Effective Cooperation Between Actuaries and Brokers in Industry Success

1. Southeast Association of Actuaries April 1, 2003

2. Interactions of Actuaries and Brokers

3. Brokers and Actuaries MUST Cooperate

4. 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

5. 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

6. Two disciplines cannot have an effective Superior/subordinate relationship. Cooperation is necessary to achieve mutual success.

7. Examples of successful cooperation

8. 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

9. 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)

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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