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

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

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?”

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.

“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.