The Role of Actuaries in Public Policy Development

1. The Role of Actuaries in Public Policy Development CAS Fall 2000 Meeting:Actuaries in Non-Traditional Practice Areas Rade T. MusulinVice President – ActuaryFlorida Farm Bureau Insurance Companies

2. One County’s Ballot

3. My Job Description • Supervise the Actuarial Department. • Represent the company in the State Legislature and Congress. • Represent the company before the Florida DOI. • Handle news media inquiries about the company’s operations and industry issues. • Serve on various insurance industry boards and committees, including, but not limited to, organizations such as the Florida Insurance Council, NAII, the American Academy of Actuaries, IBHS, the FRPCJUA, and the FWUA. • Represent the company before A.M. Best.

4. Casualty Public Policy Work • Generally, life, health, and pension issues have had a relatively greater Federal dimension then property casualty ones, because most P&C regulation is at the state level. • The profession has a strong voice in Washington through the Academy, but often lacks that focus on a state level, where government affairs officers and public relations specialists convey our messages.

5. P&C Insurers Major Issues • Rate regulation. • Catastrophe modeling. • Residual market funding. • Tort reform & its impact on costs. • Automobile crash parts. • Use of credit in rating and underwriting. • Implementation of GLB. • Discounts for new building codes.

6. Are Actuaries in the Loop? • Most insurers are organized with centralized actuarial functions responsible for many states. • Thus, while there is often good analysis of pertinent issues, it may be presented to local politicians and media by people with inadequate actuarial training. • In politics and public relations, often the messenger is as important as the message.

7. Public Affairs at FFB • Farm Bureau is unusual in some areas: • Decentralization of actuarial functions in many states. • Affiliation with a agricultural organization. • As a consequence, when the Florida property market went into chaos after Andrew, a local actuary got drafted into serious public policy development. • Generally, I was the only actuary regularly and directly interacting with local legislators and the news media on complex issues.

8. Part 11 – Media Training • Media members work hard, are often under stress due to tight deadlines, and need concise and understandable responses. • Key points: • Get training before speaking. • Stay on message. • Keep it in English, not Greek. • Use analogies and sound bites (bytes???). • Never answer hypothetical questions. • See good article in September’s Update.

9. FIC Media Tour • A group of industry volunteers visit every major newspaper in Florida, and in 2001 will add television stations. • I participate in this effort as Vice-Chairman of FIC’s Public Affairs Committee. • In almost every case, I was the first actuary any of these media people had ever met. • The FIC team has made a big difference in media coverage of insurance issues.

10. A Success: Crash Parts • OEM parts manufacturers, body shops, and other groups strongly advocated legislation to eliminate or restrict the use of competitive auto parts in crash repairs. • FIC presented the other side of the debate, focusing on high levels of customer satisfaction, CAPA certification, large cost savings, and the dangers of legislated monopoly.

11. FIC Web Site

12. Media Coverage • Jacksonville Times Union: “Competition in auto parts, like competition in pharmaceuticals, has lowered prices without harm…If original equipment is so good, why are there so many recalls, and why do so many cars break down?” • Palm Beach Post: “…Current law encourages competition and competition doesn’t let auto makers charge an arm and a leg for a bumper and fender.”

13. On the Other Hand…

14. Florida Cat Fund • Several actuaries were heavily involved with drafting and implementing this legislation. • They made a difference: • Rates based on exposure by zip code. • Coverage & retention as a function of FHCF premium. • Convinced the Legislature to fund a “second season” cover to reduce effect of depletion. • Provided calculations allowing the FHCF to provide more rapid reimbursement of loss petitions.

15. Florida Building Code • Key issue is the rate effect language. • “A rate filing for residential property insurance must include actuarially reasonable discounts, credits, or other rate differentials, or appropriate reductions in deductibles, for properties on which fixtures or construction techniques demonstrated to reduce the amount of loss in a windstorm have been installed or implemented.”

16. Subparagraph “d” • In Florida, large deficits in property residual markets are funded through direct policyholder surcharges, not insurer assessments. • This was done because legislative staff was educated on statutory accounting treatment of assessments. • By taking the assessments “off the books” of insurers, $5 billion of capacity was created, because residual markets can have negative surplus when they issue bonds, while insurers must book liabilities. • In the end, consumers benefited from lower up-front costs and increased availability.

17. Other Issues • Tort reform rate rollbacks. • FRPCJUA rates pegged at the highest of the top 20 carriers in the state. • Florida Commission on Hurricane Loss Projection Methodology. • FHCF IRS tax exempt bonding 15% rate rollback (an independent actuary calculated actual savings at about 1%). • Current FIC Regulatory Committee, which will review Florida P&C rate filing procedures and work to make the process more efficient for both insurers and the regulator.

18. Closing Comments • In all of the prior slides’ issues, the results were due to a team effort including lobbyists, government affairs officers, public relations specialists, building code experts, etc., and actuaries. • In many cases, the issues involved were highly technical, and our profession’s expertise made a difference. • I would strongly encourage CAS members to get more involved with public policy work.

19. Speaker Contact Information Rade T. Musulin Vice President – ActuaryFlorida Farm Bureau Insurance CompaniesP.O. Box 147030Gainesville, Florida 32614-7030 Phone (352) 374-1514Fax (352) 374-1514E-mail: rmusulin@sfbcic.comWeb Site: http://www.ffbic.com/actuary/