

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