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Never mind the stats, actuaries need to get talking to their colleagues in claims to understand the people, skills and experience, says Alex Isted, UK Life Head of Claims.
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A small and informal (OK, very small and very informal) survey of actuaries found that nearly 40% of them hadn't seen their claims manager in more than six months.
But despite the small sample size, there is an element of truth in this finding.
To illustrate this point, let us focus on the relationship between actuaries and claims people when managing a book of income protection (IP) claims.
Actuaries should consult with their claims colleagues more often and, if they do not, they are missing a trick or two in best managing their disability portfolios.
Trick 1: This is for the actuary to get to base camp about understanding "What does a claims assessor actually do when assessing a disability claim?" If the answer is: "Well, they pay claims", then this is well short of the mark.
Claims assessors act as helpers, guides, confidantes and much more to a disability claimant since, among many things, they look to ways to help them back to work as early as possible.
They also look to fund treatments to assist this process, propose ways to adapt the workplace to enable this, and fund retraining into other work. All of this is also aimed at preventing long-term and unprofitable claims.
Trick 2: Does the actuary recognise the skill sets a claims assessor requires? If the reply is:
"They need to know their medicine", again this undersells the professional skills required of the claims assessor.
To delve into the depths of a disability claim, an assessor will also need to interpret the requirements of the claimant's occupational duties matched against their level of incapacity.
They will also require financial knowledge when assessing sets of accounts with the self employed and legal nous where claims are disputed.
Often, they will need to be a detective in piecing together all these different elements underlying the claim.
Trick 3: This is to get a sense of how these claims skill sets can help the actuary in their analysis of disability claims portfolios.
Working with the Pricing Actuary
The trends underlying historic disability claims experience can be seen from either a company's own experience or from CMI (Continuous Morbidity Investigation) data produced by the Institute of Actuaries.
However, the study of this data and the resulting assumptions can be very one-dimensional if it is only the figures that are considered.
Claims input enables pricing actuaries to better understand data based on day-to-day experience rather than simply considering raw statistics.
This can be very effective when considering the way a disability portfolio should be properly priced.
The skill of the experienced claims professional, therefore, is in helping the pricing actuary understand why, for instance, trends in certain occupational groups are worse than in others.
Termination rates have also worsened in recent years across some age groups and the government's proposed welfare reforms may impact upon claims experience.
Precisely the same considerations should apply to actuarial reserving and valuation. If these are incorrect, then a disability portfolio can be either under or over reserved both of which can be costly to a business.
What other areas are there where claims know-how can ensure a better likelihood of profitable business? There are at least two others.
The first is working with the product development actuary. The mantra is that:
"Claims helps at the start of the game and the start of the game is product development."
Claims input to the product actuary when developing a disability product can provide a practical bent to what a disability product means and its implementation.
For example, from their working knowledge, claims can help ensure the product ‘Treats the Customer Fairly' and enable a practical interpretation of the policy at the point of claim (so that it is less likely to lead to an FOS challenge because of poor policy wording).
Conversely, if this involvement does not occur, then there could be an adverse impact on claims experience and profitability as well as upon the media image of the company.
The second area worth considering is working with the marketing actuary. Claims should be at the centre of the sale, just as much as underwriting is.
The ability to handle claims efficiently, fairly and promptly is at the centre of adverts for selling almost any line of non-life business. Why is this less the case with IP business?
The perception of the claims message with IP in the media can sometimes be a negative one.
We need to turn this on its head and emphasise the way that claims assists the policyholder or claimant in many more ways than just paying the claim.
Trick Number 1 should be an integral part of the sales message.