southeast association of actuaries april 1, 2003

Southeast Association of Actuaries

April 1, 2003

Interactions of Actuaries and Brokers

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


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

Two disciplines cannot have an effective Superior/subordinate relationship.

Cooperation is necessary to achieve mutual success.

Examples of successful cooperation

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


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)


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


Results• Programs combined in a captive• Economies of scale achieved• Actuaries developed new technique for

analyzing probability distributions for different lines of coverage

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


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


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


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

southeast association of actuaries april 1, 2003

Documents