Successful risk protection products depend on finding a perfect balance between product design and price, with teams of actuaries working behind the scenes to measure the impact of distribution and underwriting practices on price, and the impact of price on sustainability. Ingrid van den Goorbergh, recently appointed Head of Product and Pricing at Munich Re of Africa (MRoA), explains that many insurers and reinsurers combine their product and pricing teams to accommodate the close relationship between these disciplines.
“When you develop a new insurance product, you start with the intended customer and a detailed assessment of their protection needs, which often requires considering affordability alongside coverage,” says Van den Goorbergh. “The interlink between product design and price can make it inefficient for one team to focus on product before handing the project over to a pricing team.”
Risk management and underwriting, both important considerations in the product design process, have a significant impact on price too. Reinsurers can therefore manage risk using product design (by limiting sums insured or age of entry or pre-existing conditions among a range of other factors) or allow for the additional risk in the price.
The layperson often confuses pricing with underwriting, but there are subtle differences. Underwriting is best described as the assessment of an individual’s risk profile against a benchmark usually a “healthy life”, and then apply risk-appropriate loadings to a base rate or premium. Pricing, meanwhile, reflects all the inherent risks in the product, including the level of underwriting that takes place. “It is an overarching function that requires looking at risks across the entire product and not only at the individual’s risk level,” says Van den Goorbergh.
Van den Goorbergh has been with MRoA for three years, initially in a technical pricing team lead role and, from 1 October 2021, as Head of Product and Pricing.
“I am responsible for product development and pricing within the P&P team, making up the actuarial or technical hub of the Life business,” she says.
The reinsurer’s product and pricing division is separated into three teams to handle individual life, group life and basis development. Prior to joining MRoA, Van den Goorbergh spent almost two decades working at direct insurers in South Africa and the United Kingdom, where she specialised in life insurance, but has also had exposure working in the pensions and savings industries.
The Covid-19 pandemic has had a huge impact on global reinsurers, with group risk portfolios being particularly hard hit through 2020 and 2021.
“Industry stakeholders have had to assess the pandemic impact from both a human perspective and a profitability perspective,” says Van den Goorbergh.
The increased number of death claims has resulted in significant margin erosion in certain portfolios, with the pandemic wiping out profits that had accumulated over the past five to 10 years. Rising claims volumes have also contributed to massive backlogs at both insurers and reinsurers.
The industry has responded to the pandemic claims experience by turning up the dial on underwriting requirements.
“It is difficult for an insurer to backtrack on a product that is already available in the market; we can control risks by reducing sums insured or maximum entry ages or asking more medical questions at underwriting,” says Van den Goorbergh.
Reinsurers are also in constant conversation with their insurance partners about pricing. In the pandemic group risk context, insurers and reinsurer can adjust premiums at annual renewal, based on the historic and forecast claims within a specific group risk scheme. Price adaption on new individual risk protection policies are inevitable too, given the impact of the Covid-19 disease on mortality experiences.
Technology is playing a role in boosting efficiencies and improving costs in underwriting. “We have been using underwriting rules engines for some time,” says Van den Goorbergh. “And we have a specialist regional team working on augmented underwriting using machine learning algorithms.”
The idea is to speed up the underwriting process by identifying lower risks and presenting these risks with fewer underwriting questions or less stringent medical underwriting requirements. “An insurer that can be more selective about which risks to refer for further tests can make it easier for customers to buy insurance by simplifying the process; but may have to make trade-offs in pricing to accommodate for risks that might slip through due to underwriting compromises,” concludes Van den Goorbergh.