Introducing Life Insurance Coverage in War-stricken Zones

Definition of War Zones

A war zone is defined as a zone in which belligerents wage war on each other or a combat zone in which military forces are present or an area characterized by extreme violence.

Reasons for Life Insurers Entering War-stricken Insurance Markets

Traditionally, war-stricken areas are considered or are classified as high-risk zones or areas and thus due to the high probability of morbidity and death in those areas, these tend to become uninsurable or the prospects of being able to offer affordable insurance coverage in that market is almost impossible.

However, these areas still tend to have people with needs that need to be serviced, like for example, the need for financial provision for costs associated with burial costs or health-related events like hospital admissions. Thus due to the probability of these events in these areas being almost certain, it becomes impractical for insurers to be able to offer insurance coverage to service such client needs at an affordable cost (taking into account that people residing in such areas generally do not have abundant financial resources).

Thus an insurer entering such a market would be aiming to differentiate themselves in both the life and health insurance markets, but generally if there are no competitors present in such a market then the take-up rate of the offered products is likely to be high (dependent on customer affordability, customer literacy and customer reach).

The types of products that would tend to be offered in such markets tend to be very simple and basic, to enable costs to be relatively low and thus to allow the average prospective policyholder to comprehend the product.

Type(s) of Life and Health Insurance Products To Be Offered

The most primary life insurance product that can be offered is a funeral cover product providing a fixed lump sum on the death of an insured live. Thus the product can be designed to cover multiple lives on a single policy and the annual/monthly premium payable is usually the total of the individual premiums charged for each individual life under the policy. The fixed lump sum would generally be used to finance costs associated with the burial of an insured live. Furthermore, the product may have an additional benefit to provide the dependents of the policyholder (if the main policyholder passed on) a fixed lump sum or a series of regular defined payments for a set period of time. This benefit can be used to finance their needs following the main policyholder's death.

In addition, a basic private medical insurance product can also be offered to cover policyholder's health-related and medical-related needs. The product could be tailored to offer the following benefits:

• In-hospital benefit to fully protect a policyholder against the costs associated with any medical events associated with their admission in a hospital.
• Out-of-hospital benefit to protect a policyholder against the costs associated with any health and medical events occurring outside a hospital environment like visitations to a registered doctor or purchasing medication over the counter.

The health product may be tailored to offer one or both of the benefits outlined above, dependent on the affordability of the product. For example, the product may be designed to only cover in-hospital costs and these are always expected to be exorbitant . However, since hospital admissions in war-stricken areas are generally more frequent on average, the expected cost of insuring this risk may be higher than expected and thus the resultant premium may be significantly higher than expected. Hence the product may just generally cover out-of-hospital costs as these tend to be relatively small in size and the insurer can simply impose a limit on the amount of claims a policyholder is allowed to make in a month to make the premium more affordable. In addition, an in-hospital benefit can be offered on the request of the policyholder and thus will be dependent on if the policyholder will be able to afford the additional premium charge.

Distribution Channels to Access Prospective Policyholders

In war-stricken countries, generally, certain geographical locations tend to not be affected and thus tend to support settlements of civilizations. Thus it is expected that in such areas there is some form of infrastructure such as wholesale retailer buildings and mobile telecommunication towers. Thus an insurer entering such a market could potentially target citizens residing in such geographical locations.

An insurer could partner with mobile telecommunications company operating in the area to sell a product through their mobile network infrastructure, i.e., using USSD codes to purchase a product and submit claims.

For the population with limited literacy levels, the insurer can partner with wholesale retailers operating in the area and thus upskill employees who work at these retailers to act as agents for the insurer. Hence the employees would then sell products to the intended target market based on their needs and affordability.

Risk Management Techniques to manage Risks associated with War-Stricken Country Insurance Coverage

An insurer can partner with a reinsurance company who may specialize in providing insurance coverage in geographical locations classified as war-stricken zones. The insurer can opt to cede or transfer 100% of the risk to the reinsurer, i.e., opt for the reinsurer to retain 100% of each claim or the reinsurer would need to settle 100% of each claim. Then the insurer will expect to retain the profit portion of each premium collected and thus cede the entire collected to the reinsurer, however, it will be dependent on the reinsurance premium rates quoted and the affordability of the premium rates quoted.

In entering this market, the insurer may choose to partner with an actuarial expert like a reinsurance company who has pricing expertise in war-stricken areas. Thus the insurer can leverage off their data to develop more reliable premium rates for the prospective target market as to ensure that the premium rates charged would not either significantly under-estimate or over-estimate the risks (like mortality risk) insured in that particular market.

As part of the underwriting process (which assists the insurer in assessing the level of risk inherent in the prospective target market), the insurer can opt to develop a simple questionnaire with simple questions for both the funeral and private medical insurance products. This enables the underwriting process to be efficient, cost-effective for both the prospective policyholder and insurer and thus the premium rates determined from the combination of the answers obtained would be informed by the data obtained from the actuarial pricing expert.

In launching the products, the insurer can opt to offer an annual coverage on both the funeral cover and private medical insurance products. Thus in making an allowance for cover to be renewable regularly, the insurer based on emerging experience over the past period can correct for any significant differences between the actual and expected experiences, i.e.:

• The insurer can opt to discontinue offering insurance coverage in the particular market if experience is significantly worse than expected, however, it may be ethically impossible since a promise was made to a client and the client may still be willing to pay for the promise to be honoured in the future.
• The insurer can increase/decrease future premium rates on either or both of the products if the actual experience over the past year was significantly worse/better than expected.

In addition, to manage the risk associated with the costs associated with future claim amounts being unknown upfront or the unknown number of claims that can be made in a period, the insurer can choose to, for example:

• Limit the number of claims that can be made under a policy per period.
• Impose certain restrictions on a policy, for example, refuse to pay a claim if it is submitted by a health professional who is not registered with the insurer or a recognized health professional body in the country.
• Pay a fixed or specified amount per in-hospital visit, however, would expose the policyholder to having to settle any cost differences should the cost exceed the claim settlement amount.

Lastly, an insurer can also choose to introduce conditions such as waiting periods or exclusions in their funeral cover policies, however, this may defy the insurer's objectives of entering that particular market. By definition, death or health-related events in war-stricken areas tend to be certain and thus introducing waiting periods may be interpreted as the insurer wanting to profit from a policyholder's death without having provided the appropriate service. Hence what will assist the insurer in differentiating itself from its competitors is being able to honour the promise made to its clients in a profitable and affordable manner.

Methodology for Premium Collection and Claims Reporting and Settlement

In collecting premiums, through the country's mobile network infrastructure, policyholders can be allowed to pay for premiums by loading mobile airtime onto their mobile phones for example. For policyholders who purchased cover from wholesale retailers, they can choose to pay their premiums at the wholesale retailers at which their policies were purchased at.

In claims reporting under the funeral cover product, policyholders can be allowed to report their claims using a USSD code on their mobile phones or at a partner wholesale retailer. To assess the validity of a claim, the insurer's administration systems can be integrated with the country's national home affairs database to check if a death certificate of an insured live has been uploaded onto the database. In terms of the settlement of a claim, the insurer can:

• Pay the claim into a registered and recognized bank account.
• In the absence of a bank account, the mobile network provider may provide virtual wallets like Vodacom's Mpesa may be used.
• Wholesale retailers may be required to provide claimants with vouchers equaling the claim benefit amount or may be required to provide claimants with a cash amount equal to the claim benefit amount.

Under the private medical insurance product, a registered health professional may be required to submit a claim on behalf of a policyholder and to limit fraud risk, the policyholder may be required to approve the claim on their mobile devices (either using a SMS response or on a recognized app).