Actuarial Consulting

A Smarter, More Efficient Way to Manage Adoption Filings

by Karen Barrett Daley

Tracking and managing changes to bureau material has long been a time-draining process for property casualty insurance company staff. When we released Bureau Monitor, a subscription service housed within our StateFilings.com system, our aim was to make our clients aware immediately if there were updates required for their bureau based products. By centralizing loss cost, rule and form circulars for all bureaus and lines of business in a single location and then generating automatic notifications explaining the impact on our clients, the system was able to relieve in-house compliance teams from managing the minutiae of circular tracking. It also provided a crucial first line of defense against compliance violations.
We’ve now taken this process one step further. By combining our useful bureau monitoring service with the filing capabilities built into StateFilings.com, we’re launching our newest service: Bureau Maintenance. It’s a single, automated solution for keeping your state filings current.

How Bureau Maintenance Works

Our team of filing experts monitor the circulars impacting loss costs, rules and forms released by the various rating bureaus, including the Insurance Services Office (“ISO”) and the National Council on Compensation Insurance (“NCCI”). We publish these circulars to Bureau Monitor, which then generates a notification if your company is required to file an update to your product based on your specific adoption profile. Using Perr&Knight’s StateFilings.com platform, our state filings experts will submit the change on your behalf, eliminating your risk of falling behind or slipping out of compliance. Using an online dashboard, you’ll be able to see in real-time which adoptions have been filed and which are pending submission.

Why automate your state filings?

As technology becomes faster, smarter and more secure, it makes sense to outsource to machines the tasks that require lower levels of human discernment. Standard bureau adoption filings are an excellent function for automation because the process requires the management of numerous minor but important details, instead of critical decision-making, which is better suited for people. This approach frees up time and attention for your teams to focus on more complex product compliance tasks. Bureau Maintenance is simply that—maintaining bureau-based products in real-time, rather than being forced to play major catch up down the road.
Read more: Expert tips to speed up state filing approvals.

Updates that matter to you

Because your Bureau Maintenance profile will be unique to your company, you’ll be alerted to only those filing requirements that apply to you. Based on the lines of business you follow, your adoption status, and programs in the states where you operate, you’ll know exactly which circulars need to be adopted via a state filing. This eliminates the need for manual scrutiny of each published circular by your staff.
Even for companies that don’t seem overwhelmed by filing updates, Bureau Maintenance can protect you from the risk of non-compliance. For example, affiliating with an auto-adopt or file-on-behalf status will likely minimize your number of filings. However, in cases of the states that prohibit auto-adoption, you are required to pay attention and submit your filings accordingly. Bureau Maintenance will ensure that nothing falls between the cracks.  On other hand, if you have the opposite bureau affiliation profile — i.e. you have adopted loss costs, rules or forms from a particular bureau at single point in time and don’t intend to make updates— you could still be on the hook for mandatory changes if the bureau adjusts its materials based on regulatory changes. Once again, Bureau Maintenance will make sure that you keep current and compliant.
Read more: How to streamline bureau monitoring.

Maximize your resources

We deliberately created a competitive pricing structure for Bureau Maintenance because this ancillary service is designed to work in conjunction with your in-house teams. As a result, offloading the time-consuming tasks to automated software will increase the efficiency of your human capital on the revenue-generating tasks that forward your business objectives and competitive advantage.
Bureau Maintenance takes away the final piece of worry regarding the management of bureau adoption state filings. By letting dedicated software pay non-stop attention to bureau updates that impact your filings, you reduce the risk of overloading your internal teams or slipping into non-compliance. In an era where more and more businesses are capitalizing on the advantages of improved technology, automating these simple tasks just makes sense.

Contact Perr&Knight today to learn more about how Bureau Maintenance can eliminate your state filings and bureau monitoring headaches.

InsurTech: The New Frontier for A&H

by Jim Vallee

As troves of data and lightning-fast processing capabilities become increasingly available to insurance companies, cumbersome manual processes are being replaced with faster, more advanced data capture and analysis. The applications for property and casualty insurance, particularly with personal home and auto coverage, were evident straight away; therefore, P&C providers quickly began utilizing innovative technologies from InsurTechs to streamline their workflows, increase rating accuracy, and improve the customer experience.
These technologies are now starting to expand to additional insurance types, ushering in an exciting new era for accident and health coverage providers as well.

InsurTech’s new tools and new opportunities

As millennials and Gen Z buy homes, start families and advance their careers, their needs for insurance increase. However, these emerging customers are unwilling to compromise on the speed and accessibility of any products they buy – including insurance. Therefore, the traditional method of over-the-phone insurance sales or person-to-person broker relationships no longer apply. These customers demand control, transparency, and ease. They want to complete transactions with a few clicks.
They are also accustomed to an unprecedented level of control and customization in their own lives. Non-traditional career trajectories, home-ownership as a second income stream, greater flexibility with travel and work schedules…all add up to a clientele that demands fast, flexible coverage that conforms to their specific needs. This often means shorter coverage periods, specific add-on coverage, and instant payment – again, all accessible via website or smart phone app.

The changing face of A&H

Traditionally, insurance product development for accident, health and travel has adopted a “one size fits” all approach, offering protection that covers a wide variety of scenarios over an extended period of time. However, new technologies enable A&H coverage to achieve an entirely new level of customizability that can provide customers with exactly what they need, only when they need it. Some forward-thinking examples of InsurTech applications for A&H that we have seen include:

  • Travel Insurance
  • Short-term Accidental Injury coverage for specific activities
  • Customizable Supplemental Health Insurance plans such as Critical Illness
  • Major Medical price transparency comparisons
  • Health benefits packages for gig economy workers

This level of tailoring serves customers more effectively, generates new product potentials, and creates efficiencies that ultimately lower internal operations costs for insurance companies.

Apps, IoT and AI – oh my!

InsurTechs have evolved many aspects of today’s insurance industry, but we have seen the most advancement to A&H in the areas of smartphone apps, the Internet of Things (“IoT”), and Artificial Intelligence.
Insurance companies are finally beginning to recognize the value of smart phone apps in connecting with their customers. Mobile technologies are invaluable to insurers, enabling more efficient product marketing, a direct point of sale, and the ability to collect data from wearables. These streamlined products and advanced data collection can reduce or even eliminate the need for underwriting. The result for insurance companies: more efficiency for a lower cost.
“Smart devices” that connect to the internet and transmit data over a network are known collectively as the Internet of Things. These devices work quietly in the background to collect and transmit data that can help insurers provide more accurate premiums to customers. Some major medical insurance companies offer incentives such as premium discounts or gift cards for meeting exercise goals while wearing specific devices (think: Fitbit trackers). Insurers can now tie premiums and rewards to real data, not theoretical projections.
Finally, artificial intelligence (or “AI”) is releasing insurers from burdensome manual processes. These technologies have the ability to learn and reason, freeing up their human counterparts to focus on areas that require more complex reasoning or subtle discretion. Insurance companies have successfully used AI to develop chatbots that streamline the customer service experience and applied machine learning to build more accurate algorithms and models for analyzing data. By applying machine learning to predictive analytics, insurance companies can analyze key consumer data claims risk, fraud detection, anticipated demand for a new product, claims processing and underwriting. This could lead to better rate adequacy and a better overall risk profile.

Control the risks

Emerging technologies are already transforming the insurance industry, but regulation is still woefully behind the curve. Though coverage offerings are more flexible than ever, insurance product development is still subject to a rigid regulatory environment. Regulation of coverage periods, marketing materials, and underwriting processes are still rooted in traditional ways of thinking.
Additionally, InsurTechs may bring the technological expertise, but they often lack industry-specific knowledge. They usually do not even have an underwriting company or reinsurer to take on the insurance risk. This can come back to haunt you if you’re not careful. With this in mind, it’s smart to connect with an experienced independent insurance product development partner to manage regulatory requirements as you incorporate new technologies into your product suite. Their expertise regarding the jurisdiction-by-jurisdiction requirements will be invaluable as you head into the approvals process.
InsurTechs are set to make sweeping changes across the insurance industry as their technologies provide opportunities for insurance companies to respond to never-before-seen coverage needs. These innovations are not trends – they’re here to stay. As data collection and analysis evolve, A&H insurers are positioned to develop systems and products that feature faster policy uptake and fulfillment,  greater flexibility in coverage, and increasingly targeted customer service.

Want to know more about how technology can advance your A&H offerings? Our team of insurance and actuarial experts can help.

Common Mistakes When Pricing Long-Term Contracts

by Michael Covert

Developing pricing for long term contracts, specifically auto warranty, poses a tricky challenge for insurers. Determining rates for losses that will not occur until three, five, or seven years into the future requires balancing multiple factors to help ensure profitability and appropriate matching of premium earnings and future losses.
Auto warranties, supplemental tire and wheel coverage, guaranteed auto protection (“GAP”), and other long-term contracts require careful actuarial analysis of multiple variables. Mistakes can be costly – and won’t become apparent until well into the future.
Luckily, by avoiding some of these common mistakes, you can develop pricing for long term contracts that protects your customers and keeps you in the black.

Best in class rating manual structure / pricing flexibility

The long-term contract space, specifically for auto warranty, is much more competitive than ever before, as many insurers and InsurTech companies create brand new programs to corner a piece of this market. Therefore, in order to remain competitive and profitable, insurers must achieve as much flexibility on rating plans as possible. Greater flexibility means you have a higher chance of achieving profitability from the get-go without having to continually refile your rating plans to adjust rates.
Working with actuarial experts who apply expertise with long-term contracts across multiple states can dramatically enhance your pricing process. Actuarial consulting experts can develop a factor-based manual that makes it significantly easier to understand the base rates, rating factors and the impact of rate changes on future policyholders. Determining actual relativities for the main rating variables, along with associated base rates, can turn those old school 500-page “rate cards” into concise rating plans, lessening the time drain on your staff for review and understanding of the material as well as reducing the likelihood of erroneous price quotes and premium reversals.

Misjudging your competition

Competitive analysis provides both a starting point and a point of comparison for your rating plans. It’s a valuable component of the big picture. In addition to jurisdictional and coverage plan comparison, there are two lesser-known areas where you may not be obtaining a true sense of how your pricing stacks up against the competition for auto warranty business.
Less experienced folks in this space may compare rates and factors without thoroughly examining the class plan (actual vehicles) to which these factors are assigned. Not everyone assigns auto classes the same way, so it’s crucial to confirm that you’re looking at comparable plans.
Differences in individual components covered in vehicle service contracts can also throw off the accuracy of your competitive analysis. In order to achieve a true apples-to-apples comparison, you must drill down into individual components of each vehicle service contract to make sure that coverages align.

Incorrect profitability analysis

While you may see your market share rise quickly in this space from a balance sheet perspective, in order to understand profitability, you must earn premium appropriately over the life of the long-term contract. Too much upfront premium earnings may lead you to believe that your loss ratio is strong, but when earned premiums start to slow and losses begin to stack up – there is little that can be done to course-correct at that point. It’s imperative to track your earning patterns alongside your loss development to maintain a consistent loss ratio over time.

Rate level indication inaccuracies

Relying solely on an overall rate level indication can paint an incorrect picture. For example, development of losses will vary considerably on whether a vehicle is new versus used. Similarly, with comparing new cars with say 0-10,000 initial miles versus “new” vehicles with 24,000 to 36,000 initial miles. The rate level indications are generally very different for numerous combinations of new/used, term/length of the contract and initial mileage of the vehicle. It’s important to understand how to best break out each one in order to achieve accurate rate level indications as well as balancing homogeneity and credibility in your data.

Not peer-reviewing your work

If you’re not already writing business in this space, much of the above is likely not apparent. As a result, you may inadvertently begin writing a significant amount of “bad” business while other insurers are steering clear. Even if you have been writing certain types of extended service contracts, it’s easy to fall into oversights that could result in leaving money on the table. Experienced actuarial consulting partners can provide an unbiased, fresh perspective on your work, taking into account product expertise, state-by-state knowledge and a deep understanding of rating plans and rate flexibility to ensure that your rates are reasonable for the associated risk.
As competition in this space rises, insurers are rushing headlong into product offerings that might end up costing them dearly down the line. The old saying, “You can’t fix old business” has never been more applicable than to long-term contracts, because the bottom line is: you’re on the hook until the end of the contract. However, by carefully analyzing each element in your rating and working with an experienced actuarial team comprised of subject matter experts, you can sidestep the mistakes outlined above and develop a proven, competitive and profitable product.

Are your extended service contracts priced correctly? If you’re writing new business or want to double-check current offerings, the actuarial experts at Perr&Knight will let you know if you’re on the right track.

Our Commitment to a Strong Company Culture

by Karen Barrett Daley

A corporate culture is comprised of the values that characterize the company and guide how employees behave. Every company has a culture. However, if management doesn’t actively develop and support a particular culture, one will nonetheless develop—and it might not be the culture that management wants.
On the other hand, a strong, well-defined corporate culture has many benefits. It defines the company’s identity, sets and maintains direction for employees, attracts and retains better talent, and adds to brand identity and company reputation.

Bringing our mission to life

In 2016, Perr&Knight decided to focus on our company culture to ensure it was consistent with our mission statement and reflected who we are as a company. We formed a committee with members who represented not just executives and management but also a cross-section of the employees at our actuarial and insurance operations consulting firm. Because our team of actuarial, regulatory compliance and insurance operations consultants occupy offices across the country, it was important to include people who represented a cross-section of locations, departments, and tenure with Perr&Knight. We made sure to include individuals who have been with the company for years, as well as newer employees with fresh perspectives.
The committee started by defining what we wanted our company culture to be. We had many discussions about what employees value and what our clients value. Our initial brainstorming sessions revealed that everyone’s perspective was a bit different. We worked diligently to sharpen ideas and fine-tune language to create a series of cohesive statements about the firm that apply across the board.
We ultimately landed on six values that represent the core of our culture: Employee Development, Excellent Work Product, Innovation, Integrity, Respect for Each Other, and Superior Customer Experience.
We then translated these values into behaviors. For each value, we developed a list of collective behaviors we would encourage our employees to exhibit which exemplified our values. The behaviors are expressed as “we” statements. For example, to demonstrate our value of Superior Customer Experience:

  • “We make it easy to do business with us”
  • “We recognize that communication is critical”
  • “We value long term relationships with clients”

Ultimately, we came up with a handful of behavior statements for each value, which we published on our website.

Resistance and concerns

As with any significant organizational change, there was some trepidation about how we would implement these ideas, even within our committee. Would we be forcing a foreign new culture on our staff? Would we become so diligent that we would devolve into micro-management? Our team of actuarial and insurance operations consultants brings decades of professional experience to Perr&Knight; they wanted to ensure we were not asking them to disregard their proven strategies and start from scratch.
None of this was our intention, but it was helpful to be aware of staff concerns. We were careful to emphasize that our goal is to encourage behavior that is consistent with our company values, not force new conduct on employees.

Promoting our culture

One of our main initiatives now relates to promoting the culture, both internally and externally. We’ve used several methods to promote our culture. We started a corporate culture newsletter that is published quarterly. Each issue is centered around a “featured value,” in which we print responses from our employees to questions related to our behaviors like, “How do you stay current with what’s going on in the insurance industry?” (Excellent Work Product) or, “When you’re leading a discussion, how do you ensure everyone feels comfortable expressing their views?” (Respect for Each Other). We publish a list of staff promotions in our newsletter to celebrate the successes and accomplishments of our peers. We share pictures and stories that our employees have submitted regarding what they do outside of work, to show our support for a healthy work/life balance.
We also implemented an employee recognition program where staff members are encouraged to send emails to one another, thanking or recognizing them for a valuable contribution. Not only are staff members sending emails across departments, but managers are employing recognition emails as a valuable management tool. At the end of each month, we publish these feel-good emails to demonstrate our pride in, and gratitude to, our staff.

Reflecting our culture in our operations

Our committee’s other current main initiative is to ensure that our company’s policies and procedures encourage employees to act consistently with our values and behaviors. We started by evaluating our performance review process in conjunction with our HR department which led to a pretty significant overhaul of our process. We moved to an online system, which will allow for more frequent feedback, and changed the criteria on which employees are evaluated to better align with our culture.
We’re just about ready to publish revised hiring procedures that ensure we communicate the culture to candidates and evaluate them for their fit with our culture. And, we are just now beginning to assess our manager training and onboarding procedures at our insurance operations and actuarial consulting firm.

Positive feedback so far

While it’s too early to determine whether our focus on culture is having the expected benefits of increased employee retention, increased productivity/profit, and improved brand reputation, we have already seen some benefits. We’ve received positive feedback from candidates and new employees about our commitment to a strong culture. We’ve heard that employees really enjoy the quarterly newsletter, and participation in our Employee Recognition program is high.
We believe that a well-defined culture has made it easier for our managers to lead and make decisions because a clearly articulated foundation of values and behaviors directly informs and influences decision making. A strong company culture also makes it easier for employees to do their jobs because it lets them know their managers will support actions and decisions that are consistent with our values and behaviors.

Top 4 Considerations for Building a Robust Commercial Lines Rating Plan

by Wendy Thompson

Compared to personal lines, commercial lines risks have larger policy premiums, more complicated coverage, and higher limits. Commercial lines risks are also less homogeneous than personal lines risks. Consequently, individual underwriting is often used and there is a greater need for flexibility in pricing these risks.
That said, with some exceptions, commercial lines rates are subject to filing and Department of Insurance (“DOI”) acknowledgment or approval. For this reason, it is advantageous for the commercial lines insurer to incorporate rating flexibility in their commercial lines rate manuals.
Here we will examine the top four considerations for building a flexible and robust commercial lines rating plan.

Schedule Rating/Individual Risk Premium Modification (“IRPM”)

Schedule Rating/IRPM Plans are one of the most common means of achieving greater flexibility in commercial lines filings. Further, they are allowed in almost all states. The range of flexibility that can be achieved through schedule rating varies by jurisdiction. While many states allow overall schedule rating debits and credits of +/-25%, many other states allow a larger overall debit and/or credit. That said, some states impose different levels of flexibility for each individual characteristic while some states have other requirements (for example, eligibility criteria). A review of your Schedule Rating/IRPM Plan can help ensure that you are achieving maximum rating flexibility via this highly accepted rating tool.

Tiering

Another way to achieve flexibility in a commercial filing is to include tiering. Tiering refers to rating manuals that contain more than one set of rates to address different pricing levels associated with different levels or tiers of risk. Tiering is more common with Standard commercial lines (e.g. Commercial Auto, Commercial Property, General Liability, etc.) than with Specialty lines (e.g. D&O and Excess Liability). There are two types of tiering:

Intra-company tiering –A single company includes multiple tiers within a single program (e.g. Preferred, Standard, Non-Standard, etc.). Depending on various criteria, a risk might be assigned to a tier with a lower or higher rate.

Inter-company tiering –An insurer group uses different affiliated underwriting companies to accommodate the above-referenced tier structure.

Tiering is allowed in all states for most Standard commercial lines with some exceptions. While generally accepted for most Standard commercial lines, states differ regarding the filing of applicable underwriting criteria and some even limit the characteristics that can be considered.

Ranges of rates or rating factors

While tiering is more commonly applied to Standard commercial lines, ranges (sometimes referred to as guide (a) rating) are more common with Specialty commercial lines. With ranges of rates or ratings factors, an underwriter chooses a rate or rating factor from the filed range. While many states allow ranges, some states strictly prohibit ranges and others allow with certain limitations or additional requirements.

Individual Risk Rating

Individual Risk Rating, also known as (a) rating and/or Refer to Company rating, refers to those instances where manual rates are not used to determine a risk’s premium. Instead, underwriting judgment is used to evaluate the unique characteristics of the risk and to determine the final premium. This may also include a review of a risk’s historical experience.
Individual Risk Rating is used in both Standard and Specialty commercial lines. For Standard commercial lines, Individual Risk Rating may only apply to a particular segment of the business whereas it may be used more extensively for Specialty commercial lines. The acceptability of Individual Risk Rating varies by state with some states prohibiting the practice, and others allowing it. However, even for those that allow it, there are additional requirements that may apply by state such as individual risk submission filings, reporting requirements, disclosure requirements, etc.
While there are many tools available that allow for a flexible and robust rating plan, a thorough and thoughtful review of your new or existing rating plan can ensure that you achieve the greatest flexibility while minimizing compliance issues and DOI objections that may result in delays, reduced flexibility, and/or inconsistencies in your plan across various jurisdictions.
Partnering with an actuarial services firm that is familiar with DOI regulations and positions on the above-referenced rating tools can help you optimize the flexibility of your commercial lines rating plan. This flexibility will allow you to more accurately price your product and will allow you to maximize competitiveness while being mindful of the various requirements associated with each pricing tool.

Are you achieving maximum flexibility on your current or new commercial lines insurance product? Our expert actuarial consulting and regulatory compliance teams can help.

25 Years and Still Going Strong

by Scott Knight

It’s hard to believe that 25 years have gone by since Tim Perr and Scott Knight began Perr&Knight in the luxurious executive suite of Tim’s converted garage office. Tim was an experienced actuary who decided to hang his own shingle and Scott was a part-time sales guy/admin assistant/ babysitter to Tim’s infant son Nick and dog walker to the Perr’s puppy pug, Sybil.
Though everyone wore a lot of hats in those days, Tim and Scott had a tireless passion to help insurance companies become more efficient and effective. We’re still at it today.

It’s always been about the clients

Everything we have done as an insurance consulting company has been about better serving our clients. In those early days, we would travel all over the country—from New York to Chicago, Texas, Florida, and nearly every state in between—meeting with insurance companies and helping them navigate the rigorous regulatory requirements and other operational challenges that vary dramatically by state. As a consulting firm, we have remained by our clients’ sides as they continue to adapt to a changing playing field, and this close-up view of their needs and challenges has helped us develop tools to better serve them. We owe much of our success to our long list of dedicated clients, some of whom have been with us since day one.
“There’s no better compliment than to value our service so highly that companies have continued to engage us over decades. Individuals who have changed jobs throughout the industry have continued to reach out to us over the course of their careers,” says Tim. “We want to explicitly thank our clients because we could never have achieved our current level of success without them.”

Thoughtful company culture brings out the best in our teams

Everyone at Perr&Knight brings their own strengths and experience to the table, and it’s our goal to help every member of the team do their best work. Under the guidance of Judy Perr, Perr&Knight’s Chief Administration Officer (and Tim’s wife), we have continued to adapt our internal operations to meet the needs of our staff. As an actuary herself, Judy deeply understands the hinderances—both minor and major—that can inhibit actuarial and insurance consulting staff from performing at their peak. She applies this unique perspective in her role, ensuring that we evolve as a company to help our teams provide better support to our clients, and also feel supported themselves.
With 100+ employees in five nationwide offices, promoting a uniform company culture ensures that all our employees are on the same page. Three years ago, we assembled a corporate culture committee whose task was to articulate our shared company values. We put lots of energy into making sure that all locations and departments were represented, and that all employees are offered the chance to sit on the committee and offer ideas. This dynamic system adapts to changing times, so we are set up to respond to the needs and realities of an evolving workplace. Not only does this help us better serve our clients, we believe it also helps us attract the best talent.

Where to next?

As we move forward into the next 25 years of Perr&Knight (and beyond), we’ll continue to keep our focus squarely on the future. In an industry that sometimes seems to move at a snail’s pace, we believe in looking at what companies should be doing—and then developing the insurance support services that can help them get there.
By perpetually looking forward, we have added useful services like regulatory compliance consulting, product design consulting and technology consulting, and developed industry-leading products such as Statefilings.com. Many of these ideas were originally launched to help us be more efficient as a consulting firm, then we realized how valuable these innovations could be as services for our clients.
So, what’s just over the horizon for the insurance industry? Tim Perr believes advancements in technology can absorb many of the industry’s most time-intensive tasks and help actuaries apply their expertise in more efficient ways. He recalls, “When I started as an actuarial consultant, I spent half of my time keying data into Lotus 1-2-3 that had originally been entered via typewriter. Today’s machine learning and AI advancements will allow actuaries to focus on things human beings do well—like using their judgment and applying their knowledge from other areas—instead of occupying valuable time with things that machines do well, like running numbers.”
Another issue that will play an increasingly important role in the future: the evaluation of risk and protection regarding companies’ digital assets. We predict that growth in insurance premiums will become more and more tied to the growth of cyber assets rather than physical assets as they are now. Rather than insuring buildings, insurance companies will need to expand their ability to insure data and other property stored digitally. “The cyber world is just like the material world,” Tim explains. “When companies put their property out into the cyber world—like data storage, apps, IP, and even their reputations—it all needs to be insured.”

Cheers to our past—and here’s to the future!

We’re proud of the company we’ve created, the corporate reputation we’ve built, and the career successes our staff has achieved. We’re grateful to everyone who has contributed their insight and expertise and to the clients whom we have watched grow over time.
“When we started out in 1994, we were a couple of young, bright-eyed insurance consultants in our early thirties and we were meeting with insurance executives who were in their 50s and 60s,” recalls Scott. “Now 25 years later, we’re the older, wiser insurance consultants, meeting with insurance execs who are ten and twenty years our junior. But we’re as energetic as ever and all our years in this business have given us insight and experience that continue to fuel our momentum. We’ve got no plans to slow down any time soon.”

5 Ways Pricing Actuaries Can Benefit from a Best Practices Review

by Adrienne Lewis

Credentialed actuaries adhere to a high standard of practice, so their work is necessarily going to be thoughtful and thorough. However, working only with an in-house team might insulate you from what is happening elsewhere in the industry. You might be falling behind in terms of competition and growth. But how can you really know? This is where the best practices review can be your company’s secret weapon.
Usually performed by an unbiased third party, a best practices review compares your practices to other companies and generally accepted actuarial methods to ensure that you are meeting or exceeding a high standard of practice. Close scrutiny helps to determine that you’re not missing key segments in your ratemaking. In short, it makes sure your business is keeping up.
However, that is just the broad look at the benefit. There are many more detailed ways that a best practices review can give your company a boost. Here are five specific ways your pricing actuaries could benefit from a review by an outside actuarial support partner.

  1. Alleviate the time burden.

Reviewing your rate level indication processes ahead of time can relieve your actuarial teams of some of the pressure that accompanies a rate filing. Every state has specific requirements or considerations that are unique to that jurisdiction. If your company submits a filing with indications that don’t meet muster with that state’s department of insurance, you’ll have to go back and make revisions—which could delay your filing or require you to scramble to collect the appropriate information. Undertaking a best practices review before a major filing helps you stay on schedule.

  1. Rank priorities to determine what will bring the most benefit.

Indications are also a significant part of internal decision making. Understanding how your processes stack up can help you determine the appropriate priorities to focus on in order to achieve your projected growth or other business goals. By determining how your actuarial methods compare to the indications from other companies and the industry as a whole, you can prioritize process enhancements or other aspects of your pricing methodology. You might discover that your teams are not performing an industry-leading procedure in some instances, but this might not be critical for overall business strategy. Knowing what to devote time and resources to can save you from wasting both.

  1. Determine how your company measures up against competitors.

Beyond comparing your methodology and results to actuarial standards, a best practices review can also provide insight that you might not be privy to otherwise. While your reviewing partner might not be able to share specifics, they can alert you if some of the ways your pricing is out of the ordinary for the industry, or if you are overlooking things that other companies are including.

  1. Build confidence in short-term and long-term growth.

Recognizing and determining how to respond to a particular finding is helpful for your business. With limited exceptions, every company has concerns about credibility. With indications, the data may say one thing, but how will you interpret it or react to it? A heavy reliance on your own data could lead to internal overreaction. A best practices review will compare your methodologies to other companies to make sure your decisions are not based on a myopic perspective.

  1. Validating what you’re doing right.

A best practices review is not just about identifying weakness; it can also surface all the ways your company is ahead of the curve. You’ll see your own role in pioneering industry change. An objective, third-party assessment by a credentialed actuarial support team will equip you with valuable intelligence about all the ways you’re doing things right.
An actuarial best practices review is like getting a regular physical exam for your business. It’s not something you need to do often, but it’s smart to check in regularly to make sure everything is okay. When you take a closer look, you’ll find areas for improvement and create benchmarks against which to measure future gains. We recommend conducting an actuarial best practices review every five years or so. Like with everything in insurance, it’s better to know for sure than to be surprised.
Also, best practices reviews can help all aspects of your business, not just indications. Once you complete the review for your company’s rate indications, consider doing the same with your reserving methods, product development, internal operations, and other departments. When the entire cycle is complete, it will be a good time to check in on rate indications again.

Curious about how your rate level indications compare to the rest of the industry? A best practices review from Perr&Knight can help you find out. Contact us today to discuss our actuarial support offerings.

Entering the Workers Compensation Line of Business: What You Need to Know

by Michelle Freitag

Workers Compensation (“WC”) filing activity is increasing as more and more insurance companies and InsurTech providers roll out WC products to round out their insurance product offerings. However, many of these companies possess only a limited understanding of the scope of what is involved in WC insurance product development. In the rush to market, they overlook important requirements that negatively impact the state filings process and stall their product’s release.
Before your company proceeds full steam ahead with your WC product, here are some important considerations to keep in mind.

Multiple rating bureaus and their products

Before an insurance company can begin writing WC they must affiliate with the appropriate rating bureau. The National Council on Compensation Insurance, Inc. (“NCCI”) is the designated statistical agent and rating bureau in 37 jurisdictions.  The remaining 14 jurisdictions have either licensed an independent state-specific rating bureau or provide workers compensation through a monopolistic state fund.  Companies will need to affiliate with the appropriate rating bureau before filing their product with a state.
Your team must be aware of the product offerings of the various bureaus in order to ensure you file everything you need. In most jurisdictions, the WC core product is already filed on your behalf and you are tasked with providing specific supplemental information. However, the amount of supplementation varies by state. It’s important to know exactly what information you’ll be responsible for submitting.  For example, schedule rating is allowed in Connecticut and is filed on the company’s behalf by NCCI in that state.  NCCI is also the rating bureau in Illinois and Illinois allows for schedule rating, but it’s not filed on the company’s behalf by NCCI.  So, if a Company wants to use schedule rating in Illinois, they must specifically file a schedule rating plan.

Creating a countrywide product is complicated

Many insurance companies think that they can develop a product that meets the requirements for a handful of states, then simply expand coverage to include other states. When it comes to WC, state filings just aren’t that simple. With so many state nuances that require careful navigation, it’s virtually impossible to create a countrywide product that will satisfy every jurisdiction.
Some jurisdictions have required mandatory offerings (ex. risk control services and small deductibles) that may or may not need to be filed with the state. Some states don’t allow schedule rating for WC. Others require drug-free workplace program credits. Mistakenly thinking you can use the same product features everywhere will slow down your state filings process.
Bringing a product to market is never as easy as it seems, particularly when it comes to WC. Unforeseen delays and close regulatory scrutiny are simply par for the course. Perr&Knight has assisted numerous clients in getting their WC products to market. We are knowledgeable about each state’s requirements, limitations and restrictions. For more information about how we can help you achieve successful and streamlined Workers’ Compensation insurance product development, contact our offices today.

California Personal Auto Filings: Avoiding the Pitfalls

by Dee Dee Mays

Any companies with a personal auto program in California who haven’t submitted a rate or class plan filing within the last couple of years may be in for a surprise when they submit their next filing.
Personal auto filings have been coming under increased scrutiny by the California Department of Insurance (“the Department”) as the state has taken a stricter view of the existing personal auto regulations. This is likely in part due to the pressure from Consumer Groups to ensure that the premiums charged to consumers are fair and are not excessive.
Most notably, ProPublica published a report stating that poor and minority communities face significantly higher premiums than their counterparts in more affluent neighborhoods. Although the validity of the results has been questioned, the ProPublica report has brought this issue to the forefront, which has caused the Department to take a closer look at zip code rating. Other Consumer Groups have also raised concerns about other items in personal auto filings. All of this combined with the Department’s internal review has resulted in changes that will have a material impact on personal auto filings in California. Many companies are learning this the hard way by submitting California auto filings without taking into consideration the latest changes made by the Department.

Unfamiliarity with Changes Can Result in Undesirable Revisions

If your company is not aware of the latest requirements for California auto filings, you may be required to make significant, unexpected changes during the filing review process. These could include costly revisions such as reducing rate levels below proposed rate levels; reducing existing fees used with the program; revising rates charged by zip code without consideration of the competitor information; revising class plan factors to be consistent with the Department’s request; or paying for a consumer group’s intervention on the filing.
In order to make sure that possible changes required during the filing review will be in your company’s best interest, companies should review the pros and cons that could result from submitting a filing. 

Consumer Group Intervention

A review of California rate change filings shows that many companies file rate changes of +6.9%. This is due to the regulation stating that the commissioner must hold a rate hearing upon timely request by a Consumer Group for a rate change that exceeds +7% in a personal lines filing. However, filing a rate change less than +7% will not prevent a consumer group from intervening in the filing if they think the proposed rates are excessive or unfairly discriminatory, even if the filing is for a proposed rate decrease. Also, the commissioner at his discretion can decide that a rate hearing is necessary for any rate change including ones below +6.9%. That said, the Department does its best to mediate between all parties involved in the filing so that a rate hearing can be avoided. For rate increase filings at or above the +7% threshold, the Department and the Consumer Group must be satisfied with the support for the proposed rate change to avoid a rate hearing.
The following link contains a list by year of the filings that have been intervened on by consumer groups, along with the cost that was paid by the insurance company.

Beware of the Recent Change in the Filing Review Process

One of the biggest changes that has occurred is with the Frequency and Severity Band assignments by zip code. Even if you are not proposing changes to these class plan factors, the Department will require a review of them, which is likely to result in needed changes. This review will need to be done strictly in accordance with regulations, including the requirements for use of an alternative dataset for any zip codes that lack credibility. Companies should also be aware that the Department has been relying more heavily on the indications from the sequential analysis and the proposed factors need to be consistent with the indications for all class plan factors, including class plan factors where the company may not have been intending to propose any changes.
Companies should also take note of the following items regarding the review of rate filings:

  • All rate changes must be within the range of allowable changes for each coverage;
  • Calendar year or calendar quarter data derived from the development triangles should be consistent with the corresponding data in the trend exhibits or it will be questioned by the Department; and
  • Fee amounts charged to policyholders may need to be supported based on underlying expenses even if no changes are proposed, particularly if the fees are high.

The above are just some of the most important items when it comes to a California personal auto rate and class plan filing. As always, it is important to stay abreast of the latest changes in the California auto filings review process.

What You Don’t Know Might Hurt You

In complex jurisdictions like California, it’s smart to partner with experts who can provide insurance filing support that helps you carefully navigate the regulatory environment. For example, the Department regulations have been amended to reflect the new 21% federal corporate income tax rate, effectively lowering the maximum allowable rates for all P&C lines subject to Proposition 103. Excessive rates may not remain in effect under California regulations. If your company needs to take a rate decrease, you should be filing one. The Department does annual reviews of the financial results of all companies by line of business and has required companies to submit filings supporting that their filed rates are not excessive.
To assist you with personal auto programs and avoid the pitfalls of filing in California, work with experienced consulting actuaries who have a complete understanding of the Department’s latest positions and whose insurance filings support service includes an active dialog with the Department. Look for partners who have assisted other insurance companies in achieving the best possible results on filings that have been intervened on by consumers groups.

Knowing what to expect in California can put you ahead of the game. Perr&Knight can help.

How to Get Commercial Lines Rates Approved in Highly Regulated States (CA, FL, NY, TX, WA)

by Michael Covert

For insurance companies with nationwide products, getting your commercial lines rates approved in heavily regulated states can lead to frustration, confusion and wasted resources. There’s a reason certain states have earned their reputation for being difficult: their requirements are complex and thorough.
This article outlines the most important steps you should take when tackling submissions in highly regulated states to obtain speedy approvals–so you can get on with your business.

Know Your Filing Requirements

Each state has specific requirements that must accompany your filing. Understanding what is and is not required for each state and line of business is key to a timely approval. Carefully examine state filing requirements like return on equity exhibits (which support expenses and profit load), actuarial memorandums, making sure any forms with rate impact have corresponding rates in your manual, understanding the allowable rating flexibilities if any, and how they differ by state, etc. For example, in Florida, many commercial lines rate filings are considered “informational” and don’t require support to be filed, just maintained internally.

Actuarial Transmittals

California, Florida, New York, and Texas require specific transmittals. Every state Department of Insurance expects the filer to fully understand all requirements before submission. Some common transmittals for these states are the California Prior Approval Rate Applications, New York’s Rate Filing Sequence Checklist, the Texas Exhibit L and related actuarial transmittals, and the Florida Rate Level Indications Workbook, Actuarial Memorandum and Actuarial Opinion requirements (only for lines of business where Florida filings are not informational).
Filling out these exhibits is generally very difficult for someone without extensive filing experience.  Completing these documents incorrectly can lead to numerous Department questions or disapproval. In worst case scenarios, poor or incomplete submissions can upset Department staff, possibly making it more difficult to receive approval in the future. 

Actuarial Support Required

The actuarial support required for your filing depends on whether your proposed program is new or a revision. If support is not supplied in the way the specific Department requires, your filing will likely be disapproved and have to be resubmitted. This can add to cost, slow down your timeline and make it more difficult to get approval after resubmission.
Detailed actuarial support/data is generally required for filing revisions with rate level impact. For new programs, detailed competitor support using approved filings in the specific state is often required. Using filings from other states as competitive support will usually not be acceptable.

Responding to Department Objections

When it comes to state filings, it’s best to know your state requirements inside and out, since it is likely you will receive multiple filing questions before approval. Each Department asks different types of questions and each Department is looking for specific responses based on the type of submission. Don’t back yourself into a corner by responding incorrectly or supplying too little (or too much) information during the interrogatory process.
Departments of Insurance are savvy. Reviewing state filings is what they do, day in and day out. The challenge you face is that Departments have very specific requirements and it is difficult to determine the specific details necessary to satisfy their unique stipulations. This is where working with professional insurance support service providers can be a huge help.
When managing filings in highly regulated states, insurance industry experience is invaluable. Many of the clients we help involve situations where the company has submitted a filing incorrectly in one of the above states and requires assistance sorting out the resulting obstacles. Usually, the company’s support data was insufficient or their actuarial transmittals were filled out incorrectly. Completing your filing incorrectly without realizing it ultimately complicates things as you may not know which aspect of your filing needs to be adjusted. It then becomes a difficult puzzle to solve which variables require correction. Each of these steps impedes the process, burning through time and resources.
Outsourcing to insurance experts who have deep experience in the most difficult states, as well as relationships with regulators at the Department of Insurance, streamlines the process and saves you from a costly and lengthy correction and resubmission process. Experts make sure you go through the process methodically, checking and double checking the necessary support before you submit. This will save time and money on the back end, helping to achieve speed to market.