Actuarial news and views from Cape Town and beyond

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Climate change a hot topic in insurance?

Climate change has been a hot topic for many years now, but one seldom hears it being discussed in the mass media from an insurance perspective. Climate change has become a very real problem to insurers, specifically reinsurers, since the number of natural disasters has escalated over the years, leading to more and more claims needing to be paid out.

A good example to look at is the American National Flood Insurance Program (NFIP), which funds the claims paid out to those affected by flooding. In the past, this scheme was not nearly as it has become. As such, the scheme is re-assessing its current structure with the aim of reforming so as to reduce the burden on US taxpayers.

Key to these reforms are two factors. The first is the introduction of risk-based pricing to the current system, which would not only increase the purchasing of flood insurance, but also the choices available to the consumers as to the degree of comprehensiveness which they desire.

Secondly, the scheme wants to tap into private risk markets and reinsurance capital. This will build the pathway which will encourage the transfer of the reinsurance risk from the US taxpayers, to the private risk market.

“It is only through the broad adoption of risk based pricing and removal of subsidies, in their current form, that the NFIP can be reformed and the private insurance, reinsurance and also insurance-linked securities (ILS) market step in to provide the much-needed risk transfer capacity for U.S. flood risks.”

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Big health savings for small businesses

According to the article, many businesses have been complaining about the sharp annual increase in the premium. However, the insurers claim that it is unavoidable because they now face higher risk. To tackle this issue,  the US government is contemplating about introducing the reinsurance program where insurers are being covered against the large claims. The article states that there are couple of reasons why reinsurance can bring down the premiums. First is that insurers now can spend significantly less sum of money in doing the risk assessment. Second it attract more low risk employees by reduction of premiums. However, introduction of reinsurance program is still doubted as the cost of state reinsurance program is too high.

In the insurance market, to satisfy the customer and stay competitive, it is crucial that the premium is at the appropriate level and is affordable. Introduction of reinsurance in the insurance market is a good start in reducing the premium. Reinsurance provide several benefits to the insurer which are the limitation of large losses and reduction of claim volatility thus enabling them to have smoother profit. They all contribute to reduction of claims as insurer face smaller risks and less randomness. Not only this but insurer can take advantage of the expertise that the reinsurer have.  Despite of those benefits, reinsurance programs are often turned down because of the cost.  There are then some alternative to the reinsurance which are integrated risk cover,  insurance derivatives, swaps and etc. However those would be usually applied in smaller scale and would not fit to the state reinsurance program. Therefore best solution is that there should be an appropriate balance between the cost of reinsurance and increase in the amounts of premium paid by policyholders. One method could be increasing the excess point and introducing upper limit in reinsurance program.




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Insurance industry watches Fukushima nuclear leak closely

After explosion of nuclear plant in Fukushima Japan, many of us might have wondered how much the damage is going to cost and who is responsible for the payment of the cost.

According to this article A, estimated loss was about US $ 500 billions and according to article B, German Nuclear Reactor Insurance Association (DKVG) partially insured Japan’s Fukushima nuclear plant to the tune of tens of millions of euros.

Article B explore further about pricing of such nuclear disaster;

“The DKVG is a complex network that draws on the resources of numerous German insurers and re-insurers. For each nuclear reactor it insures, it covers up to 256 million euros in damage to third parties.

Plant operators have to assume unlimited liability for all claims beyond that value, which is why the four large companies operating nuclear reactors in Germany – E.ON, RWE, Vattenfall and EnBW – have banded together in a sort of insurance pact.

If damages from a major incident were to threaten one company with bankruptcy, the other three would step in. The pool arrangement means that together, they’re capable of covering damages up to 2.5 billion euros.

In the event of a nuclear catastrophe in Germany, the government would only subsidize the compensation of damages “if nothing more was to be had from the insurers or the operators,” Harbrücker said.”

Main point is nuclear disaster have no upper limit for loss therefore it would be impossible for any insurance company to price it correctly. Therefore such insurance will be very expensive and not only insurer but also general publics need to also share the cost.


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Article A:

Article B:






Activity trackers – new name of the underwriting game

Popularization of activity trackers such as Fitbit and Jawbone has changed lives for millions and surprisingly, it also has sneaked its way into health insurance companies’ expense management.

An activity tracker allows constant tracking of various physical activity measures such as average heart rate, calories burnt, blood pressure etc. of the wearer, enabling its users to analyze the figures recorded over time.

In order to obtain such relevant data about their policyholders, now health insurance companies are encouraging, even subsidizing such that their policyholders own an activity tracker. All the data recorded from these devices are uploaded onto a database available to the insurer, and through data mining/extrapolation and analyses of this data, they are able to uniquely underwrite their policyholders on a more regular basis at a lower cost.

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Crop Insurance, an idea worth seeding

Weather risks like drought and heavy rainfall, can have a damaging impact on the harvest and income of a farmer. These conditions have a knock-on effect on the local economy and threaten the food security of a country.

In a 2014 TED Talk, Rose Goslinga discusses the product development involved in the Kilimo Salama (now ACRE) program, launched in 2009. ACRE is an agricultural insurance agency in Kenya, primarily concerned with providing microinsurance to small scale farmers.

Traditional crop insurance relies on regular farm visits to assess the risks. These visits are not feasible for small farms in Africa, so insurers need to rely on technology and past data. ACRE uses cloud data from satellites and has developed argonomic algorithms to predict the amount and timing of rainfall.

The cover was initially difficult to sell. The intended customers, small scale farmers, didn’t trust insurance companies and hence didn’t buy the product. They preferred, and were more familiar with microcredit from organisations such as seed companies, cellphone companies and government agencies.  These organisations were taking on the credit risk themselves and limiting their own growth. ACRE realized this and decided to rather insure the loans of such organisations.

The real product innovation happened in 2012 during the drought in Kenya. ACRE introduced a replanting guarantee. One of the microcredit clients of ACRE requested an early payout so that the farmers could replant and still get a harvest for the season. This client had provided loans to about 6000 farmers in the affected area.  ACRE agreed and also persuaded a seed company to price the cost of insurance into each bag of seed. When the farmers bought new seed, they would find a card with a number in the bag. The farmers could then text the number to the insurance company, and would be allocated a satellite pixel. This would measure the rainfall over the following three weeks. If it didn’t rain, the insurer would replace the seed.

Crop insurance in Africa requires insurers to consider the needs of farmers and really understand their context and culture. Many organisations have partnered with ACRE, including Swiss Re. It will be interesting to see the future growth of this company and the uptake of crop insurance in Africa.


TED: Rose Goslinga on Crop Insurance


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SHA launches new Cyber product for SME’s

Early this year SHA Specialist Underwriters launched a new cyber insurance product to cater for small to medium sized businesses in South Africa. It is believed that smaller businesses are at greater risk of cyber threats when compared to large corporates, which brought about the need for this product.

The product aims to cover exposure to threats that a large number of businesses actually encounter, rather than a long list of complicated and unnecessary covers. Furthermore the product covers funds stolen in the process of a cyber-attack whereas most other cyber policies do not cover this loss. With an increase in ransomware attacks, the policy covers potential losses and repair costs after an attack and possibly even the ransom if other methods fail.

The need for cyber insurance products will only increase as technology advances and is integrated into businesses and computer-based operations.

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Metropolitan’s Preservation Fund Plan

Last year Metropolitan introduced its Preservation Fund Plan. This aims at preserving retirement savings when changing jobs. The need for this arose due to people often choosing to access a large part, or even all, of their retirement savings when exiting certain retirement funds.

The Preservation Plan is a flexible offering – allowing one to access or switch investment portfolios depending on what is required. Also, at retirement, members have the option to leave their retirement savings invested in the preservation fund for as long as they choose to. This aims to protect and grow retirement savings.

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