Insurers turn to actuaries to save the risk-laden industry

When the insurance regulator directed all market players to house actuaries in their premises as one of the ways to rein in the risk-fraught industry, one of the country’s little known profession was recognised.

Actuary, one of the little understood skilled careers in Kenya, is now hogging the limelight after the Insurance Regulatory Authority (IRA) admitted that prudent underwriting of policies, especially in life insurance, cannot be achieved without regular evaluations.

“The authority requires all insurers to have a robust actuarial function that is well positioned, resourced, and properly authorised and staffed, essential for the proper operation of the insurer,” says a clause in section two of the Insurance Act.

According to market experts, this could be the solution to what has always been the Achilles’ heel in the country’s underwriting portfolio.

More risky undertakings

“Insurance companies are now involving themselves in more risky undertakings, hence more exposure. This calls for more expertise which can only be achieved by actuarial skills,” said Mr Sundeep Raichura, the managing director of Alexander Forbes.

In the past decade, the country has witnessed the failing of six insurance companies in quick succession, which IRA commissioner-general Sammy Makove admits could be blamed on lack of these skills, in addition to poor corporate governance.

So the authority, cognisant of the increasing risk portfolio in the sector and riding on the campaign for positive perception among consumers of insurance matters, cannot afford to have another collapsing insurer as a result of imprudent underwritings policies.

According to Mr Makove, the directive was pegged on global best practises that would keep the country at par with its peers and check an insurer’s shortcomings, which would otherwise go unnoticed.

“Our aim is to build a better, stronger, and more stable insurance sector that will give more confidence to the consumer and empower regulated entities to deliver more relevant, affordable, and creative services to their customers,” said the IRA’s chief executive.

Actuaries are trained to come up with risk assessment. And because insurance companies deal with uncertainties, they are well placed to have these professionals help them prevent major losses in future.

They offer adequate evaluation on, among other requirements, the correct pricing of a policy and its relevance to the market. Wrong pricing can lead to higher compensations and low premium returns, leading to fatal losses.

But with the importance of these skills in insurance management, few insurance companies can afford to keep a stocked unit of actuaries in their premises because of the high remuneration of these professionals.

Underwriters would outsource these services from actuarial firms, say, Alexander Forbes, Ernst and Young, AON, and Actuarial Services (EA) Ltd, to cut down on hiring charges.

The directive to run an actuarial outfit is causing mixed reactions in the market, being welcomed among actuaries and received with scepticism among insurers.

“I am happy. I have been pushing for a long time for this policy to be implemented. It will cement the few gaps in the insurance sector,” said Mr Raichura, who also doubles as the head of The Actuarial Society of Kenya (TASK).

Britam Group managing director Benson Wairegi said the directive was well informed, noting that his company has hired two actuaries.

Kenya is home to 47 insurance firms, the latest entrant being AAR, and with licensing of Resolution Health being in the pipeline, the companies will have to make do with the less than 15 resident actuaries.

This is despite the fact that actuarial science, a course that sets students on the path to becoming actuaries, was introduced in local universities in 2000 at the University of Nairobi, followed by Jomo Kenyatta University of Agriculture and Technology in 2005.

Since 2009, it has become one of the most coveted courses in the country after medicine and engineering. The course is now offered at Maseno, Moi, Kenyatta, and Strathmore universities and their constituent colleges.

With its entire syllabus loaded with calculus, probability, and statistics, the course is only receptive to those whose spine has withstood the test of mathematics.

The fad has led to inception of parallel courses, where students who have failed to gain admission competitively, and have a B+ in mathematics, can enrol for the programme. A spot survey by Smart Company found that only 388 of the 595 students admitted to the course have graduated.

The University of Nairobi has produced 105 of the 150 students it admitted, Jomo Kenyatta (200 out of 230), Maseno (50 out of 60), Kiriri Women’s University (12 out of 15), and Kimathi University College (21 out of 25).

Alarming number of drop-outs

The alarming number of drop-outs has been blamed on lack of guided information on the course and misplaced career guidance.

“The course needs a highly dedicated level of discipline, hard work, and resolve. It needs constant progress of dedication for one to achieve it,” said Mr Raichura.

The numerous examinations that a graduate has to undertake before one is certified has also discouraged many prospective actuaries.

The international examinations that a graduate of actuarial science is required to pass in order to gain admittance to the exclusive club include those from the Canadian Institute of Actuaries (CIA), Britain’s Institute and Faculty of Actuaries (IFA), Institute of Actuaries of Australia (IAA), and the American Actuarial Society (AAS).

For example, the IAA, which is popular and is chosen by 95 per cent of actuarial science students, demands that one passes 15 papers before accreditation.

This means that one requires at least seven years of two papers each year without any failed examinations for one to gain this qualification.

The examinations, touted to be some of the toughest in the world, are also expensive and, therefore, out of the reach of many students in the country who do not have sponsorship.

The average cost of one paper, inclusive of tuition and learning materials, is £550 (about Sh76,000).

It is that rough patch that students are wary of — the long hours and the finances required to complete the course.

Although actuarial science graduates are expected to be given exemptions on some papers, Kenyan students are not so lucky because the local course is not internationally recognised.

Prof Patrick Weke, the head of University of Nairobi’s School of Mathematics, says one of the reasons for lack of exemptions is because students are not taught by qualified personnel.

“Lecturers should be well trained in the area of actuarial science. These institutions should also have international linkages, encourage their students to register and write professional exams, attend conferences and actuarial conventions, and generally participate in actuarial meetings locally and internationally,” he said.

Mr Raichura agrees.

“It takes long for an institution to be accredited by international professions. This is because of lack of qualified actuaries teaching in respective institutions,” he said.

Exempted from papers

TASK, he says, is in talks with various resident actuaries to offer their services in local universities for speedy accreditation.

The University of Nairobi is the only institution whose students can be exempted from some of the South African Actuarial Society papers after the two signed a memorandum of understanding last year.

Accreditation of TASK, the umbrella body of the actuarial profession, to the International Actuarial Association’s membership has also boosted the industry.

“We have engaged Britain’s actuarial faculty, IAA, to enable students to test their professional skills after their second year at university. A student will be able to graduate with at least two papers,” said Mr Raichura.

Despite the drought of actuarial skills, Kenya is the only country in the region and Central Africa offering these courses.

Prof Weke said there are about 950 actuaries on the continent mandated to evaluate a market worth Sh260 trillion, which signifies an acute shortage in the skill.

“These facts are devastating. Countries in East Africa depend on us for development of their financial markets and we need to position ourselves to meet this demand,” said Prof Weke.

To demonstrate its commitment, the government has introduced a programme in which it sponsors five students every year for actuarial courses at the Cass Business School.

The learners, who must have completed five professional papers before being considered, are expected to be posted to various financial institutions upon accreditation.