Munich Re: life insurance innovations should be guided by first principles

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The life insurance industry must keep insurance fundamentals and first principles ‘top of mind’ when designing and implementing technology-backed risk solutions, said Munich Reinsurance Company of Africa Limited this week during the company’s 2018 Life Client Seminar, hosted at venues in Johannesburg and Cape Town.

These so-called first principles require insured events to be definable, reasonable, manageable, and rateable, Business Development Actuary Johan de la Rey said. In an assessment of the total permanent disability (TPD) retail policy claims experience in Australia over the past decade, he noted that “Munich Re noticed a steady increase in both count and amount of TPD claims. This was not company specific as a similar trend exhibited across four major life insurers in that market.”

The consensus during the presentation was that technology-backed innovation has the potential to enhance the outcomes of tried-and-tested insurance principles and practices. The rise of automated underwriting programmes (AUPs) in the United States is a case in point. Although introduced over years ago in 2007, the uptake of such programmes was initially slow. This changed in 2015 when advanced data analytics made it possible for US risk carriers to incorporate ‘big data’ in their AUPs, including demographic data, drug prescription information and motor vehicle records. The result: 15% to 20% of term life policies in the US are currently written through AUPs don’t need blood tests at underwriting.

“The message for South Africa is that there will be a convergence of data [and we will soon have] something that will help our industry take AUPs to the same level we are seeing in the US market,” said Michal Nejthardt, Munich’s Head of Business Development.