Call for Discussion Papers on Dynamic Analysis of Pricing Decisions
Topic: Dynamic Analysis Of Pricing Decisions-May 19, 1997The process of estimating and implementing rates for a company or client is based on proper forecasting techniques and business acumen. The first part is scientific. As actuaries, we are taught to break the large question of appropriate rates into ever smaller components. We estimate claim frequencies and severities. We estimate catastrophe potential and risk loads. We isolate the expense of settling claims and the costs of bringing the policy coverages to market. We identify trends and project the time value of money, and we can bring all of these components together to estimate a return on the company's money. At times the impact of adverse (or beneficial) court or legislative changes needs to be estimated.
The "actuarial" or scientific side of ratemaking carries us a long ways toward the goal of appropriate rates. Final rates are agreed upon reflecting current or modified underwriting, marketing, and claims programs geared towards achieving profitability. Once introduced into the marketplace, other questions arise. How will the policyholders respond? What effect will the new rates have on the company's competitive position? These questions are more commonly approached in a business process. This, of course, is a dynamic process. New rates and programs need to be monitored.
The scientific and business perspectives come together in the feedback process, after the rates have actually been implemented. Here is where the actuary compares the expected results with what actually occurred. Did the loss statistics play out as we had assumed? Did the marketing or underwriting changes have their intended effect? How does one reconcile forecast and reality, and make adjustments going forward?
The Committee on Continuing Education is inviting CAS members and other analysts to submit papers addressing the dynamic side of ratemaking. In particular, we suggest the following areas of interest:
A. Building a comprehensive business oriented pricing model
--Introduction of new products
--Estimating the effects of underwriting, claims, marketing practice changes
--Use of underwriting reports in risk selection
--Building discount tables to reach and keep the best policyholders
B. Measuring and monitoring competition
--Quantifying the company's competitive position
--Building strategies to complement market focus
--Creating product differentiation
C. The feedback process
--Building the feedback process
--Key parameters of the pricing model
--Adverse selection of new business written
--Loss of quality, tenured policyholders
--Loyalty of policyholders (brand loyalty of company)
--Loyalty of distribution system (agent loyalty to company)
D. Regulatory and legal influences
--Impact of regulation on ratemaking and marketing decisions
--Estimating the effect of law changes and court decisions
Accepted papers will be published in the Spring, 1998 Discussion Paper Program Book, and authors will have the opportunity to present their papers at workshops scheduled during the CAS Spring Meeting in Marco Island, Florida on May 17-20, 1998.
The Michelbacher Prize, in the amount of $1,000, will be awarded to the author of the best paper and presented at the 1998 Spring Meeting.
The CAS hopes that you can participate in the Discussion Paper Program, and thanks you for considering being a part of it. The results will contribute to the written body of knowledge of the CAS and to the success of the 1998 Discussion Paper Program.
Very truly yours,
Susan T. Szkoda
Vice-President, Continuing Education
To participate in this Discussion Paper Program, you need to prepare a proposal which includes a title and a short description of your paper. The description should outline the key issues of your paper and the conclusions you intend to reach. It would also be helpful if you could describe the methods you might use if the paper is to be technical in nature. This would give the Continuing Education Committee the best possible opportunity to guide you in reaching the widest possible audience.
When a proposal is submitted, the name of the author is not known to the committee members as they decide to accept or reject the proposals. This is done to make sure the process is as fair as possible. You can help by omitting any references to companies or to people in your proposal.
The general schedule for the 1998 Discussion Paper Program is as follows:
Deadline for Proposals
The proposals must be received by August 1, 1997. They should be addressed to:
Ms. Wendy Johnson
Discussion Paper Chairman
Pacific Actuarial Consultants
101 First Street, Suite 597
Los Altos, CA 94022
If you wish to discuss an idea for a paper with Wendy, she would welcome your call at 415-949-5859.
Acceptance or Rejection of Proposals
By early September, the Committee on Continuing Education will have reviewed each proposal and made a decision to accept or reject it. The Chairman will contact each author regarding the Committee's decision.
Monitoring the Progress
Timely completion of the papers will be necessary so that all the papers can be combined into a book which can be distributed to the CAS members well before the Spring 1998 meeting. The Chairman will be in regular contact with each author and will provide general guidance in completing the paper. Please note that the papers should be prepared in accordance with the "Guides for the Submission of Papers" in the 1997 CAS Yearbook (pp. 290-299). It is hoped that the authors will also submit their papers for publication in the Proceedings; however, papers must be submitted separately to the Proceedings for independent consideration.
The completed paper and a 200-word abstract must be received by the Discussion Paper Chairman by November 14, 1997.
Approving the Completed Paper
Each paper will be reviewed and screened by the Committee on Continuing Education. Occasionally, an initially accepted proposal may result in a paper which does not meet the minimum standard established by the Committee either due to relevance of material or quality of exposition. When that happens, some re-writing may be required, or the paper may not be included in the program.
Discussion of Papers
All authors will be invited and expected to discuss their papers at workshops scheduled during the 1998 CAS Spring Meeting in Marco Island, Florida. Authors will be contacted in advance of this meeting regarding the nature of the presentation and coordination with the program.
Preparation of Bound Papers
All accepted papers meeting the deadlines will be printed, bound and distributed in advance of the meeting.
Michelbacher Prize Committee
The Michelbacher Prize Committee will review submissions anonymously and decide upon a winner in accordance with the criteria sent to the authors. These criteria will be sent to the authors after their proposals have been accepted. The Michelbacher Prize, in the amount of $1,000, will be awarded to the author of the best paper and presented at the 1998 CAS Spring Meeting.