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The Top Ten Actuarial Stories of 1998
by Robert F. Conger, FCAS, and Michael A. Walters, FCAS
The changing structure of the property/casualty industry, and changes affecting the way the industry and its customers do business, are among the 1998 trends having the most significance for casualty actuaries, according to the results of our annual survey of CAS leaders. As was the case in 1995 and 1996, the continued consolidation of the property/casualty insurance industry was selected as the leading story of the year. This story led the pack by a narrow margin in the survey results, with two other stories close behind.
The top story from a year ago, the emergence of risk securitization as a viable option to traditional insurance and reinsurance, continued as one of the top stories in 1998, ranking second in this year’s polling. Actuaries see growing opportunities, indeed requirements, to expand their focus to include the new types of players and new types of products that are starting to replace traditional insurers and products.
The move towards integrating financial services offered by banks and property/casualty insurers was ranked as the third most important story overall, but actually received the most first place votes. Casualty actuaries noted that this move towards integration is likely to lead to significant changes in the ownership structure of the industry, as well as to changes in the way insurance is marketed, packaged, and distributed.
The fourth-ranked story is the growth of new distribution technologies, including the Internet and telephone, and trends towards electronic commerce more generally. These technologies will help fuel rapid proliferation of new products, more frequent changes in products, and new ways of classifying buyers. The fifth-ranked story also is technology-related: the escalation of Y2K issues. While there is no question that this problem is consuming vast resources in virtually all industries, the ultimate magnitude of Y2K’s impact on insurance claims, insurance products, and the work of actuaries is not yet clear.
Three of the remaining stories in the Top Ten list focus on the changing commercial lines marketplace. Story number ten is the further deregulation of commercial lines pricing. However, more important stories in the commercial lines arena potentially involve reduced roles for traditional insurance companies. In addition to the emergence of risk securitization as a replacement for traditional coverages (the second-ranked story), respondents identified the general expansion of alternative risk markets as the sixth most important story of 1998, and the concept of enterprise risk management as number eight. All of these changes potentially open new areas for actuarial analysis—and present new challenges to the traditional skills and roles of casualty actuaries.
Rounding out the Top Ten list, number seven is the Florida Hurricane Commission’s acceptance of simulation models, which may portend greater use of new types of models by actuaries. Finally, story number nine is the acceptance of the Euro, which respondents expect to facilitate further company consolidations and affect the conduct of business in Europe.
Not surprisingly, several of the Top Ten stories affecting casualty actuaries, also were selected by A.M.Best, in its annual review, as being top stories for the industry as a whole. Integration of financial services, mergers and acquisitions, Y2K, and growth of alternative risk markets, were among Best’s top stories.
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 79 potential stories to 20 for a final vote. 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. While many individuals altered their rankings, the overall results of round two produced relatively little change in the Top Ten list, other than a shuffling of the top three rankings. 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. Pat Grannan won the Insight Award because the final Top Ten consensus came closest to his original picks, with weighted scoring (10 points for the number one pick). John Purple, Jim Surrago, and John Kollar were in a dead heat for second prize in this category.
John Purple finished on top for the Consistency Award. John’s initial ten picks came closest to the final consensus voting, up to the top 20 stories, with unweighted scoring. Jim Surrago and Arlene Woodruff finished second and third in this category.
Finally, the overall Bellwether Award goes to John Purple, 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 at year-end. This result also serves as an important input to the Long Range Planning Committee on potential future directions of actuarial practice.
