Milliman Risk Talks: Risk Institute Fall 2015 highlights (part I)

The Milliman Risk Institute organizes bi-annual advisory board meetings where members promote enterprise risk management (ERM) thought leadership by discussing trending topics and research efforts. This Milliman Risk Talks episode highlights key takeaways from the Institute’s Fall 2015 meeting.

To learn more about the Risk Institute, click here.

To watch our Milliman Risk Talks series, click here.

Workers’ comp implications related to medical marijuana

State legislation supporting medical marijuana has increased in recent years. This trend may lead to a change in the federal policy. Workers’ compensation insurers and employers should take such legislative trends into account and begin developing organizational policies regarding the use and management of medical marijuana.

According to Milliman consultant Tom Prince’s article “Developments in federal marijuana policy and workers’ compensation insurance,” there are four key issues these stakeholders need to consider: medical research, testing procedures, reimbursement, and fraud.

Here is an excerpt from the article:

A specific challenge to the workers’ compensation industry is that much of the already limited existing evidence focuses on the drug’s potential as treatment for conditions and illnesses such as epilepsy, post-traumatic stress disorder (PTSD), Alzheimer’s disease, Parkinson’s disease, cancer pain, and others… Of more particular concern are considerations of the effectiveness of marijuana in treating acute, chronic, and neuropathic pain—symptoms most commonly associated with workplace injuries. In this vein, the benefits for chronic pain and neuropathic pain sufferers are fairly well established, but there remains dissent within the medical community, which is particularly due to the lack of substantial clinical trials evaluating the long-term safety of medical marijuana treatment….

A primary area of concern stemming from this inability to reliably test intoxication/impairment levels lies in determining the compensability of a claim… Proving that intoxication was the major—in some jurisdictions sole—contributing factor to the injury is a difficult defense to win regardless of the substance in question, and the lack of precision in marijuana testing casts further doubts on using a positive test as grounds for denial… Without a standardized and medically accepted measurement of marijuana impairment, this issue will remain problematic….

One of the foremost practical obstacles to those seeking insurance compensation for medical marijuana has been the lack of a standardized reimbursement rate. The difficulty in establishing appropriate costs is a legitimate concern for insurers. The conventional approach to standardized reimbursement rates for a drug is to receive FDA approval and a corresponding National Drug Code (NDC). This scenario is implausible without federal rescheduling to a Schedule II (or lower) classification and subsequent approval by the FDA. Further complicating this process are the limitations in medical research discussed earlier and the nonuniformity of the drug. THC levels found in marijuana can vary substantially from one sample to the next, making the determination of a standard “dose” difficult if not impossible.

A common and long-standing concern of the insurance industry regarding medical marijuana legalization is the potential emergence of a new class of fraudulent claims. Will insureds begin to claim some subjective malady (such as back pain) with the sole intent of procuring insurance-sponsored medical marijuana?

Unfortunately, the magnitude of this issue will not reveal itself until after potential legalization takes hold.

Milliman Risk Talks: Cyber risk challenges (part II)

A cyber risk assessment tool can help organizations turn their exposure into clear financial and capital terms they can understand. In this Milliman Risk Talks episode, Mark Stephens and Vikas Shah continue their discussion on cyber risk, highlighting Milliman’s specialty in understanding and quantifying the financial impacts of cyber risks.

To watch part one of Mark and Vikas’ conversation on cyber risk challenges, click here.

To watch our Milliman Risk Talks series, click here.

Milliman releases Arius® 2.7, with enhanced graphics and diagnostic tools for more informed decision-making

Milliman announced today that it has released version 2.7 of Arius, its state-of-the-art loss reserving system for property and casualty insurers. This latest release, which was previewed at last month’s Casualty Loss Reserve Seminar in Atlanta, offers enhanced graphics and new actual vs. expected diagnostic tools, allowing actuaries to more effectively focus their efforts and expertise, possibly identifying changes or patterns in the insurer’s data, spotting and addressing issues and opportunities more quickly, and making more informed business decisions.

Because we are reserving experts ourselves, we understand that actuaries must often complete complex analyses under tight time constraints. Our clients need tools that help them quickly measure and assess where to focus their precious time, and to help understand what approaches have been most effective in solving analytical challenges in the past. Our latest release demonstrates Milliman’s continued commitment to developing the best available solutions to enhance the efficiency of our clients’ work.

With this release, Arius adds a number of capabilities:

• Additional graphics provide users an easier way to observe patterns in the data and to incorporate professional data visualizations in their dashboards and reports.
• Automatic generation of actual vs. expected reports offer an efficient diagnostic tool for testing the reasonableness of prior assumptions and the performance of various methods, allowing for continuous improvement in the actuarial process.
• New application programming interface (API) samples help users more efficiently automate parts of their analysis using Visual Basic from within Excel. This is especially helpful when addressing special demands by combining the calculation and data management capabilities of Arius with Excel’s flexibility.

Highlights of 2014 U.S. crop insurance

The year 2014 was challenging for the multiple peril crop insurance (MPCI) industry because several states that had been historically profitable suffered high loss ratios. Additional policies and products released by the Risk Management Agency of the U.S. Department of Agriculture continue to provide higher guarantees to growers and utilize area risk principles. This Milliman research report, authored by Carl Ashenbrenner and Zachary Ballweg, provides more perspective on 2014 MPCI aggregate results.

Solvency II Standard Formula: Right for your company?

Murray-KarlWe previously published the results of our survey looking at how prepared Irish companies are in relation to assessing the appropriateness of the Solvency II Standard Formula for their risk profiles. One interesting finding was that almost half of high/medium-high companies in the survey, as assessed under the Central Bank of Ireland’s risk rating system, the Probability Risk and Impact SysteM (PRISM), said they were not intending to include an assessment of the appropriateness of the Standard Formula parameters in their 2015 Own Risk and Solvency Assessments (ORSAs) or Forward-Looking Assessments of Risk (FLAORs) as the ORSA is known during the preparatory phase in lead up to Solvency II.

The European Insurance and Occupational Pensions Authority (EIOPA) paper on the background to the calibration of the Standard Formula is of particular interest in making such an assessment. Key calibration assumptions include:

• The equity portfolio is well diversified and there is no adverse exposure to a rise in equities
• The portfolio of liability benefits is well diversified in terms of applying the underwriting risk stresses
• There is no inflation risk on insured benefits
• Concentration risk doesn’t capture geographic or sector diversification

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Business combinations and earnings implications in insurance: Navigating the tricky waters

Insurers have many important considerations to discuss early on when contemplating purchase or sale of a company. Valuation and business strategy should be primary considerations, but solvency and financial statement impacts can derail otherwise sound transactions. It’s important to consider a wide range of issues for any such transaction, including current accounting and regulatory requirements, goodwill, intangible assets, and an accurate and well-founded estimate of earnings. Milliman consultants David Kirk and Janri Theron provide perspective in this article.

Issues and challenges in a principle-based reserving world

The formal adoption of principle-based reserving (PBR) in the United States is coming with a likely effective date of January 1, 2017. This Milliman report, authored by James Stoltzfus, Karen Rudolph, William Sayre, and Uri Sobel, considers sample blocks of business representative of current cohorts that are subject to the new requirements. The authors attempted to do the calculations prescribed by Actuarial Guideline 48, considering both level term business and universal life business with secondary challenges. The findings provide an indication as to what issues the insurance industry might need to anticipate as it prepares for the wider implementation of PBR in the coming years.

Indonesia Life Insurance Newsletter, September 2015

In June, the Indonesian Life Insurance Association (AAJI) announced a 28.5% growth in gross premium for the first quarter of 2015 as compared with the first quarter of 2014. The AAJI also revised its growth forecast for the full year of 2015, revising it down to 20% from a previous range of 23% to 29%. Additionally, in August, the Financial Services Authority announced that, following recent developments in the capital markets, it is temporarily reducing the minimum solvency ratio to 50% from 100%, as calculated by the required risk-based capital norms, at least until the end of the year. Milliman’s Richard Holloway and Iwan Juwono provide more perspective in this newsletter.