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Pricing for Life Insurance products simplified, here’s all you need to know

Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment.

Life insurance product buyers are set to enjoy more accurate pricing for life insurance products following the launch of the Assured Lives Mortality Tables by the Insurance Regulatory Authority of Uganda (IRA).

The 2015-19 tables will offer up-to-date reflective statistics that will be used by Life Insurance companies currently operating in the market, as a baseline for costing risk for better and accurate pricing.

A mortality table indicates the rate of deaths occurring in a defined population during a selected time interval, or survival from birth to any given age. The table thus shows the general probability of a person’s death before their next birthday, based on their current age.

The tables are used to inform the construction of insurance policies and other forms of liability management.

Uganda, like most other African countries, has been relying on mortality tables developed in the developed economies to come up with suitable premium rates. This, however, could not give a true representation to aid the setting of accurate premium rates given the difference in mortality rates.

Speaking at the launch at Serena Kampala Hotel on March 28, the IRA Chief Executive Officer, Alhaj Kaddunabbi Ibrahim Lubega said this was a great achievement for Uganda as a growing economy. He noted that Uganda now joins South Africa and Kenya, as the only countries on the African continent with mortality tables.

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The CEO applauded the World Bank team for supporting the development of the Assured Lives Mortality Tables for Uganda, saying they will go a long way in promoting accurate pricing of insurance products and valuation of technical provisions. 

Alhaj Kaddunabbi also applauded the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI), for having started the journey for the development of the tables by funding the initial research into the project.

Additionally, he commended life insurance companies for cooperating and submitting the necessary data that aided the development of the tables.

The process involved the development of data collection tools and data collection from all life insurance companies.

The collected data included figures for all products and all lives under the Individual and Group Business during the five years ending 31 December 2019.

The CEO noted that all life insurers were directed to use the Assured Mortality tables, effective August 1st, 2021 to price new individual life insurance and annuity products.

He pledged IRA’s commitment to continue creating an enabling regulatory environment to promote sustainable growth of the insurance industry as well as protect and safeguard policyholders.

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Enhance product development

In a speech read for him by the Deputy Secretary to the Mr. Treasury Patrick Ochailap, Finance, Planning and Economic Development Minister, Hon. Matia Kasaija applauded IRA for developing the Mortality Tables, saying that using out-of-date tables from countries with more developed markets for pricing life insurance products was unlikely to reflect the likely lifespans of Ugandans.

He noted that the developed Mortality Tables will among others, enhance product development, improve affordability of insurance products, allow for more accurate actuarial modelling to better protect policyholders, increase credibility in the industry as well as stimulate competition to bring about sector growth.

He added that true mortality tables can allow better projections for mortality rates, which will ensure more accurate pricing.

The Uganda Insurers’ Association Life and Pensions committee chairperson, Mr. Emmanuel Mwaka committed to using the Mortality Tables to further deepen the penetration of insurance through correctly assessing and rightly pricing the various solutions they offer their clients.

He noted that there is need to add insurance penetration as one of the yardsticks to achieve middle income status. This, he said, will enable them track the industry’s contribution to the economy, noting that a population that saves is one that is usually insured.

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Mr. Mwaka pledged that the secretariat would recruit a professional actuary who will work with all insurance companies to ensure that the data that is submitted for mortality tables update has all the required bits.

Mr. Brian Akimanzi, a Senior Financial Sector Specialist at the World Bank Uganda office said that the  World Bank saw it necessary to fund the development of the Assured Lives Mortality Tables for Uganda to enable accurate pricing, owing to the tremendous growth posted in the Life Insurance segment over the years.

He noted that written premium for life insurance companies rose from UShs100 billion in 2015 to over UShs324 billion in 2020, representing an annual growth of about 27%.

He added that this study has allowed the industry to start collecting critical information in a consistent manner and that it would ensure that crucial data is available for the next mortality study in Uganda. Mortality tables are updated regularly to allow for the expected improvement in mortality as a country develops.