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Motor Insurance
Tuesday, February 1, 2005
Life on the road

For a number of reasons insurers and reinsurers will think twice about pricing a life insurance product targeted at truck drivers, says Michal Nejthardt, Actuarial Analyst, Life and Health, at Munich Re.
This occupation is considered a high risk, because of the added exposure of spending longer times in front of the wheel, and driving for long hours over long distances. As it is South Africa, in particular, has a much worse accident record generally than many other parts of the world. Other local risk conditions include AIDS, found to be prevalent amongst truck drivers who spend long periods away from home and have free access to roadside sex workers.
Mr Nejthardt says that correct pricing for the risk, however, should not be too difficult. “We have a large risk pool of policyholders with some 7, 2 million registered vehicles on our roads, of which: 231 000 are heavy trucks; 1,4 million are light trucks; and, 106 000 heavy vehicle trailers. And though it may be difficult for a single direct insurer to obtain a sufficiently large enough volume of such risky business this can be mitigated through a reinsurance agreement.”
An insurer should cover low probability events, while employing HIV testing at policy inception to reduce the potential risk. Using past data and noting trends, especially for road and AIDS deaths, can further limit the risks, or at least make them more predictable.
Mr Nejthardt recommends that underwriters try to ensure their individual risks are “independent’; that is to say, try avoiding a pool of risks that, for example, might only operate in one area. Such accumulations pose a considerable risk of aggregation of claims. Limits per individual risk and/or per event might also be a useful control.
“When pricing long-distance truck driver mortality, best results are achieved by splitting out the three major risks affecting their mortality and modelling each separately,” he explains. “These are: normal mortality, added accidental death risk and AIDS mortality. These results can then be amalgamated, and assumptions about the dependence of the risks can be made.
“Certain high risks such as deaths due to AIDS could be excluded, for example by offering an accident only product, or through underwriting.”
He further suggests a way to stabilise a product for truck driver life assurance would be through the pooling of large volumes of new business. This can be efficiently done through a quota share agreement.

Copyright © Insurance Times and Investments® Vol:18.1 1st February, 2005
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