13/05/2016
Actuarial capacity in microinsurance
Henry Yan
Chair of IFoA Microinsurance Working Group
FIAA FIA CFA
The views expressed in this presentation are those of the presenter.
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Agenda
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• Context for actuaries in microinsurance
– What is an actuary?
– Ways to address supply of actuaries
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– When do you not need an actuary?
– When might you need an actuary?
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• International developments
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– International guidance for supervisors
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– International actuarial developments
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– Proposed microinsurance actuarial course outline
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What is an “actuary”?
• UK
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– Analyst, associate, fellow
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– Education, experience, professional development, code of conduct
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• International Actuarial Association
– 67 full members & 29 associate members
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B207
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• Developing markets
– no uniform definition of actuary
– may be linked to qualifications of IFoA or IAA member or postgraduate
university qualification in actuarial studies
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Types of markets for MI purposes
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• Developed market (eg UK)
– MI targets low-income customers
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• Developing market with developed market insurance (eg SA)
– MI targets low-income customers
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• Developing market with developing insurance market
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– Need to consider insurance needs of entire market including MI
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The supply of actuaries is limited
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Region
Country
IAA Status
Number of actuaries
Africa
Ghana
Associate
100 members, 1 fellow, 4
associates, 1200 graduates from
local universities
Cote d’Ivoire
Full
15 members, 9 fellows
Kenya
Full
17 fellows
Uganda
Associate
300 members, 0 fellows
India
Full
8500 members, 260 fellows, 150
associates
162
Mongolia
Associate
21 members, 0 fellows
00
Philippines
Full
310 members, 69 fellows, 67
associates
Vietnam
No act association
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Asia
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Brazil
Full
867 fellows
147
Colombia
Full
5 fellows
140
Peru
Not IAA member
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Latin America
Source: International Actuarial Association Issues Paper: Addressing the Gap in Actuarial Services in
Inclusive Insurance Markets, 2014
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Ways to address the supply of actuaries
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• National level:
– training programs in line with international standards
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• International level:
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– Actuarial analyst or technician (UK, South Africa)
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– Actuaries Without Borders
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– Training of non-actuaries in actuarial issues
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– Training in microinsurance such as microinsurance course by Frankfurt
School of Finance and Management
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When do you not need an actuary?
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• If actuaries are not present, markets adapt
• Non-actuaries can do pricing, eg credit life products
• Some providers simply follow the leader
• The sum insured may not be material, even for aggregate risks, so simplified
approach is possible
• Loss ratio may be small compared to distribution and admin costs so a simple
loading can be used
• Reinsurers can provide pricing and underwriting expertise
• Regulator can define products that do not need actuarial certification
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When might you need an actuary?
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Product complexity
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Low
Business
complexity
Medium
High
Low
Medium
High
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Don’t need an actuary
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Might need an actuary
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Under discussion by
IAIS-IAA Working
Group
Need an actuary
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When do you need an actuary?
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• Regulation requires it
• Sum insured is high
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• Product complexity is high eg health, index insurance
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• High long term reserving is needed eg annuities, disability, catastrophe
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• Risks are not predictable
• Operational risk is high, eg fraud, lack of experience, high insolvency risk
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• Lack of data doesn’t necessarily mean you need an actuary
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International guidance for supervisors
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Insurance Core Principles
• Key elements in a supervisory system for financially sound insurance
sector and adequate customer protection
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2007 Issues Paper
Regulation & Supervision of MI
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• Mutuals should be regulated like other insurance providers
2010 Issues Paper
• Aspects of mutuals differ from commercial insurance eg finite pooling
Regulation & Supervision of Mutuals etc in MI
2012 Application Paper
Regulation and Supervision of MI
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2015 Issues Paper
Conduct of Business in MI
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B207
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• Intro to MI and prelim analysis of the then ICPs as they relate to MI
• Application of ICPs can have a positive or negative impact on MI
• Barriers – affordability, geography, culture, education
• Innovations - product design, coverage and service delivery
• Proportionality – nature, scale and complexity of risks
• Fair treatment of customers
• Vulnerability of low-income customers at all stages of insurance process
• Will consider supervisory requirements for MI like solvency and actuarial
[2017 Application Paper]
Proportionate Prudential Requirements for MI
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IAIS = International Association of Insurance Supervisors: www.iaisweb.org
A2ii = Access to Insurance Initiative: www.a2ii.org
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International actuarial developments
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2013 Paper
Role of the Actuary
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• Generic document that can be adapted by member associations
• Role of a professional actuarial association and role of IAA
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• Issues regarding actuarial functions in MI markets
2014 Issues Paper
• Challenges re actuarial resources in MI and recommendations
Addressing the Gap in Actuarial Services in MI
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Actuarial toolkits
• Credit life toolkit
• Health insurance toolkit by Milliman
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[2017 Paper]
Actuarial Approaches to MI
• Framework for determining role of the actuary in MI
• Proportionate actuarial approaches to MI
• Guidance on supply / demand issues and framework for training ?
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•
•
•
•
IAA = International Actuarial Association
IAA Microinsurance Working Group
IAIS-IAA Working Group
IAA Actuaries Without Borders
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CAA MI proposed course outline
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Context
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•
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Microinsurance products, features and stakeholders
Role of the actuary in microinsurance, role of regulation and consumer protection
Product development process
Application of actuarial control cycle
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Pricing
• Steps for pricing a MI product
• Pricing issues - data, exclusions, moral hazard, adverse selection and fraud
• Pricing applications and toolkits
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Implementation
• Introducing a MI product to market
• Monitoring experience; product and process changes
• Intro to financial management – planning, reserving, profitability, solvency
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Notes:
• CAA = Certified Actuarial Analyst (or Actuarial Technician)
• Optional subject for CAA
• Assessment by 2 hour exam
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