Boston Ratemaking Seminar Covers Much Ground

BOSTON, Mass. - The impact of computer modeling and managed care on ratemaking were among topics discussed at the CAS Ratemaking Seminar in Boston, which attracted nearly 800 attendees.

CAS members made up 45 percent of the total 782 attendees. CAS exam candidates totaled 279 in all. International actuaries also had a presence at the meeting: 36 from Canada, nine from England, three from Switzerland, two from Bermuda, and one each from Australia, Ireland, and Mexico.

Panelists explained that computer modeling to develop rates for hurricanes is a more precise method than traditional ways of estimating loss costs.

Michael A. Walters, Tillinghast - Towers Perrin, said, "We now have 120 years of hurricane frequency data which, in combination with scientific and engineering data, makes modeling for severity and frequency a most credible method."

According to Philip A. Baum, Nationwide Insurance Co., coastal property exposure grew by 178 percent from 1980 to 1993 and 65 percent from 1988 to 1993. "Modeling uses current exposures and prevailing coverage/policy conditions and also reflects building code, material and design codes change over time," he said.

The market for the securitization of catastrophe risks will continue to evolve as participants gain experience through trial and error, said Ray Dowling, Integrated Reinsurance Risk Management. He said that in the future, ceding companies will utilize integrated catastrophe management programs composed of reinsurance, securitization and the use of contingent equity/liquidity to manage their catastrophe portfolio.

Joseph R. Lebens, Tillinghast - Towers Perrin, pointed out that "historical results are unreliable to use in evaluating the spectrum of outcomes" from a natural catastrophe for a number of reasons, such as the infrequency of actual events and insufficient record keeping.

"Catastrophe model output is ideal for use in financial models used to evaluate securitization contracts, because it determines aggregate insured losses for wide spectrum of events, assigns a likelihood and applies frequency distribution to estimate annual aggregate insured loss amounts," he said.

Attendees were also told that standard ratemaking analysis will not be sufficient when dealing with the ever-evolving industry of healthcare delivery.

James W. Macdonald, CNA HealthPro, said, "Physicians, HMOs, hospitals and insurers are all vying to be the first in the `health care food chain' to receive the patient's dollar."

James D. Hurley, Tillinghast - Towers Perrin, said that there are many different kinds of managed care organizations that have created a shift in liability exposure. "Risk management approaches should address the possibility of negligent providers, improperly credentialled providers, and physicians excluded from the network," he added.

Michael G. Kerner, Zurich-American Specialties, said, "A conflict between a patient and a provider causes an unhappy customer, which may increase the frequency of claims."

While the characteristics of managed care programs in the workers compensation system differ, they share a number of common elements, according to Brian Z. Brown, Milliman & Robertson, Inc. These elements include medical fee discounts, capitation fees, utilization reviews, employer involvement, the use of case managers and a strong return to work component.

Major factors for actuaries to consider are direct savings in medical costs and indemnity benefits as well as the impact of state regulation on choice of provider and fee schedules, according to Nancy R. Treitel, Liberty Mutual Group.

Richard P. Yocius, Allstate Insurance Co., said that for auto insurers managed care offers the potential for "reductions of unnecessary treatment, reductions in the per unit costs of necessary treatment, an assurance of quality medical care, fraud reduction and, in no-fault states, a diminished incentive to increase medical costs in order to pierce a monetary threshold."

Gregory S. Girard, State Farm Mutual Automobile Insurance Co., said that prior to the implementation of managed care programs in a given state, actuaries must secure data on the distribution of claims by type of loss, provider, type of treatment and statistics on managed care vendors. After implementation, actuaries should conduct closed claim studies and review data with special care to avoid bias due to insufficient distribution.