The public doesn’t even have a clue how insurance works, let alone the role that actuaries play. All they know is, if they pay their premiums every year and don’t get something tangible of equal value in return, you’re ripping them off. You might just as well try to explain nuclear physics to a Siberian yak herder.
There are approximately 2600 P&C insurance companies operating in the US. About 5% of the 2600, 130 insurance companies, have reported 70% of the historical inadequacy. Reserving issues are NOT a widespread problem. Reserving issues can be addressed by focusing on the insurers that have reported reserve inadequacies in the past.
There are approximately 2600 P&C insurance companies operating in the US. About 5% of the 2600, 130 insurance companies, have reported 70% of the historical inadequacy. Reserving issues are NOT a widespread problem. Reserving issues can be addressed by focusing on the insurers that have reported reserve inadequacies in the past.
The real problem that actuaries have to deal with is that the analytical techniques that they use are univariate and often out of date. Although it is most prevelent in auto-pricing (e.g. Progressive), in many lines, most of the advances in pricing and selecting risk have come from the development of multivariate models, that in many cases have come from non-actuaties that have background is fields like math, statistics, economics, or a quantitative social science. The Acturial community needs more than a band-aid fix. The need to seriously re-evaluate their training, education, and analytical techniques.
In the broad reach of insurance loss reserving actuaries have been an extraordinary boon. Of course, companies have failed. But,by and large, the contribution(s) of actuarial methods have many times salvaged hopelessly imperiled insurers and identified disastrous potentials. Many problems arisen from new financial adventures- universal life, derivatives and investment inventions- have proven the durability and adaptability of actuarial methodology. Howver, and most serious misapplications or inabilities of actuarial applications have arisen from complex environmental threats- those with 50 year “Tails.” In these respects, the science has lacked the fortitude to provide real projections. Just because most of us reading this note will be long dead when civilization feels the impact of actuarial shortcomings- possibly aggravated by ourselves knowing we
won’t be around to own up to our responsibilities, the easy way out makes for less challanged billable hours. Actuarial foundamentals are within the confines of mundane data validation wherein we should spend considerable analytical time, rather than constructing our proud models, amply qualified (almost obscenely) atop misunderstood data.
The public doesn’t even have a clue how insurance works, let alone the role that actuaries play. All they know is, if they pay their premiums every year and don’t get something tangible of equal value in return, you’re ripping them off. You might just as well try to explain nuclear physics to a Siberian yak herder.
This is in response to S&P’s statements earlier this year saying that reserving is meaningless.
Of course it is meaningless when actuaries’ estimations are dismissed by CEO’s for the sake of the bottom line.
Crooks, the whole lot of ’em!
The whole of ’em. Guess that includes age old brokers from NY.
Let me get this straight. An insurance broker is calling an entire profession “crooks, the lot of ’em”? Did I really hear that correctly?
Wow…next thing you hear, Barry Bonds will be condemning Jason Giambi for using steroids.
There are approximately 2600 P&C insurance companies operating in the US. About 5% of the 2600, 130 insurance companies, have reported 70% of the historical inadequacy. Reserving issues are NOT a widespread problem. Reserving issues can be addressed by focusing on the insurers that have reported reserve inadequacies in the past.
There are approximately 2600 P&C insurance companies operating in the US. About 5% of the 2600, 130 insurance companies, have reported 70% of the historical inadequacy. Reserving issues are NOT a widespread problem. Reserving issues can be addressed by focusing on the insurers that have reported reserve inadequacies in the past.
The real problem that actuaries have to deal with is that the analytical techniques that they use are univariate and often out of date. Although it is most prevelent in auto-pricing (e.g. Progressive), in many lines, most of the advances in pricing and selecting risk have come from the development of multivariate models, that in many cases have come from non-actuaties that have background is fields like math, statistics, economics, or a quantitative social science. The Acturial community needs more than a band-aid fix. The need to seriously re-evaluate their training, education, and analytical techniques.
In the broad reach of insurance loss reserving actuaries have been an extraordinary boon. Of course, companies have failed. But,by and large, the contribution(s) of actuarial methods have many times salvaged hopelessly imperiled insurers and identified disastrous potentials. Many problems arisen from new financial adventures- universal life, derivatives and investment inventions- have proven the durability and adaptability of actuarial methodology. Howver, and most serious misapplications or inabilities of actuarial applications have arisen from complex environmental threats- those with 50 year “Tails.” In these respects, the science has lacked the fortitude to provide real projections. Just because most of us reading this note will be long dead when civilization feels the impact of actuarial shortcomings- possibly aggravated by ourselves knowing we
won’t be around to own up to our responsibilities, the easy way out makes for less challanged billable hours. Actuarial foundamentals are within the confines of mundane data validation wherein we should spend considerable analytical time, rather than constructing our proud models, amply qualified (almost obscenely) atop misunderstood data.