- Actuaries as catalysts for Pakistan’s insurance sector
Pakistan’s insurance industry has over the years being experiencing steady growth, but it is currently experiencing many difficulties which includes the lacking or ineffective regulatory frameworks, sluggish sales function, and missing of sophisticated methodology as well. The role of the actuaries is the key element that may provide a way much to these problems is the involvement in the work of the non-life sector. The insurance sector in Pakistan has considerable constraints such as; inadequate regulations related to general insurance, inconsistency in sales practices and small size of general insurance. Nevertheless, the actuaries can be the critical tool in the process by applying the advanced methods, strengthening their soft skills and participating be forecasting and epidemiology. They are able to do so by playing a role in the sector’s growth, working towards making it more competitive which in turn causes the consumers to benefit and the overall economy to thrive.
Huge frustration is introduction of the insufficient regulation in the sector of non-working life insurance. Securities and Exchange Commission of Pakistan (SECP) has come up with a proposed Ordinance 2020, and a Risk-Based Capital (RBC) Concept Paper, however, they are yet not finalised and the implementation is still in the grey areas. Despite the exciting possibility of actuarial contribution to the sector, the lack of regulatory formulation is the main hindrance to its prompt involvement. But the absence of these large actuaries in the health insurance market, the interested parties are inattentive to the increase number of actuaries in the payroll in order to offset the impact of rising costs on their organisations. Nevertheless; they actuarial understanding, such as technical efficiency and upcoming assets can still be gained without the regulations. Non-life insurers in such unregulated markets will presumably spend only very far on the ground justification for actuaries to build their analytical regiments.
Another serious problem is the sales function’s disinclination to be professionally involved in such non-life lines of business like motor or marine, health and fire underwriting. Pricing of insurance products by and large depends on commercial factors, and since actuarial underwriting discipline formation is difficult through the actuarial pricing, the traditional view on insurers’ pricing would say that insurers would only make profit above their expected costs, once the customers who have got higher claims than expected would be compensated by the payment made by the customers who have made claim below their expected costs. There is more especially in a health service sector in the matters concerning short price changes as they can make your business to be made irrelevant.
However, the general insurance sector of Pakistan is another mini-industry with the leading large and some small companies as the only customers. In retailing of motor, medical, and fire/home insurance services, it is direly needed for the field to make those great improvements only a few have made. Even though several selling bans of internal combustion vehicles TPL are on, in reality, the enforcement is still weak. Naïve of the public, substandard product, lack of decent approaches to marketing and inadequate operations are the major problems that make the insurers being out of interest for potential policyholders.
This is also true of another problem, which is the discomfort of customers towards insurance institutions. The widespread impression is that insurance agents who engage with customers are dishonest, thus, this is the first barrier faced. The situation is not commendably beautiful with the poor person’s income, low rate of GDP per capita and the macroeconomic problems but where there is a will, there is a way as it is the shape of transparent universal healthcare in Pakistan.
Challenges
The challenges for an actuaries in coming up with advanced methods include a nascent market, an extensive focus on fundamental principles, and a non-existent financial incentives for anything highly sophisticated. Currently, the market has an inflated view of its own importance, which leads to the basics being the only concerns for anyone, and any sophistication is regarded as a waste of time. In R&D, the actuary view it as if the work is a sidetrack and they always have numerous current workload to attend to, leaving them no free time that could be used for their hobbies or improving skills. Needless to say, companies will commit to paying for likely and base-case scenarios only, but not for stochastic loss. Therefore, the level of sophistication of a model cannot be justified effectively.
In order to overcome these hurdles, it will be crucial to embrace new actuaries into the sales function so more would be welcomed to the companies. This could be done by carrying out a campaigns to underscore the advantages of the actuarial balance, and by bringing to attention the win-win situation between the two disciplines. Actuaries can also step up their game and put in their bit on product development side which in turn elevates them to strategic management partners and not only expense centers. This will manifest through generating more appealing products as well as working procedures for enhancing the client experience, getting rid of any hassles, and boosting the credibility and outlook of insurance in consumers’ minds.
In addition to that, they will be able to partner with medical teams and conduct epidemiologic studies to assess the trends of disease burdens and claims. This may cover such undertakings as production of charts giving out data and numbers to be used for data-basis decision. Actuaries should also work on their soft-skills by honing communication and negotiating skills that will allow them to express their technical expertise in a simple language that non actuaries will easily understand.