OESAI : LIFE INSURANCE TECHNICAL TRAINING 12-13 OCT 2016 – TRAVEL LODGE, GABORONE BOTSWANA Presented by Ezekiel Macharia, Chief Actuary (KAFS)

Life Underwriting Challenges & Policyholder behaviour OESAI COMPREHENSIVE LIFE INSURANCE TECHNICAL TRAINING Ezekiel Macharia Chief Actuary – Kenbright Actuarial & Financial Services Day 2, Thursday 13th October, 2016

One insurance rate for All? 6.5 times lower on GDP per capita One insurance rate for All?

AGENDA Why Underwrite Challenges Policyholder behaviour Conclusion

Why Underwrite

Why Underwrite: Risk Management Rating terms are based on averages Clients may deviate from this average Underwriting allows for the insurer a leeway to assess clients compared to the average

Why Underwrite: Sales Process Limited opportunity to rate appropriately Less questions means more sales Less questions means more risk & uncertainty Technology may solve this BUY INSURANCE

Making a Life Insurance Sale Before underwriting (High Sum Assured) Ten people want to buy a life insurance policy with a sum assured of $100,000 Each requires a medical report as per the underwriting guidelines for the sum assured requested Also required to fill in 10 page questionnaire

Making a Life Insurance Sale Five people give up!! Three people are ok One requires premium to be adjusted with exclusions One is rejected After underwriting (High Sum Assured) Load OK OK OK Decline

Why Underwrite: Moral Hazard When the client knows more than you. They knowledgeably get a great deal at insurer’s expense. Individual level For example, terminally ill person buying a death benefit. Does a very health person buying a pension translate to moral hazard?

Why Underwrite: Anti-Selection Attracting the wrong demography. For example, getting more smokers than you expected in your assumptions. At group level

Challenges & Mitigation Increasing Rating Factors Vs Sales Age Gender Smoker/Non-smoker Location Morbidity Factors Written Disclosures & Individual test

Actionable Steps in Underwriting Accept (no changes) Accept (with premium change) Accept (with benefit reduction) Reject

Actionable Steps at Claim Stage Check for fraud AML Underwrite on claim Exclusions/Moratorium Enhance underwriting process from claims

Challenges in Africa Pricing Others Fraud Internal Data At underwriting & claims stage Internal Data Insurers & Intermediary data not collated Trust in Insurance You don’t get anything back especially protection plans Secondary Data Limited comparison data Underwriting Limited data collected for underwriting Confusion with Banks Comparing sum assured and bank savings Margins Loading the price to accommodate for uncertainty High Distribution Costs Can be as high as 50% of premium

Underwriting Cycle Soft premium rates in group business Retail business but may bring stability in long run

Policyholder Behaviour Policyholder behaviour changes with age

Botswana Population by Generations Policyholder behaviour changes with age African population is younger than the global propulation Maturist Baby Boomers Gen X Gen Y Gen Z

Botswana Population by Generations Gen Z Gen Y Gen X Baby Boomers Maturist Insurance is an old concept Are we using the wrong tools?

Conclusion We underwriting to mitigate the risk of uncertainty Actionable steps can be taken in underwriting and at the claim stage Data is critical for pricing Underwriting cycle significantly affects group business Policy behaviour should be viewed from a generation perspective

? QUESTIONS ezekiel@kenbright.co.ke +254 722 540 045

Actuarial & Financial Services Kenbright – established in 1993