Top Actuarial Stories of 1999

by Robert F. Conger and Michael A. Walters

The repeal of the Glass-Steagall Act was far and away the most significant 1999 news story in its implications for casualty actuaries, according to the results of our annual survey of CAS leaders. Other fundamental changes in the way insurers conduct business—including selling insurance over the Internet, securitizing catastrophe risks, and commercial lines deregulation in many states—also were identified as significant 1999 trends for casualty actuaries.

On the importance of Glass-Steagall repeal, respondents noted that new players, such as banks entering the insurance business, may become major users of actuarial expertise, but may bring other types of quantitative analysts into the conventional domain of actuaries. Further challenges include traditional employers and clients finding new ways to market, package, and distribute insurance, as insurers become active in new types of business.

This year, virtually every respondent listed Glass-Steagall repeal as a top ten story, more than half naming it the number one story. The statutory dismantling of decades-old bank assurance barriers is expected to add momentum to other important trends identified in the survey, such as Internet sales and the changing ownership structure through mergers and acquisitions.

The growth of the Internet, including the launching of various new Internet sites to market insurance, rose to a second-place ranking in this year's survey, up from fourth place a year ago. The Internet opens the insurance market to new participants and new products, all needing actuarial support. The pace of Internet business, and the prospect of real-time information collection and premium rating, also require that actuaries develop increasingly nimble pricing tools.

A more traditional story, the deterioration of underwriting results, was rated third most important in 1999. This deterioration increases the need for additional actuarial analysis, but may also demand that the profession find ways to strengthen the effectiveness of the technical methodologies and communication of actuarial results in the areas of pricing and reserving. The increase in importance of this story (from 11^th last year) reflects the increasing duration and severity of unprofitable underwriting results.

A related story, the deregulation of commercial lines in many states, was ranked seventh most important this year. With fewer regulatory constraints on pricing, actuaries must be increasingly vigilant in monitoring competitive pricing.

Two other top ten stories focused on the interrelationship of traditional property/casualty hazard risks and the capital market. Securitization of catastrophe risk through individual or newly created multi-participant vehicles was the fourth most important story overall. The launch of insurance products to cover equity returns in conjunction with hazard risks, creating "bottom line" protection for insureds, was eighth. Both offer new arenas for actuarial research, product design, and pricing.

The fifth-ranked story was the class action case against State Farm's use of competitive, nonoriginal equipment, repair parts. The likely resulting change in automobile claim and repair practices will have an impact on the pricing of auto coverages, and may create an opportunity for new alternative insurance product choices.

Last year's top-rated story, the consolidation of the property/casualty industry through mergers and acquisitions, fell to number six this year, paralleling the lesser pace of M&A activity during 1999. The announcement of large layoffs by insurers as they fight to meet current competitive pressures, was rated as the ninth most important story, on potential effects for actuarial jobs.

Two diverse stories round out this year's list, with a tie for tenth place. Progressive's test of a per-mile auto policy in Texas, using satellite technology, is seen as creating a need for new actuarial classification and pricing techniques. And, both primary insurers and reinsurers will require actuarial support in the aftermath of the Unicover blow-up, the related scrutiny of life/health reinsurance of workers compensation carriers, and the potential price and market shake-out.

As in prior years, this year's candidate stories were culled from the trade press to be externally oriented, and not intended to review CAS internal actions. In the first round of the survey, participants drawn from the Board, Executive Council, committee chairs, and past presidents narrowed and consolidated an initial list of 67 potential stories. The first round of this Delphi study also highlighted reasons for number one selections by various voters. The second round invited voters to review their initial selections. The final scores were tallied using the NCAA sports polling methods (10 points for first place down to 1 point for tenth place).

Continuing this year are the prizes for the best predictors of the final consensus of all participants. Dale Porfilio won the Insight Award because the final Top Ten consensus came closest to his original picks, with weighted scoring.

Paul O'Connell finished a close second in the Insight Award category, and finished on top for the Consistency Award. Paul's original ten picks came closest to the final consensus voting, with unweighted scoring. Jeffrey Dollinger, David Miller, and Gary Dean were in a dead heat for second prize in this category.

Finally, the overall Bellwether Award goes to Paul O'Connell, who had the best combined score in both of the above categories.

Thanks to all the actuaries who participated in this survey, especially given the tight turnaround required as company clocks ticked towards Y2K. This result also serves as an important input to the Long Range Planning Committee on potential future directions of the actuarial practice.