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Income Protection (IP) Insurance

By Tanaka Makuvaza.


Famous author and philosopher, Henry David Thoreau, once remarked, “It is not enough to be busy. So are the ants. The question is: What are you busy about?”


To that point, ZAQ Actuaries is pleased to share some work that we performed for one of our clients last year.


Our client wanted to investigate the performance of their income protection business. In particular, they wanted to understand how the actual experience of the book was developing against the expected experience.


Income protection (IP) insurance, also known as permanent health insurance (PHI), pays you, the policyholder, a regular income if you can't continue working due to disability or illness. Payment continues until you return to work or you retire.


The benefit amount is usually limited to a portion (60-80%) of your full salary. There are also support and assistance programs to help you recover to full health. In this way, you receive the necessary protection against unexpected risks. At the same time, the insurance company reduces its exposure to instances where clients are better off claiming benefits instead of returning to work.


To monitor how claims payments are developing, the insurance company must understand (1) the incidence rates i.e. how many policyholders are moving from being healthy to being sick or becoming disabled and (2) the termination rates i.e. how many of the sick/disabled lives subsequently get healthy again and return to work. Other factors such as mortality rates and lapse rates are also important in this analysis, but they have a smaller impact on the expected claims of the book.


Our analysis involved looking at the client’s historical claims data and linking their incidence experience (healthy to sick) with their termination experience (sick to healthy) – two data sets that were stored separately. We could then look at the overall experience according to factors like claims frequency & severity, age, gender, occupation, and premium income. By analysing the data, we found patterns, trends, and anomalies within the data that clarified the divergence between the expected and actual experience.


We adopted the powerful and user-friendly analytics tool, Power BI, for our analysis. This software is easy to integrate with a wide range of data sources so we could plug it directly into our client’s existing system. The main benefit of this tool is that you can link different tables and data sets. This was the key ingredient in understanding their overall experience. Using Power BI’s drag-and-drop functionality and interactive visualisations, we created insightful graphs, dashboards and reports that were easy to interpret by the end user.


That’s a wrap on another successful project, where we gave our client insights into the performance of their business quickly and cost-effectively.


Or as Thoreau would see it - staying busy doing meaningful work.




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