The Association of Kenya Insurers (AKI) has released its first-ever tables on Kenyan individual assured lives mortality and morbidity to replace the outdated UK 1949-1952 mortality tables that are presently in use.
Speaking to participants at the launch, AKI said it would engage the Insurance Regulatory Authority to push for the adoption of the new Mortality Tables in statutory valuations.
The association said it would also rally its members to establish a data collection centre at the secretariat to enhance compilation of data for future updates on the mortality tables.
Popularly known as life tables in actuarial science, mortality and morbidity tables are charts that indicate, for each age, what the likelihood is that an individual of that age will die before their next birthday.
A number of other pertinent statistics are then anchored on this premise.
Over the years, premium prices of various insurance products have been on a steady decline, reflecting an inverse relationship with the ever burgeoning risk exposure.
Players in the industry attribute the falling premium rates to non-observance of underwriting standards.
The absence of up-to-date statistics to guide the pricing of risk has abetted unhealthy price undercutting among insurance firms-especially in group life assurance business-and kept economic fundamentals at bay in the insurance pricing process.
"Life tables are often constructed separately for men and women owing to largely different mortality rates," explained Mr Stephen Wandera, the AKI Chairman.
Other variables that determine mortality include age, gender, geographic location use of tobacco, occupation and socio-economic class.
Alexander Forbes Financial Services which was commissioned by AKI to conduct the study said it relied on information supplied by different insurers.
At the time of the study, there were 18 insurance firms underwriting life insurance, and all agreed to participate in the study.
Though life tables provide a baseline for costing of insurance, they are used in conjunction with the health and family history of the policy applicant in order to determine premium prices.
"It is possible to come up with reliable life expectancy estimates from mortality assumptions to guide industry pricing of life insurance," said Wandera.
According to Wandera, the study might jolt many CEOs and senior executives as some insurance companies offering group life insurance charge extremely low premiums that are disproportionate to risk covered.
"Mortality data assists insurance firms in creating adequate reserves for future claims and in actuarial valuation of insurance business portfolios.
Mortality data is also critical in pension design and valuation. Studies on mortality have also helped companies to asses the impact of HIV/AIDS on insurance," he said.
On his part, Insurance Regulatory Authority (IRA) Chief Executive, Sammy Makove IRA will amend the Insurance Act to reflect the new mortality tables. "We will soon issue guidelines on the adoption of the new tables to guide the industry in their pricing of premiums."
Makove noted that the new mortality tables will enable insurance companies to optimally use their resources and thus benefit both the companies and their clients.
He further said the tables will be relevant to many other countries in the region who are also stuck with the old mortality tables of the UK.
"Some of the challenges currently facing the industry are as a result of wrong pricing, mainly through undercutting. I therefore believe these new mortality tables will provide accurate data for the management of long term business operations for all insurance companies," he said.
Financial sector deepening
Though the new mortality numbers are a great departure from the old tables that had little empirical statistics on the recent past, the data validation exercise revealed that a large number of insurance companies maintained data that contained a number of gaps, and for some companies, errors.
Consequently, Alexander Forbes which conducted the study recommended that the insurance industry carry out periodic mortality investigations to keep up with demographic changes.
The aim of this recent mortality and morbidity study is to strengthen the insurance sector in Kenya.
The project funded by FIRST, a multi-donor grant facility providing technical assistance to promote financial sector deepening, started in July 2005 and was completed in 2007.
Makove also highlighted the proposed changes in the Finance Bill 2010 contained in the recent national budget which include, extension of Insurance Regulatory Authority's (IRA's) mandate, introduction of medical insurance as a new class of business, electronic submission of returns and issues relating to outstanding premium among others.
"There will now be 13 classes of business and medical insurance now ceases to be part of the personal accident insurance class of business."
The proposed changes will give IRA power to issue guidelines on prudential management of the insurance business.
Under the suggested alterations to the Act, IRA will have the authority to share information required for the supervision of regulated firms with other regulatory authorities.