On The Job

What Will It Take to Get Actuaries and Underwriters on the Same Page?

A good relationship between underwriters and actuaries helps insurers price risk more effectively.
By: | October 11, 2018 • 6 min read

Emily Gilde, a senior vice president and chief actuary with Ethos Specialty Insurance, is in a happy place.

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A holder of a Masters and a PhD in Economics from Yale, the veteran of almost 25 years in the insurance industry finds herself aligned with an underwriting team where she is viewed as a partner in writing new business, rather as someone who is viewed as an obstacle because she thinks the numbers aren’t right.

“I think it started at the top of the organization,” Gilde says, in recalling how it all went right for her with the managing general agency and Ascot subsidiary, which she joined in January. Before Ethos, she spent time with Nationwide and AIG, and before that a brief stint in academia back in the early 1990s.

“At Ethos I think there was a conscious decision to make the actuary a part of the underwriting team,” she said. “It wasn’t seen as window-dressing but really a recognition of the fact that for an MGA to be successful, you have to have a lot of credibility with your underwriting.”

So, was there a time when Gilde was not happy in this industry? Not necessarily unhappy; let’s just say she has seen her share of disconnect between actuaries and underwriters.

Emily Gilde, VP and chief actuary, Ethos Specialty Insurance

Speaking generally, actuaries, many of them highly trained and competent mathematicians, are charged with analyzing the risk across a carrier’s portfolio and drawing lines on what should and should not be underwritten.

Underwriters, speaking generally again, are the part of the insurance team that meets with brokers and insureds. They shoulder that crucial dialogue that should result in the insured’s risk being made transparent as possible, giving the underwriter an idea of whether the carrier can safely and profitably insure it.

The problem, where there is a problem, is that the underwriter may say “yes” to the risk and the actuary, for what look like sound reasons to them, may say “no.” This leads to friction, mistaken assumptions, and at its worst, downright stereotyping about the actuarial profession.

“I think the stereotype is the that the actuary is the bad cop and they are going to tell the underwriter that they can’t do something that the underwriter feels strongly would be a good thing to do,” Gilde said. “That they are inflexible, can’t take any risk at all and are risk averse.

“You hear of situations where there is poor communication between the people on the team and what each team member might be trying to optimize may be different.” –  Dale Hall, managing director of research, Society of Actuaries

“As a result of that they have often been left out of the conversation at the strategic or development stage, and are brought into the decision-making phase to get a rating plan filed.”

“You hear of situations where there is poor communication between the people on the team and what each team member might be trying to optimize may be different,” said Dale Hall, the managing director of research for the Society of Actuaries.

“I think you encounter situations at times where the actuary is looking through their own lens and seeing a different picture,” Hall said.

“The actuary is trying to understand that risk and price that risk but without the context of the underwriting and the distribution. And on the flip side, distribution is clearly looking at clients, acquisition, asking how are we going to underwrite these risks and how are they going to be priced?”

“I think there is a place to understand what everyone’s common goals might be, what are the intentions that we might be heading for?”

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At Ethos, Gilde says she’s in a position where any divide has been lessened.

“I feel like there was a consistent desire to reflect an actuarial perspective,” Gilde said.

“Now I will say that requires some flexibility.  I can’t just insist on it, you do have to be open to everyone’s point of view. It’s being cross-functional and flexible as much as possible.”

Aaron Hillebrandt, a consulting actuary with Pinnacle Actuarial Resources based in Bloomington, Ill., said some negative assumptions about actuaries do exist.

“I think what you are getting at is the notion of the well-rounded actuary,” Hillebrandt said. “They can perform those mathematical and modeling tasks, but they can also consult and communicate in the same way that others can who are not actuaries.”

Steven Byam, assistant vice president, Small Commercial Actuarial at The Hartford, said what’s true in any relationship is what will make for the best relationships between actuaries and the rest of the underwriting team.

“I think what you are getting at is the notion of the well-rounded actuary. They can perform those mathematical and modeling tasks, but they can also consult and communicate in the same way that others can who are not actuaries.” – Aaron Hillebrandt, consulting actuary, Pinnacle Actuarial Resources

“It starts with appreciating and respecting the value each brings to the table,” Byam said.

“The best decisions are made when all parties share different perspectives and engage in constructive debate regarding the best solution. Leaders in the organization need to foster an environment where listening to alternative viewpoints and respectfully challenging each other is the norm. This starts with trust, credibility and alignment of goals between underwriting and actuarial teams,” he said.

For his part, Hillebrandt said he spends a good deal of time working with underwriting companies, explaining what it is that actuaries do. This makes for a better educated client, and a client that feels more empowered to ask questions and enter into a productive, collaborative dialogue with an actuary.

“At the end of the day, we are really good at what we do, and the client is really good at their business,” Hillebrandt said. “If we can come together with a better understanding of what we do and what the other side is working on, and how we can do it together, we’ll get a better result.”

The SOA’s Hall said that’s the end goal of the society’s decision making and communication module.

“I think the profession recognizes that, while we bring a lot of analytical and mathematical skills to look at risk, an important part of being an actuary is being a decision maker and a communicator,” Hall said.

Hillebrandt and Gilde said actuaries also owe it to themselves and the industry to brush up on their communication and presentation skills. That way, they can get their message across, the underwriting team will have a better understanding of what they do and everyone will be happy: Not as happy as Emily Gilde perhaps, but it will be a start.

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“Relationships between underwriters and actuaries need to be stronger now than ever,” the Hartford’s Byam said.

“Actuaries often need to explain complex models to non-technical people and be able to tell the story behind numbers. When this happens effectively, the art of underwriting is blended with the science in order to reach better decisions. Access to more robust data, better analytical tools and stronger computing power has led to greater use of analytics across the organization. Actuaries have the skills needed to analyze large volumes of data to make decisions when there is uncertainty in the outcome. As a result, you’re now seeing an increase in actuaries working outside the traditional actuarial functions of ratemaking and reserving and working alongside their business partners in underwriting,” Byam said.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]