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The Role of the Actuary in
Inclusive Insurance
Presented to the Microinsurance Network June
Member Meeting 2017
Nigel Bowman
Chair, IAA Microinsurance Working Group
28 June 2017
Actuarial Landscape
70 full members
28 associate members
19.7 actuaries per
1m population
0.5
0.5
0.2
3.7
0.4
2.1
0.06
Source: IAA and Africa sub-committee research
Actuaries and Inclusive Insurance Narrative
• Inclusive insurance is growing
rapidly
• This is with very limited
actuarial involvement
– Lack of actuarial capacity
Question: Why bother with actuarial skills at all?
Answer: Risk management skills lead to better consumer
outcomes
Rather ask:1. When to involve actuarial skills?
2. What services should be performed by a person with actuarial skills?
What does an actuary do?
Technical definition
• According to IAA, in the context of insurance,
actuarial skills are used to establish premiums,
policy and claim liabilities, and appropriate
capital levels. Actuaries apply analytical and
technical skills, professionalism, judgment and
context to balance the interests of various
stakeholders.
• A qualified actuary is a professional trained in
evaluating the current financial implications of
future contingent events. It is the actuary’s job
to assist in the scientific analysis and
quantification of risks.
Broader definition
• Actuaries are trusted advisors who give practical
solutions to business problems with
quantitative backing and an understanding of
how all the moving parts fit together.
Actuaries apply actuarial control cycle as their conceptual framework.
Joint IAIS-IAA project
IAA Paper
Proportionate actuarial approaches to inclusive insurance markets
Product risks
Provider risks
IAIS Paper
Proportionate prudential approaches to inclusive insurance markets
Supervisory capability
Maturity of consumer market
Level of actuarial capability
5
Business and
actuarial focus to
address customer
needs
Supervisory and
market focus to
address customer
needs
4 key stakeholders
• Progress limited by key player with least capacity
• Common ‘language’ encourages discussion and improves
understanding between and within key players
6
Supervisors
Actuarial
service
providers
Product
providers
Community,
Policyholders
IAA paper framework
• Two key questions:
– How does one determine when actuarial skills are needed?
– What services should be performed by a person with actuarial
skills?
Pro
du
ct
risk
Provider risk
Step 1:
Product risk assessment
Step 2:
Provider risk assessment
Step 3:
Combined assessment of
product risk and provider risk
Step 4:
Overall risk assessment
Step 5:
Proportionate actuarial
approach based on overall
risk assessment
Example credit life product
• Composite credit life and health product
• Distributed by large MFI to own customers
• Extensive market research prior to launch
• Insurance compulsory for new / renewing loans
• Benefits
– Life cover = 3x loan amount
– Hospital cash = 14 USD per night
Step 1: product risk assessment
– Client: awareness and understanding of insurance is
very low. Potential reputation to MFI.
– Data: No experience data available except public
statistics. Used experience from elsewhere and
adjusted.
– Fraud potential: Anecdotal high levels of corruption
and potential for fraud.
Product risk score: 3.1 out of 4
Step 2: provider risk assessment
– Product design capability: insurer had no prior MI
experience.
– Sales and customer education: poorly educated
customer base with no prior knowledge or insurance.
– Administration: MFI and insurer had no prior claims
processing experience for this customer base.
– Technical insurance management: could not obtain
reinsurance, MFI monitoring capacity low and insurer
did not allocate many resources due to small scale.
– Etc
Provider risk score: 3.45 out of 4
Steps 3 & 4: combine & review
Low(0 to 1)
Moderate(1 to 2)
Medium (2 to 3)
High(3 to 4)
High(3 to 4) X
Medium (2 to 3)
Moderate(1 to 2)
Low(0 to 1)
Pro
du
ct
risk
Provider risk
Reflect whether the overall high risk rating is reasonable and justify
and alterations.
Step 5: proportionate actuarial approach
• Data collection and administration:
– MFI adapted MIS to capture relevant data
– MFI included claims reporting in regular management
reports and internal audit
• Sales and customer education:
– MFI sought alternative ways of communicating
through community gatherings
– Tested customer understanding after 3 and 6 months
and adjusted messaging and processes
Concluding thoughts
• Risk assessment framework
– Useful tool to systematically guide users through risks
– Focusses mind on key risks so solutions can be developed
– Iterative process, needs to be reviewed regularly
• Two actuarial / risk management perspectives
– Narrow, technical actuarial vs broad operational risk role
– Technical role limited for most simple inclusive insurance
products
– Actuarial skills with appropriate experience are well placed to
play the broader role
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