Actuarial Science - The Insurance Industry Saviour?

When the insurance regulator directed all market players to house actuaries in their premises as one of the ways to rein in the risk-fraught industry, one of the country’s little known profession was recognised.

Actuary, one of the little understood skilled careers in Kenya, is now hogging the limelight after the Insurance Regulatory Authority (IRA) admitted that prudent underwriting of policies, especially in life insurance, cannot be achieved without regular evaluations.

“The authority requires all insurers to have a robust actuarial function that is well positioned, resourced, and properly authorised and staffed, essential for the proper operation of the insurer,” says a clause in section two of the Insurance Act.

According to market experts, this could be the solution to what has always been the Achilles’ heel in the country’s underwriting portfolio.

More risky undertakings

“Insurance companies are now involving themselves in more risky undertakings, hence more exposure. This calls for more expertise which can only be achieved by actuarial skills,” said Mr Sundeep Raichura, the managing director of Alexander Forbes.

In the past decade, the country has witnessed the failing of six insurance companies in quick succession, which IRA commissioner-general Sammy Makove admits could be blamed on lack of these skills, in addition to poor corporate governance.

So the authority, cognisant of the increasing risk portfolio in the sector and riding on the campaign for positive perception among consumers of insurance matters, cannot afford to have another collapsing insurer as a result of imprudent underwritings policies.

According to Mr Makove, the directive was pegged on global best practises that would keep the country at par with its peers and check an insurer’s shortcomings, which would otherwise go unnoticed.

“Our aim is to build a better, stronger, and more stable insurance sector that will give more confidence to the consumer and empower regulated entities to deliver more relevant, affordable, and creative services to their customers,” said the IRA’s chief executive.

Actuaries are trained to come up with risk assessment. And because insurance companies deal with uncertainties, they are well placed to have these professionals help them prevent major losses in future.

They offer adequate evaluation on, among other requirements, the correct pricing of a policy and its relevance to the market. Wrong pricing can lead to higher compensations and low premium returns, leading to fatal losses.

But with the importance of these skills in insurance management, few insurance companies can afford to keep a stocked unit of actuaries in their premises because of the high remuneration of these professionals.

Underwriters would outsource these services from actuarial firms, say, Alexander Forbes, Ernst and Young, AON, and Actuarial Services (EA) Ltd, to cut down on hiring charges.

More of this at  http://www.nation.co.ke/Features/smartcompany/Will+actuarial+science+save+the+insurance+industry/-/1226/1611738/-/f9nwfsz/-/index.html