Those of you who’ve read my work will know I’m a big fan of domain knowledge. Just like banking domain knowledge is crucial for the Banking Business Analyst, insurance domain knowledge is important for the Insurance Business Analyst.
Insurance domain knowledge helps you establish credibility with insurance business users, from the front-line agency staff through to the policy administration and claims personnel.
And here’s the thing:
When you establish credibility with your business users, your work as a BA becomes MUCH easier.
Your stakeholders start to trust you. They start to listen to you.
And importantly, they articulate accurate requirements and give honest feedback on what they really need.
And that facilitates clear communication – which is top priority for any project.
In this article, I want to give you, the Insurance Business Analyst, a flavor of the insurance domain knowledge you need to at least understand the different flavors of insurance operations.
I’ve done this for banking domain knowledge, so I thought it’d be useful to do the same for insurance.
Let’s see what we’ll cover:
- Life Insurance
- General Insurance
- Personal Accident Insurance
These are the three big lines of insurance business in any large insurance company.
We’ll go through them in turn – understanding them is critical for building up your insurance domain knowledge.
1. Life Insurance
The most common type of insurance is life insurance.
Life insurance is bought to provide cover against death or critical illness and disability.
For example, if a life insurance policyholder gets a critical illness, a lump sum of money is paid out by the insurance company to him or her to cover medical and living expenses.
How It Works
You pay a “premium” to an insurance company which insures you against death and disability.
This comprises of a “Sum Assured” which the company will pay you, the insured if death or disability happens to you.
Obviously, the greater the Sum Assured, the greater the premiums you need to pay.
You also pay the premium on a pre-determined frequency, e.g. monthly, half-yearly, quarterly or yearly.
There is another insurance term called the “payment mode” which refers to how a policyholder wishes to the premium, i.e. by cash, cheque, credit card, electronic transfer, etc.
The most common kind of life insurance also a “whole-of-life” policy. In Asia we call it a “traditional” life policy.
This means that you pay premiums from the time you sign up for the policy, up till the time death or disability happens.
How Does The Insurance Company Make Money?
The insurance company takes in the premiums from all the people it insures.
Then it invests these funds and make a return.
The insurance company is betting that the returns from its investments will be more than any potential claims made by the people it insures.
What’s The Risk To The Insurance Company?
When issuing an insurance policy, the risk to the insurance company is the off chance that the insured will make a claim.
If a person tries to buy a new life insurance policy, the insurance company will “underwrite” the risk of that person making a claim.
Obviously, the lower the chance that a claim is made, the better it is for the company.
This is why when you buy a new life insurance policy, a health declaration is needed, e.g. whether you smoke, do dangerous activities like sky diving, etc. It’s all to help the underwriters assess how likely you are to make a claim.
It’s also why insurance premiums are lower for younger people – because a young person aged 25 would be deemed to be healthier than a person buying the insurance at age 50.
That’s why insurance agents encourage you to buy insurance when you’re young and just out of school!
Variations of Life Insurance
Now, we’ve discussed life insurance, but there are other variants such as:
- Term Insurance
- Investment-Linked Insurance
I’ll run through them briefly here.
Term Insurance. Term insurance is similar to “whole-of-life” insurance, with one important exception – it is time bound.
As an example, if you bought a 5-year term insurance policy, the coverage only lasts for that five years. Beyond that, you’re not covered.
The upside is that premiums for term policies are much cheaper.
Hence, people tend to buy term insurance if they sense that it is important to get extra insurance coverage over a fixed period of time.
For example, if two of your children are going to university soon, you may wish to buy term insurance to make sure you have extra coverage during that period, if something untoward happens to yourself.
Endowment Insurance. Endowments are a form of life insurance, but it is tuned to pay the policyholder a lump sum of money after a fixed period. The end of that period is called the maturity date of the endowment policy.
Endowment maturities could be ten, fifteen or twenty years up to a certain age limit. These policies also pay out in the case of death or critical illness.
Investment-Linked Insurance. As the name suggests, investment-linked insurance combines insurance protection and investments.
What happens is that the premium you pay the insurance company goes to support life insurance cover, but some part of the premium will also be invested in specific investment funds.
You get to decide how much allocation you want into a basket of funds. This “investment” component is supposed to give you additional returns – but as always, investments involve risk.
Most insurance companies include a lot of fine print about the risk of loss when it comes to investment-linked policies. Post the financial crisis, it is even more important for insurance firms to be transparent about these risks.
Case Study. If you can understand life insurance and its variants (term, endowments and investment-linked policies), you’d have a very strong foundational as an Insurance Business Analyst.
In my case, in my early career, I started out implementing a life insurance policy administration system for a large Singaporean insurer.
Through that experience, I picked up a LOT of front-to-back insurance domain knowledge. And that knowledge has stayed with me and remained relevant even today.
2. General Insurance
General insurance usually covers automobile, travel and homeowners policies, provide payments depending on the loss from a particular financial event.
These provide payouts to policyholders depending on the loss from a particular financial event.
How It Works
General Insurance typically run for a fixed period. There are three common general insurance policies that customers would buy from an insurance firm.
- Automobile insurance
- Travel insurance
- Homeowners insurance
Let’s look at these one by one.
Automobile insurance. If you buy a new car, usually you have to buy automobile insurance which you can claim against in case there is an accident. Those of you who drive and own cars will already know this well.
Travel insurance. Travel insurance is typically bought when you go overseas and need protection in case your suitcase or belongings get lost.
Homeowners insurance. You typically will buy homeowners insurance to protect your house against fire, destruction and so forth.
The distinguishing feature of the general insurance is that all of the above types of insurance run for a fixed length of time.
For automobile and homeowners insurance, you typically pay a premium and get issued a certificate of insurance, valid for a one year period.
Travel insurance would last a shorter time, typically covering a period of travel that you might do.
Besides the above three types of insurance, there are many other types of general insurance I won’t go into here.
For example, there are things like business credit insurance, marine and hull insurance or theft insurance.
The typically underwriting process for general insurance, particularly those that are more specialized, like marine and hull insurance, can be quite onerous.
General insurance underwriters tend to model risk differently from standard life insurance products. They weigh in many different adhoc criteria for assessing claims risk.
Case Study. I once had to deliver a general insurance project to a Malaysian insurance company.
Now, up till that point, I had mostly delivered life insurance projects. As a result, I knew very little about general insurance.
To beef up my knowledge, here’s what I did. I went to the Singapore College of Insurance and signed up for the certification exams.
I bought the study materials and used them to create a framework for analysis during my project.
I didn’t turn up for the exams – but that was ok, since I only wanted to get hold of the study materials.
You can do the same if you’re really serious about picking up insurance domain knowledge.
3. Personal Accident Insurance
Personal Accident insurance are a special type of general insurance (i.e. non-life) which give financial support in the event of an unfortunate accident occurring.
How It Works
Personal accident payouts usually come in two forms:
- Reimbursement basis
- Lump-sum payouts
Reimbursement basis payouts. These payouts are based on medical expenses incurred. So for example, if a policyholder sustains an injury and is hospitalized, the medical expenses incurred at the hospital could be claimed as a personal accident claim on a reimbursement basis.
Expenses that can be claimed from include hospital, surgical or even traditional Chinese physician costs.
Lump-sum payouts. On the other hand, if a policyholder has e.g. a permanent loss of a limb due to a car accident, the personal accident insurance coverage will provide the policyholder with a lump-sum payout.
Some people come to me all confused and say “Isn’t personal accident insurance just like life insurance? I mean, they both protect against serious illness, etc.”
The distinction here is important to understand.
Life insurance will provide coverage regardless of the circumstances which lead to death, illness or injuries. So a person can become ill due to accidental or natural causes and a life insurance policy will cover it.
Personal accident coverage, on the other hand, only covers injuries and treatments which arises due to an accident.
Thus, this is why personal accident plans are regarded as a useful complement to other existing insurance policies that a person may already have.
Here are some benefits that Personal Accident insurance policies may provide:
- Death Benefit – payable if there’s an accidental death (not natural death).
- Permanent & Partial Disability – payable if caused by an accident.
- Income Benefit – payable if the policyholder is gainfully employed at the time of the injury and is then unable to work due to the injury.
- Medical Expenses – many personal accident plans will cover medical expenses incurred up to a certain limit.
- Hospital Benefit – payable if you’re hospitalized due to the accident.
I hope the above has given you some great insight into what insurance domain knowledge is and how it’s useful for the Insurance Business Analyst.
4. How To Pick Up Insurance Domain Knowledge
As you can see, there’s a lot of know-how that’s embedded in insurance. It’s not something you can just pick up overnight.
And in case you’re wondering: How do I pick up more insurance domain knowledge?
Well, in my view, there are three ways you can beef up your insurance domain knowledge.
1. Read Up On Your Insurance Policies
If you’ve bought e.g. a life insurance policy, you may have come across a thick insurance policy booklet illustrating exactly what benefits you can get from the policy.
This, along with Sum Assured calculations and various terms and conditions.
One of the best ways to learn insurance is to actually READ the insurance policy you hold.
Most folks don’t read the policy details – there’s actually a lot of useful information in there.
You can get more information on the components of e.g. a life insurance policy contract over here.
2. Get Involved In An Core Insurance System Project
For myself, I was once a Business Analyst in a large-scale core insurance system project.
I had to learn about premium payment modes and frequency.
About Automatic Premium Loans (APL), as well as policy maturity, surrender, amendments, claims and reinsurance.
Not to mention agency portals, underwriting and finance.
If you ever have the opportunity to be a Business Analyst in a large insurance system project – grab it!
3. Get Good Study Materials
As I mentioned above, you can get some great insurance study guides if you sign up for e.g. an insurance certification exam.
In Singapore, the governing body that administers the certification exam is the Singapore College of Insurance.
You can go buy a copy of the study materials and study them at your own leisure.
These materials are chockful of useful information about the insurance industry.
Pick up these guides if you truly want to get into the meat of the insurance domain.
Case Study. For myself, I’d say that I learnt the most about insurance whilst I was in a project. If I were e.g. just reading an insurance textbook or study guide, I would not have understood the intricacies of running an insurance company.
Delivering a large system project for the company, however, will help cement your insurance knowledge and even bring it to the next level.
If you’re hungry for insurance domain knowledge and want to function better as an Insurance Business Analyst, then the above tips will be really important to you.
Insurance domain knowledge – understanding life, general and personal accident insurance, as well as their front-to-back processes is going to become more and more critical in the marketplace today.
You’d definitely do well to pick up all the insurance domain knowledge you need and practice building on that knowledge through real life projects.
Your stakeholders start to think of you as a “trusted insurance domain advisor“.
Until next time, have fun learning more about the insurance domain, so that you can really excel when you start doing Insurance BA work!