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