Actuarial news and views from Cape Town and beyond

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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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Reinsurance Challenges “More Than Just a Soft Market Cycle”

According to Fitch Ratings, the challenges faced by traditional reinsurance firms are likely to “extend beyond a normal soft market cycle” as factors such as the growth of alternative capital, changes to the value-chain and higher regulatory costs all weigh on reinsurers.

Reinsurance prices are expected to fall by up to 10% during 2016 (Moody’s) and Fitch warns that prices have not yet found their floor. The reinsurance industry has come under extreme price pressure recently due to high competition; an excess supply with little demand;the benign claims environment from natural catastrophes, and the growth of alternative capital (including investment linked securities (ILS) such as catastrophe bonds).

Alternative capital could be seen as a key competitor to traditional reinsurance: by purchasing catastrophe bonds, an insurer transfers risk to the capital markets instead of transferring the risk to a reinsurer through a more traditional catastrophe cover. Since the pricing of catastrophe bonds is relatively low, reinsurance is becoming less attractive to insurers. Alternative capital will likely increase pricing competition further in the future. It is after the next major catastrophe events that this may become most evident, when the traditional players find they cannot ramp prices in the wake of losses as much as they would have liked to, due to inflows of alternative capital.

Current pricing levels are only just exceeding most reinsurers cost-of-capital and as the softened cycle persists, the risks which reinsurers struggle to manage change are set to increase. The current reinsurance market is one in which new business models  for insurers are emerging which seek to extract more of the value from the premiums underwritten, rather than passing them onto reinsurers. Reinsurers are becoming increasingly aware of the need for efficiency and low costs of capital, while using technology to adapt to the changing market. The market may be shocked by how quickly conditions become radically different over the coming years and only those who are willing to embrace and manage change will thrive.

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Munich Re in the early stages of developing risk solutions for financial loss due to epidemics

Epidemics pose a threat to health, and are thus factored into life insurance, but they also often negatively affect a country’s economy (for example, through a big drop in tourism), so why are they not factored into general insurance?

Munich Re has joined forces with a company from San Francisco, Metabiota, which has developed epidemic risk analytics. Using these data analytics, it hopes to develop viable general insurance (and reinsurance) solutions to protect against this economic loss during times of an epidemic. This is very important for the recovery of economies after an epidemic has struck.

For more detail, see


A recent example of an epidemic for which the insurance and reinsurance implications have been explored, is the Zika virus. Although the effects on existing life products have been looked into, hopefully in the future (if Munich Re’s attempts are successful), we will see more focus being placed on the risk solutions for the economic effects of such an epidemic.

For more information, see