Southeast Association of Actuaries
April 1, 2003
Interactions of Actuaries and Brokers
Brokers and Actuaries MUST Cooperate
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 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
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
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)
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
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
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
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
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
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