ENID not Blyton

ENID is a term widely used, just generally not in South Africa. For some reason we didn’t import the term along with most of Solvency II.

This has nothing to do with the Famous Five. While it is most common in the general insurance space, it is relevant across the spectrum of risk management and assumption setting.

Events Not In Data or “ENID” is the forgotten cousin of “what to do with outliers in your data”.

Outliers and where to find them

Outliers are observed values substantially different from others in a sample. Some more formal definitions include:

“An outlier is an observation that lies an abnormal distance from other values in a random sample from a population”

“an outlier is an observation point that is distant from other observations”

Not these sort of outliers. Entertaining book though.

How to deal with outliers?

Simple question, complex answer. It depends a great deal on the context.

Ultimately you need to make the judgement call “are these outliers under- or over-represented in the data”. Continue reading “ENID not Blyton”

Credit Life regulations and reactions (1)

Credit Life regulations have been live for long enough now that insurers are starting to feel the impact and the shake-up of amongst industry players is starting to emerge.

There have been plenty of debate around the regulations, in part because of the dramatic financial and operational impact they will have, and partly because of how imperfectly worded they are and the scope for interpretation.

I’ll be posting about this more in the coming days.

Basing the premium on initial or outstanding balance

First, a real anomaly is the ability for insurers  to charge the capped premium rate either on initial loan balance or on the declining outstanding balance.

There are good practical reasons to want to charge a single, known amount to policyholders. It is easier to administer and policyholders have greater clarity on what they are paying. Continue reading “Credit Life regulations and reactions (1)”

Zero deductibles and innovation from insurtech

Insurance is misunderstood. Consumers ascribe malice where often practical restrictions are to blame.

Take deductibles for example. A deductible in an insurance claim decreases the number of claims an insurer has to deal with. More than that though, it reduces the claims where the administration costs of checking out the claim and paying it are large relative to the benefit to the policyholder. Sometimes these costs would have been larger than the claim itself.

In that case it does not make sense for the insurer to be processing and paying the claims – the increase in premiums required would be more than reasonable to policyholders.

Lemonade’s new “zero everything” removes the deductible and guarantees no premium increases for up to two claims per year. The reporting on this innovation has generally been silent on the practical reasons why this is hard for traditional insurers and easier for Lemonade.

Lemonade on the other hand explicitly recognise (or at least claim) that due to their AI-based claims underwriting process they can drive down costs and therefore manage small claims cost effectively.

This is important. Many complain about the lack of innovation in insurance. Removing deductibles isn’t innovation. Reducing costs to the extent it becomes viable is the step that enables differentiation and better value for customers.

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Claims analysis, inflation and discounting (part 2)

This is part 2 of a 3 part series. Part 1 is here.

Non-life claims reserves are regularly not discounted, for bad reasons and good. This part of the series looks at the related issue of inflation in claims reserving. (You’ll have to wait for part 3 for me to talk about the analysis that prompted this lengthy series.)

In many markets, inflation is low and stable. Until a decade ago, talk of inflation wouldn’t have raised much in the way of deflation either. That’s still sufficiently unusual to put to one side.

Low, stable inflation means that past claims development patterns are mostly about, in approximate descending order of importance (naturally depending on class and peril) Continue reading “Claims analysis, inflation and discounting (part 2)”

Claims analysis, inflation and discounting (part 1)

I’ve had the privilege to straddle life insurance and non-life insurance (P&C, general, short term insurance, take your pick of terms) in my career.  On balance, I think having significant exposure to both has increased my knowledge in each rather than lessened the depth of my knowledge in either.  I’ve been able to transport concepts and take learnings from one side to the other.

A recent example relates to the common non-life practice of not discounting claims reserves.  Solvency II, SAM and IFRS17 moves to require discounting aside, it is still more a common GAAP approach to not discount than to discount claims reserves.

Discounting or fiddling with inflation has some obvious implications for analysing actual vs expected analysis, reserve run offs, and reserve adequacy analysis. That some non-life reserving actuaries trip over because it’s more natural in the life space.

But, first, why are non-life reserves so often not discounted? There are several reasons typically given: Continue reading “Claims analysis, inflation and discounting (part 1)”

Current and future state of bancassurance in SA

Bancassurance, says the oracle or finance definitions online (aka Investopedia) is :

…is an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank’s client base. This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer bases without having to expand their sales forces or pay commissions to insurance agents or brokers.

Bancassurance has been a major part of European and Asian insurance markets and, for a time, was presumed to be the future of insurance distribution in most countries around the world.

What happened was different. Bancassurance has not taken off in all markets the same as it did in the early success stories. Some of this has to do with the reversal of trust relationships between banking and insurance. Continue reading “Current and future state of bancassurance in SA”