Life insurance premiums set to rise

By  JOHN NJIRU
Posted  Tuesday, December 25  2012 at  02:00

In Summary

• Industry sets out to review the mortality and morbidity table to determine the accurate amounts that those covered should pay

Kenyans are likely to pay higher premiums for life cover in five years’ time as the insurance industry embarks on a new project to review the current mortality and morbidity rate table.

The Association of Kenya Insurers (AKI) has started collecting data with the aim of expanding the current KE 2001-2003 mortality tables.

This is likely to push premium costs higher, especially whole life annuities since the life expectancy of the average Kenyan increased to 64 years, up from 55 two years ago, according to a report by the University of Nairobi titled State of the Tropics.

“This may translate to paying a little higher for the premiums, but it also means the consumer is better protected and is paying rightly calculated premiums,” said Insurance Regulatory Authority (IRA) chief executive Sammy Makove.

AKI said it would take nine months to collect data collection for the years 2004 to 2010. This will be used to formulate the next table in order to come up with accurate pricing and writing of premiums in the current life market.

“This is a five-year periodic project that is used to include data in the mortality tables that is current and more reflective of the mortality situation in the country,” said AKI’s chief executive, Mr Tom Gichuhi.

This is in line with the market regulator’s directive which sought a locally available table, reviewed in five-year periods to accurately assess Kenya’s demographic details.

The mortality rates table will be used to show the rate of deaths that occurred in the country within the period of study, or survival since the time of birth to any given age.

Life insurers will then use the statistics to calculate the likelihood of a person’s death before their next birthday, based on their current age.

Undertake evaluation

Using the information, the underwriters will be in a position to price insurance products, undertake actuarial valuation of business portfolios, and design pension models.

It will also be useful at a national level in resource planning and utilisation, especially in the provision of medical services.

Until its formulation, local insurers were dependent on Britain’s UK 1949-1952, or South African tables, leading to wrong premium pricing and inaccurate products because of the contrasting life expectancies between the regions.

“Insurers used to employ the (mortality) tables that are not realistic with our market. Even the use of South African tables by their insurers in our markets, however close their demographics would be to ours, was not accurate,” said Mr Gichuhi.

In 2005, AKI partnered with Alexander Forbes Financial Services and Qundiem Consulting of South Africa to carry out a market study, resulting in the KE 2001-2003 mortality table.

The project, funded by FIRST Initiative, was conducted in four phases touching on ordinary assured lives mortality experience, group lives mortality experience, annuitants mortality experience, and morbidity experience. 

The table was entrenched three years later into The Insurance (Amendment) Regulations 2010 for calculation of liability under life insurance policies in the country.