Actuaries by providing better measurement and feedback can play an increasingly significant role in managing insurance pricing cycles, according to a top industry executive.
Mark D. Lyons, president and chief operating officer of the Arch Insurance Group, made his remarks to the Casualty Actuarial Society ratemaking seminar earlier this month in Atlanta.
According to the CAS report of his remarks, Mr. Lyons said actuaries’ increasing visibility in the senior ranks of the industry could help them play a role in moderating underwriting rate fluctuations.
“Rather than merely accepting the existence of underwriting cycles, throwing up our hands to the gods and deeming them to be beyond our control, I submit that we all can play a part in smoothing, if not eliminating, the steep highs and lows associated with the cycle,” Mr. Lyons said.
However, additional analyses and predictive modeling are not the tools needed to achieve effective market cycle management.
Rather, Mr. Lyons noted that actuaries collectively need to be involved on both the managerial/executive as well as transactional side of the business to make the greatest impact.
“Finding out a better correlation between an exposure base and resultant loss, or figuring out a better mousetrap for risk selection is extremely valuable,” Mr. Lyons said. “But those alone won’t permit effective market cycle management.”
Instead, he advocated developing a broader framework of measurements designed to provide feedback about various aspects of the underwriting cycle.
“CAS members who are managers and executives have the ability, power and influence necessary to drive cultural change within their insurance and reinsurance organizations,” he said.
While actuaries are in the profession of making decisions with imperfect information under tight time constraints, Mr. Lyons noted that they need to do this consistently and communicate effectively if they are to be truly perceived as business people.
“Simply referencing higher average loss development factors is an unacceptable answer to why reserves are higher or why future projected policy-year loss ratios are viewed as deteriorating,” he said.