Companies should try to avoid any conflict of interest when subscribing to the principles under the Sarbanes-Oxley Act. When determining if an actuarial firm is independent, a company can ask two questions: Is the actuarial firm a provider of another service to your company? Does the firm present any possible conflicts?
In the article “Why independence matters in actuarial services,” Milliman’s Richard Frese and Tony Bloemer discuss how actuaries in various roles interact with key decision-makers and the business benefits of working with an independent actuary.
The selection of loss development tail factors for workers’ compensation claims may have a significant impact on the unpaid claim liability for years. Milliman has created and used a workers’ compensation database that includes $55 billion of incurred losses to assist in selecting appropriate tail factors. In this article, Milliman’s Tony Bloemer and Tim Vosicky explain how selecting tail factors that consider three key variables—retention, location, and industry—can prevent understated or overstated incurred but not reported (IBNR) estimates.
The population of Baby Boomers age 85 and over is expected to triple by 2050, according to the U.S. Census Bureau. This growth may result in a greater need for nursing home care services—increasing the industry’s risk exposure. In their recent Captive Review article entitled “Preparing for the Boomers,” Milliman consultants Jill Rosenblum and Tony Bloemer answer several questions nursing home management should consider related to their insurance programs.
Here is an excerpt from the article:
Am I big enough to self-insure?
According to the US Centers for Disease Control and Prevention, the average nursing home houses approximately 88 residents. Generally speaking, a single 88-bed nursing home is not big enough to take on much risk or start a captive. For a larger nursing home or system, the decision to retain risk is dependent on the financial stability and risk appetite of the insured. A [well-capitalized] nursing home system should consider a large-deductible plan and based on its annual insurance expense could consider forming a captive. Several concerns specific to nursing homes, such as the large variance of claim costs by state and the impact of Medicaid residents on claim frequency and severity, are important to consider when assessing the overall size of the [program] and the ability to self-insure. An annual insurance expense of $500,000 across all casualty coverages is a rough starting point when considering a large-deductible [program] or formation of a traditional single-parent captive. Forming an 831(b) captive, popular as of late, can be considered if the annual insurance expense is less than $1.2m.
What are the advantages and disadvantages of retaining risk?
Purchasing insurance provides financial stability in the short term but is less cost-effective in the long term. It is no surprise that insurance companies charge more than the expected cost of claims in order to generate a profit. Most small insureds are willing to pay the insurer a profit margin in order to [stabilize] their own results. However, when an insured becomes large enough to absorb some of its own volatility, it makes sense to start retaining some risk to keep the insurer’s embedded profit in-house. An easy way to do this is by taking on a large deductible. With the baby boomer generation on the long-term care horizon, now is a great time for nursing home systems in particular to reassess their insurance [program].
In this new Business Insurance article (subscription required), Milliman’s Tony Bloemer and Robert Meyer and EagleEye Analytics’ Roger Burkhardt offer perspective on how predictive analytics can be utilized by self-insured entities.
Here is an excerpt:
Today’s predictive analytics technology provides the ability to manipulate very large datasets rapidly. One technique, machine learning, allows the data to speak for itself by searching for combinations of variables that have consistently produced similar results. These models can be used to focus an organization’s policies and procedures to achieve key corporate objectives. Commercial insurers that pioneered predictive analytics have adopted management processes that make use of the technology in underwriting, pricing, claims handling and marketing. These processes are already proving effective in improving profitability and reducing insurers’ claim costs. Self-insured entities can take advantage of this same technology, not only to improve their allocation systems, claims handling and mitigation efforts, but also to maximize their employee hiring, retention and training policies. Imagine the excitement and buy-in an operating unit head would have if it were shown mathematically that all workers with more than five years’ experience who took a three-week training course had 72% better claims experience than workers who did not.
For more of Milliman’s perspective on how to turn data into a competitive advantage, view this video on predictive analytics.