The insurance sector is witnessing a fundamental shift in risk assessment methods, with the gradual transition from reliance on traditional actuarial models to integrating behavioural data into pricing and underwriting practices, to reflect the actual level of risk more accurately and fairly, the Insurers Federation of Egypt (IFE) has stated.
In its weekly bulletin released on 4 January, the IFE said that the insurance industry has historically relied on actuarial models based on analyses of data related to risk characteristics, such as age, the nature of the insured asset, or historical accident data, to predict the likelihood of risks occurring during the term of the insurance policy.
However, the previous lack of suitable technologies limited the direct collection and analysis of this type of behavioural data in the actuarial models used, such as the individuals’ lifestyle habits, driving patterns, or the extent of adherence to safety procedures, despite these being key causal factors in exposure to risks. This has led insurers to rely on retrospective incident analysis as an indirect indicator of behaviour.
Behaviour-based insurance
Today, advanced digital solutions have emerged, enabling the insurance sector to access real-time risk data, including data related to customer behaviour, thus fundamentally transforming assessment and pricing methods.
In this context, the IFE said that behaviour-based insurance is one of the most prominent modern models that redefines risk pricing concepts by analysing driving patterns, consumption methods, or adherence to safety standards, allowing for more accurate and fair insurance prices, instead of relying on general assumptions or limited historical data.
The Federation stressed that this trend represents a real opportunity to improve pricing efficiency within the market, stimulate positive customer behaviour, and raise the level of insurance awareness, thereby achieving a better balance between the interests of insurance companies and the rights of policyholders, and enhancing the long-term sustainability of the sector.
Clear framework
The IFE emphasised that the application of behavioural insurance models must be within a clear framework of governance and personal data protection, ensuring non-discrimination among clients, upholding the principle of equal opportunity, and enhancing trust in the insurance system. It clarified that fair pricing is not limited to the accuracy of technical calculations but also extends to the clarity of standards, the legitimacy of data use, and respect for client privacy.