Cloud computing reading list

January 21st, 2015 No comments

Cloud-based computing systems provide insurance companies several advantages over traditional systems. The following reading list highlights the benefits that cloud computing solutions like Milliman’s Integrate offer insurers.

• Reuters – Amazon’s cloud business a harder sell in post-Snowden era
This article discusses the pros and cons of public, private, and hybrid cloud models.

• (Wired) – The biggest risk facing insurers today? Old-guard IT
Some insurance companies have moved their actuarial modeling systems into the cloud. This article highlights how United Kingdom based insurance firm The Phoenix Group increased productivity by implementing Integrate. In the article, Milliman Principal Pat Renzi discusses the value that cloud-based actuarial modeling can have for insurance companies.

• – What to consider before running HPC in the cloud
IT administrators should follow best practices when running high-performance computing in the cloud. Milliman’s Paul Maher and other IT professionals offer eight tips that can help administrators manage testing, networking performance, and more in this article.

• Contingencies – Fast forward: Emerging technology and actuarial practice
Cloud-based solutions like Integrate are transforming the actuarial profession, offering clients the speed and scalability needed to process advanced analyses in real time. Pat Renzi discusses the advantages of conducting complex calculations using an actuarial modeling system in the cloud.

• The Digital Insurer – Actuarial models meet the cloud: A perfect marriage?
The costs associated with actuarial modeling have increased. This article authored by Milliman consultant Dennis Stanley demonstrates how migrating an actuarial model to the cloud is cost-effective and increases flexibility for large-scale, time-intensive projects.

• MG-ALFA Compute for Windows Azure
This video shows how MG-ALFA Compute for Azure can help insurers meet their growing need for high-capacity computing as the industry’s modeling requirements expand. This solution reduces runtimes, increases capacity for analyses, and lowers costs relative to an in-house grid.

Review of 2014 and upcoming ERM challenges

January 20th, 2015 No comments

In this InsuranceERM interview (subscription required), Milliman consultant Neil Cantle discusses key business developments from 2014 that affected the insurance industry. He also talks about enterprise risk management (ERM) challenges that insurers may face in 2015. Here is an excerpt:

What will 2014 be remembered for?
From an economic perspective I think many people will feel that 2014 represented a much better year economically. Whilst not everyone is past the legacy of the economic crisis it does seem that confidence returned and a there is a more generally positive outlook. The big industry news probably has to be the reforms being made to pensions. The removal of compulsory annuitisation was a huge bombshell and taken as a whole, the changes to the retirement landscape during 2014 are pretty momentous. Of course Solvency II got a step closer to reality as the delegated acts passed through the Commission and Parliament….

What will be the biggest ERM challenge of next year?
…Operational risk remains one of the most problematic areas, closely followed by risk appetite and culture. I think the big challenge with these areas, more so than others, is that they starkly reveal the complexity of modern business and the fact that risk management tools are still catching up with how to deal with that. Publicly listed firms, more generally, are of course wrestling with the forthcoming Financial Reporting Council requirements on risk appetite and disclosures about risk assessment. The rapid pace of change in areas like cyber-crime and challenges in finding ways to finance infrastructure developments, for example, reveal the need for a broad view of risks to include societal dynamics as well as financial ones, and rather demonstrate the interconnected nature of things. ERM really needs to up its game and cope better with this.

Milliman Risk Talks: Risk data management

January 15th, 2015 No comments

Risk data management has become a source of tremendous business value for many companies, especially as data and analytics are becoming more common. In this Milliman Risk Talks video, Mark Stephens, Vikas Shah, and Olivia Wang from Milliman’s Risk Advisory Services shared their insights on risk data management with a focus on different sources of risk data.

To learn more about this topic, sign up for our upcoming complimentary webinar here.

To learn more about Risk Advisory Services, click here.

Top 10 worldwide Milliman publications of 2014

January 5th, 2015 No comments

In 2014, Milliman published a range of articles and videos, covering issues including retirement ideas for Millennials, the pros and cons of catastrophe models, the value of enterprise risk management (ERM) programs, and the impact of the Patient Protection and Affordable Care Act (ACA) on financial statements. We also published on challenges related to healthcare costs and insurance and risk management issues—and about real insurance for fantasy football and insurance for ride sharing. To view this year’s 10 most viewed articles and reports, click here.

Ride sharing is opening up new business opportunities for auto insurers

December 24th, 2014 No comments

Transportation network companies (TNCs), better known as ride-sharing services, such as Uber, Lyft, and Sidecar, have created challenges for regulators and insurance companies. However, as cities and states work on governing this new mode of transportation, insurers should take advantage of the opportunity to develop new products covering ride-sharing drivers.

In their article “Ride sharing and insurance issues,” Milliman consultants Michael Henk and Peggy Brinkmann discuss the risks of insuring TNC drivers as well as the new opportunities for innovation. Here is an excerpt:

One of the central ambiguities in ride sharing is the question of who pays when there is an accident… To answer the coverage question, it is helpful to break down the vehicle use into four different categories:

1) Ride sharing driver isn’t logged in to the ride sharing service and is thus not available for hire.

2) Ride sharing driver is logged in to the ride sharing service and is available for hire, but has not yet found a passenger.

3) Driver and passenger have confirmed a ride share and the driver is en route for pickup.

4) Ride share is in progress.

There is general agreement that accidents arising in the first category would be covered by the personal auto policy, but the second category has been more controversial…

Even insurers that are denying claims related to ride sharing are concerned about covering the personal usage of vehicles also used for ride sharing…

Without access to standard personal auto coverage, though, ride-share drivers are in need of new products and/or rating plans. Today’s typical rating plan varies rates by pleasure, work, and business usage, and mileage is difficult to capture accurately. To address concerns that the ride-share vehicle personal usage risk might be higher than expected under current rating plans, carriers could introduce a new variation of business usage for ride-sharing vehicles. Carriers could also perhaps require ride-sharing vehicles to enroll in usage-based rating programs in order to ensure the most accurate data about vehicle usage to get appropriate rates for the personal use of these vehicles.

Could the lapse in TRIA coverage disrupt the Super Bowl?

December 22nd, 2014 No comments

Carbone-WilliamAs the 113th session of Congress came to a close, one of the noteworthy items left in limbo was the Terrorism Risk Insurance Act (TRIA), which will expire on December 31. While TRIA directly affects the insurance markets, its impact could extend well beyond insurers. The biggest rumor out there is that, without TRIA, the Super Bowl could be in jeopardy. What exactly is TRIA, and how does a federal insurance program affect football games?

Prior to the terrorist attacks of September 11, 2001, terrorism coverage was generally included in insurance policies for little to no charge, as the risk was considered below the threshold for concern. After the attacks, the inability to accurately price these events and the absence of appropriate models caused a ripple effect through the insurance market. Unwilling to absorb the tail risk, reinsurers withdrew from the terrorism coverage market. Unable to find reinsurance, primary insurers started including terrorism exclusions to protect themselves. State regulators approved these exclusions, as the exclusions helped to protect the solvency of the insurers. This left the insureds without sufficient coverage in the eyes of lenders, and greatly impacted the construction and real estate markets, among others. The lack of funding caused delays in projects, such as infrastructure improvements, and lost jobs, impacting the economy outside of the insurance industry.

Congress stepped in with the Terrorism Risk Insurance Act of 2002, which created a temporary program to allow the federal government to act as a backstop reinsurer. In the event of a major terrorist attack, the federal government would provide the capital to pay claims immediately, subject to deductibles, coinsurance, and indemnity triggers, and recoup the money in the following years through assessments. In exchange, insurers would be required to offer terrorism coverage for certain lines of business in commercial policies. TRIA protected the market from tail risk while the market developed methods to properly price the coverage and develop the needed capacity. The act has been extended twice already, each time pushing a greater share of the potential liability of a future terrorist act to the private insurance market without material changes to the availability or rates of the coverage.

Both the House and Senate approved different versions of a TRIA extension during 2014, but the session ended with the bill blocked in the Senate, which was due to the attachment of an unrelated provision. Proponents point to the potentially crippling nature of a major event or series of events to the insurance industry, and the likely impact on the whole economy, while critics think the industry will move on without the federal support. With TRIA expiring, insurers will need to have capital to cover the tail risk the federal government would have covered. Insurers would likely respond to the missing coverage by either increasing rates to supply the additional capital, or reducing (or excluding) coverage, leading to decreased supply of coverage and, again, increased premiums. By passing the costs on to the insureds, the economy could again be affected by the lack of affordable terrorism coverage.

So how does this affect the Super Bowl? The NFL, or any other sports organization, needs to have insurance covering the game sites. Without insurance at an acceptable price, games would likely be canceled. The NFL has joined other sports leagues and other businesses in the construction, entertainment, and hospitality areas as part of the Coalition to Insure Against Terrorism, a lobbying group in favor of the extension of TRIA. However, with TRIA on the shelf until the next session of Congress, does this put the Super Bowl in jeopardy? Well, no. The NFL has said, “The Super Bowl will be played.” Even without TRIA, there is a chance that terrorism coverage will remain in place and even if coverage is canceled, alternative risk transfer devices could be utilized, as was done for that other football’s final match in 2006. So while the lapse in TRIA coverage could significantly impact the economy, don’t worry, we can still look forward to the Super Bowl.

Predictive analytics in MPL pricing: Finding opportunity in challenges

December 18th, 2014 No comments

The medical professional liability (MPL) industry has been slow to adopt predictive analytics in its rate-making process. This article authored by Milliman consultant Eric Krafcheck identifies challenges that may deter MPL carriers from building predictive models to price policies and offers solutions to these challenges.

Here is an excerpt:

In addition to the lack of available data, MPL writers face challenges related to immature and undeveloped loss data. Because MPL claim amounts can drastically change over time, it is exceptionally difficult to estimate ultimate claim settlement costs, especially when a claim is newly opened. The modeler should be aware that loss development techniques that may work for personal auto and homeowners may not be appropriate when applied to MPL data.

Additionally, traditional loss development methods used by reserving actuaries rely on the principle that a group of claims in aggregate will develop the way claims historically have developed in the past. But a predictive model is built based on data at the individual risk level, so losses must be developed at the individual claim level. What is the most appropriate way to handle this when the claims department is more confident in its estimate of the case reserves for some claims but less certain in its estimates of others? Should the modeler explicitly account for this? It is important for the modeler to research and understand the company’s reserving practices—how case reserves are established, how the claim settlement process differs by claim type, etc.—in order to apply the most appropriate assumptions when developing claim costs.

A further complicating issue is the treatment of incurred but not reported (IBNR) claims. In contrast to personal auto and homeowners claims, MPL claims may not be reported until well after the policy expires. This is especially true for occurrence policies, where coverage is provided for claims that occur during the policy year, but also can affect claims-made policies (for instance, some insurers may initially record reported claims as “incidents,” which later may convert to claims once they meet the company’s claim definition)…

A potential remedy to this problem would be to exclude the most recent immature accident years from the analysis. However, it may take many years before some claims are reported. Therefore, even if the most recent years of data are removed from the data set, it is still important for the modeler to take into account the IBNR claims and adjust accordingly when developing ultimate claim costs.

Milliman wins Insurance Risk Award for Best Actuarial Modeling Software

December 16th, 2014 No comments

Milliman has announced that the firm’s cloud-based Integrate™ solution has been recognized as “Best Actuarial Modeling Software” in the 2014 Insurance Risk Awards. Integrate is the industry’s first cloud modeling platform and builds off of MG-ALFA®, which has been a market leader in asset liability/modeling for more than 20 years.

“This award validates our unique approach to modeling, which is to empower actuaries with a robust cloud solution that allows them to focus on analyzing results rather than building and maintaining models,” says Pat Renzi, a principal with Milliman’s Life Technology Solutions group. “Clients like Royal London and the Phoenix Group have chosen Integrate because it brings together all of their modeling needs in a nimble platform that lets actuaries focus on actuarial analysis.”

Integrate is a revolutionary financial projection solution for the life insurance industry. Milliman reports its Integrate customers are gaining unprecedented speed and control in financial reporting amidst changing market dynamics and the demand of new regulations.

To see more about Milliman’s award, click here.

Top Milliman blog posts in 2014

December 15th, 2014 No comments

Milliman consultants had another prolific publishing year in 2014, with blog topics ranging from healthcare reform to HATFA. As 2014 comes to a close, we’ve highlighted Milliman’s top 20 blogs for 2014 based on total page views.

20. Mike Williams and Stephanie Noonan’s blog, “Four things employers should know when evaluating private health exchanges,” can help employers determine whether a PHE makes sense for them.

19. Kevin Skow discusses savings tools that can help employees prepare for retirement in his blog “Retirement readiness: How long will you live in retirement? Want to bet on it?

18. The Benefits Alert entitled “Revised mortality assumptions issued for pension plans,” published by Milliman’s Employee Benefit Research Group, provides pension plan sponsors actuarial perspective on the Society of Actuaries’ revised mortality tables.

17. In her blog, “PBGC variable rate premium: Should plans make the switch?,” Milliman’s Maria Moliterno provides examples of how consultants can estimate variable rate premiums using either the standard premium funding target or the alternative premium funding target for 2014 and 2015 plan years.

16. Milliman’s infographic “The boomerang generation’s retirement planning” features 12 tips Millennials should consider when developing their retirement strategy.

15. “Young uninsureds ask, ‘Do I feel lucky?’” examines the dilemma young consumers face when deciding to purchase insurance on the health exchange or go uninsured.

14. Last year’s #1 blog, “Retiring early under ACA: An unexpected outcome for employers?,” is still going strong. The blog authored by Jeff Bradley discusses the impact that the Patient Protection and Affordable Care Act could have on early retirees.

13. Genny Sedgwick’s “Fee leveling in DC plans: Disclosure is just the beginning” blog also made our list for the second consecutive year. Genny explains how different fee assessment methodologies, when used with a strategy to normalize revenue sharing among participant accounts, can significantly modify the impact of plan fees in participant accounts.

12. Doug Conkel discusses how the Supreme Court’s decision to rule on Tibble vs. Edison may impact defined contribution plans in his blog “Tibble vs. Edison: What will it mean for plan sponsors and fiduciaries?

11. In her blog “Retirement plan leakage and retirement readiness,” Kara Tedesco discusses some problems created by the outflow of retirement savings. She also provides perspective on how employers can help employees keep money in their plans.

Read more…

Milliman Risk Talks: Planning for NAIC ORSA

December 10th, 2014 No comments

In this Milliman Risk Talk, Mark Stephens and Vikas Shah draw from current and past client engagements to offer insurers advice on getting ready for their National Association of Insurance Commissioners (NAIC) Own Risk Solvency Assessment (ORSA) efforts.