Southeast Association of Actuaries April 1, 2003.
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Transcript of Southeast Association of Actuaries April 1, 2003.
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Southeast Association of Actuaries
April 1, 2003
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Interactions of Actuaries and Brokers
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Brokers and Actuaries MUST Cooperate
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Brokers and Actuaries MUST Cooperate
Actuaries won’t work for brokers because:• Brokers don’t understand actuaries’ work• Brokers are “hip shooters” • Brokers aren’t quantitative • Brokers make promises that are not
immediately provable
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Brokers and Actuaries MUST Cooperate
Brokers won’t work for actuaries because:• Actuaries aren’t “people oriented”• Actuaries rely only on facts and figures to
make decisions• Actuaries don’t have a sense of urgency
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Two disciplines cannot have an effective Superior/subordinate relationship.
Cooperation is necessary to achieve mutual success.
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Examples of successful cooperation
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Examples of successful cooperation – Manufacturing Company
Clients needs• Combine existing programs into one
coordinated program and reduce cost of excess cover
• Create consistent methods for determining retentions
• Realize economy of scale purchasing power for ancillary services such as loss control and claims administration
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Examples of successful cooperation – Manufacturing Company
Actuary’s role• Combine loss forecasts and probability
distributions to determine whether risks were combinable and whether economies of scale could be achieved
• Present results to risk managers in separate divisions so they understood the value to their division (the risk managers did not want a combined program)
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Examples of successful cooperation – Manufacturing Company
Broker’s role• Identify the problem and opportunity• Communicate client’s need to actuaries and
manage communication channels between client and actuaries
• Effectively use actuaries estimates to achieve economy of scale with suppliers
• Convince client of the practical nature of the actuaries’ work
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Examples of successful cooperation – Manufacturing Company
Results• Programs combined in a captive• Economies of scale achieved• Actuaries developed new technique for
analyzing probability distributions for different lines of coverage
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Examples of successful cooperation – Construction Company
Clients needs• Revise loss forecast to remove large
indemnified loss• Use loss forecast and reserve certification to
negotiate loss funding and security for unpaid loss reserves
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Examples of successful cooperation – Construction Company
Actuary’s role• Review existing actuarial work to determine
whether removal of indemnified loss was legitimate
• Review existing reserves for sufficiency• Forecast losses without the effect of the
indemnified loss• Negotiate reserve adequacy with underwriter
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Examples of successful cooperation – Construction Company
Broker’s role• Communicate clients needs to actuaries• Gather complete, relevant data for actuarial
work• Identify client’s needs for negotiation on
reserve funding• Convince client of practicality of actuaries’
work
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Examples of successful cooperation – Construction Company
Results• Loss forecast revised to eliminate effect of
indemnified loss• Loss funding and security for unpaid
reserves reduced based on actuarial estimates
• Active involvement of actuaries with client, underwriter and external auditor