August/september 2010 Volume 7 Issue 4 Challenging the herd developing a practical implementation strategy From FaCt to responsIble FiCtion interview with fiction HeAltH CAre writing actuary reform the Full SpeCtrum oF riSk attitude Part 4: Funding/Financing is ErM siloed? SOA 2O1O Join us at the soA 2010 AnnuAl meetIng & exHIbIt: Fresh ideas. Innovative seminars. Top-notch speakers. Plus—numerous networking opportunities. We’re heading to New York—a city on the move. Vibrant. Electric. And we plan to infuse that energy into this year’s meeting. plus: n News Analyst and Journalist Ted Koppel n Risk Management Guru Paul Embrechts n m ore than 100 sessions n c utting-edge research n e xhibitors with new offerings n e xclusive sponsorship opportunities Be there—in the city that doesn’t sleep. Learn more at soAannualmeeting.org. Annual Meeting & Exhibit Oct. 17-20, 2010 Hilton New York New York, NY The Actuary is published bi-monthly (February, Contributing Editors April, June, August, October, December) by the Steven W. Easson, FSA, FCIA Society of Actuaries, 475 N. Martingale Rd., Suite [email protected] 600, Schaumburg, IL 60173-2226. Periodicals post- age paid at Schaumburg, IL, and additional mailing offices. USPS #022-627. Ronald Poon-Affat, FSA, MAAA, FIA [email protected] This publication is provided for informational and educational purposes only. The Society of Susan M. Reitz, FSA, MAAA Actuaries makes no representation or guarantee [email protected] with regard to its content, and disclaims any responsibility or liability in connection with the use or misuse of any information provided here- Max Rudolph, FSA, CFA, CERA, MAAA in. This publication should not be construed as max.rudolph@ professional or financial advice. Statements of rudolphfinancialconsulting.com fact and opinions expressed herein are those of the individual authors and are not necessarily Sudha Shenoy, FSA, CERA, MAAA those of the Society of Actuaries or its officers, [email protected] directors, staff or representatives. The Society of Actuaries does not endorse or make any guarantee with regard to any products, services Tyree Wooldridge, FSA, MAAA or procedures mentioned or advertised herein. [email protected] The Actuary is free to members of the Society of soA PrEsidEnt Actuaries. Nonmember subscriptions: students, Mike McLaughlin, FSA, CERA, MAAA, FIA $23; others, $43. Please send subscription requests to: Society of Actuaries, P.O. Box 95668, Chicago, [email protected] IL 60694. soCiEty stAff ContACts The Actuary welcomes both solicited and unso- Patrick Gould licited submissions. The editors reserve the right Managing Director of Marketing to accept, reject or request changes to solic- & Communications ited and unsolicited submissions, as well as edit articles for length, basic syntax, grammar, spell- [email protected] ing and punctuation. The Actuary is copyedited according to Associated Press (AP) style. Lisamarie Lukas Director of Communications For more information about submitting an arti- [email protected] cle, please contact Sam Phillips, associate editor, at (847) 706-3521, [email protected] or Society of Actuaries, 475 N. Martingale Rd., Suite 600, Karen Perry Schaumburg, IL 60173-2226. Publications Manager [email protected] ©2010 Society of Actuaries. All rights reserved. No part of this publication may be reproduced in Jacque Kirkwood any form without the express written permission Senior Communications Associate of the Society of Actuaries. [email protected] POSTMASTER: Send address changes to the SOA, c/o Communications Sam Phillips Department, 475 N. Martingale Rd., Suite Communications Associate 600, Schaumburg, IL 60173-2226. [email protected] Erin Pierce XX% Graphic Designer Cert no. XXX-XXX-XXXX [email protected] 16 August/September 2010 issue of The Actuary ‘ 12 CoVer story DepArtments 16 Responsible HealtH 06 editoRial CaRe RefoRm paRt 4: 08 letteR fRom tHe funding/finanCing pResident The final part of the series 10 letteR to tHe on what actuaries see as the editoR ultimate health care reform package with a focus on 15 VolunteeR funding/financing management b y mac mcCarthy, barbara pRogRam niehus and Jay Ripps 34 inteRView: niCk blitteRswyk feAtures 37 inteRView: 12 CHallenging tHe a. HaewoRtH HeRd RobeRtson Are you prepared for 40 eduCation emerging risks? 44 tHe soa at woRk b y max Rudolph 46 soa 2010 26 t He full speCtRum eleCtions of Risk attitude For ERM to avoid falling out of favor it needs to broaden its scope. b y alice underwood and dave ingram 26 editorial Untapped OppOrtUnities fOr HealtH actUaries by suDHA sHenoy I HAD my own IDeAs as to what communication (both written and oral), orative studies with academia, think tanks “untapped opportunities for health actu- adaptability, in-depth clinical knowledge, and other industry experts. There is great, aries” might involve, but wished to learn familiarity with study design and knowledge untapped value for health actuaries in what research had found. In May 2010, I of policy and regulations. initiating dialogue with other health indus- listened to a webcast, supported by the try experts. Grappling jointly with tough SOA Board, about a market research study I delved further into the last three of issues would foster respect and mutual on the topic. The research study focused these valuable skills, as I believe them learning between academics, medical and on understanding current actuarial roles, to be technical barriers that actuaries health care professionals, industry experts matching potential roles with actuarial must overcome in order to gain access to and actuaries. Best practices would be skills, looking at future needs and explor- untapped opportunities. I discussed my shared and different approaches tested ing new roles. The study included a survey thoughts with friends in the industry and and modified as needed. I believe that that gathered input from health industry would now like to share them with you. this approach would be very energizing executives, health plans, health manage- If I needed to gain technical knowledge, I to all parties involved, serve as a catalyst ment consultants, hospitals, health sys- would prefer to begin the learning process for new learning, and prove more expedi- tems, and pharmaceutical and disease sooner than later, with the curriculum ent than constructing a formal curriculum management companies. modified as necessary along the way. I at the SOA level. Perhaps the SOA could would be extremely receptive to pilot proj- provide guidelines around which these The study found that there are many ects conducted at local actuarial clubs, opportunities could be constructed. untapped opportunities in several segments where members would have easy access of the industry for those it deemed “ridicu- to knowledge without incurring a lot of Another way in which we actuaries could lously intelligent” actuaries. There is a strong expense—perhaps through a partnership explore untapped opportunities would be need for analytical and data expertise in clin- with local universities or through tailoring to seek these opportunities ourselves by ical research settings as well as in wellness/ a seminar in order to receive continuing raising awareness about what we, as actu- disease management companies, health credit on these topics. This would be a aries, bring to the table. I would like to plans (analytics departments), health care good bridge-building technique with local share with you a personal experience from management consultancies and pharmacy medical schools and industry experts and the last Super Bowl party at my house. benefit management organizations. Highly would help to strengthen the actuarial When I entered the room where my guests valued business skills for these opportuni- brand in the health care arena. Such enter- were seated, I quickly realized that their ties include strategic/“big picture” thinking, prises would also open the door to collab- ongoing debate centered on the recent 06 | tHe ACtuAry | august/sEPtEMbEr 2010 individual health premium increase that This made me aware of an opportunity we just need to par- was making headlines. In my own home, for us to influence others and raise aware- ticipate in and chan- amongst my own friends, I felt as if I were ness about our profession. I think we miss nel the discussions. being cornered. My friends expressed out on opportunities because employers I have no doubt that much concern over the so-called “irra- remain unaware of our analytical training we “ridiculously tional increase.” I took that opportunity and our unique ability to solve problems intelligent” actuar- sudha shenoy to explain to my friends how rates are in many different and new contexts. Efforts ies will find a way to gain the technical set and reviewed as well as approved by are currently underway to understand the and business knowledge we need to help the Department of Insurance (for certain ramifications of health care reform and shape our futures and capture both cur- health products). None of them realized bending the cost curve. During the cur- rent and untapped opportunities in the that there was a logical process for rate rent health care debate, we ought to use health care industry. A filing, review and approval. I answered every opportunity to educate the public. many questions on how we go about col- Volunteering at the SOA, the Academy sudha shenoy, fsA, CerA, mAAA, is a health actu- lecting the data from our prior experience or other organizations or work groups to ary. She can be contacted at [email protected]. and applying trend, etc. Following that learn more about these issues and then discussion, many of my friends have come sharing our knowledge and expertise with back to me with questions on other health the public is another way in which we can care, as well as general risk management, showcase our talents and abilities. The issues that they face in their professions. context is there; the dialogue is ongoing— letter from the president sOa cOmmUnicatiOns: empHasis On emplOyers by mIke mClAugHlIn 2010 HAs been A yeAr of ImproV- The Employers Council was established in on the work of the SOA. After a year of dis- Ing how the SOA communicates with mem- 2009 to create a solid communications chan- covery and engagement, council members bers. This has led to exciting new communi- nel with the employer community, and offers have told us that they want to do more. cation channels, better dialogue and some the SOA perspective on business trends and great ideas! challenges facing insurance, benefits consult- One of the goals the Council has set for itself ing and broader financial services firms (the is to get to the heart of the SOA’s vision (for We have also extended this emphasis actuarial profession’s current target markets). actuaries to be the leading professionals on communication to another important The Council meets three times annually— in the measurement and management of group—those who employ actuaries. twice in person and once by conference call. risk) to establish a true understanding of the risk management field and the needs Employers are responsible to their cus- Council members are senior leaders at their of key thought leaders in risk management. tomers, the public and, in many cases, respective entities, and include a combina- To help achieve this goal, the Council has shareholders, for the health and growth tion of some of the largest actuarial employ- undertaken a project to better understand of their business. They are on the front ers, non-actuaries with expertise in financial employers’ labor needs in an evolving lines when it comes to business and the services, enterprise risk management and business climate. This includes current economy, which is why employer per- executive/recruitment search. and future talent needs of firms, trends in spectives are important to the work of professional development and possible the SOA. Establishing solid relationships The Council gives us information on hiring risks to the talent pool, and will be an with employers offers the SOA additional and staff development needs, preferences important step in developing the profes- viewpoints in providing members with the and practices. They provide insight on busi- sion’s strategy in the years to come. tools needed to stay on the cutting-edge ness needs for research and other forms of of actuarial science and risk management. intellectual capital development in risk-relat- The SOA Board and staff are very grateful ed areas, as well as feedback on the market to the members of the Employers Council Let me tell you about a few of the ways we relevance of various products and services who volunteer a few days of their time are working with employers. the SOA offers. per year to benefit our profession. We are fortunate to have such an enthusiastic, employers CounCIl In 2009, (the year the Employers Council involved team with which to share an The most visible way we are working with was established) the meetings were largely ongoing dialogue. The most recent meet- employers is through our Employers Council. focused on bringing employers up to speed ing (held in June) was the best ever, in my 08 | tHe ACtuAry | august/sEPtEMbEr 2010 opinion! The members of the Employers VolunteerIsm benefIts members In addition, technol- Council are lively, very engaged and AnD employers ogy products require through a number of dynamic discussions As a member-driven organization, volun- sophisticated pric- have given us a lot to think about! teers drive the work of the SOA, which is ing and management why it is an important topic to discuss with techniques. If we can employer CommunIty VIsIts employers. Those of you who volunteer demonstrate the value mike mclaughlin As an extension of the Employers Council, know that it helps you build new skills, of our skills, employers the SOA also conducts employer com- make new contacts and can help you stay will require a greater supply of actuaries to munity visits as part of our outreach to up to date in technical areas, differentiat- fill those roles. If we are successful in this, employers. On these visits, we learn about ing you from others. job opportunities for actuaries will expand the employer’s core business, challenges they may be facing, and their needs for the work we do with employers is really talent and professional development. about creating more opportunities for These visits also create the opportunity actuaries. ... for us to hear not just from senior leaders (who may be either actuaries and non- actuaries), but also teams of employees These skills not only benefit you, but these greatly, and the profession will provide and even candidates—it’s a broad spec- are skills that you take back and can use at more valuable service to the community. trum of people that make up an enterprise, the office or in the field on daily basis, which There’s work to be done to get there, but and we want to ensure that we hear a benefits your employer as well! With the the prize makes it worthwhile. variety of perspectives. contacts you make through volunteering, you may be able to gain new clients and ConClusIon There is no substitute for face-to-face con- even get on the phone with a competitor! As members of the SOA, we all benefit versations, and these visits go a long way from the conversations and resulting ideas toward building rapport with employers. Volunteers make our profession stronger, we gain from employers. The effect is cir- and the strength of the profession is impor- cular—employers’ feedback allows us to ImproVIng proDuCts AnD tant to the viability of the firms that we develop products and services that benefit serVICes work for. members, strengthening the profession as The feedback that we have received from a whole, boosting the public’s knowledge employers helps us develop products future employers of ACtuArIes of actuaries, and increasing demand for and services (for example, Continuing The work we do with employers is real- actuarial services. It’s an exciting time to Professional Development (CPD) offer- ly about creating more opportunities for be an actuary! A ings) that help prepare, and even give actuaries, and for those in our profession, members an edge, in the job market. Both our horizons are expanding. We can take mike mclaughlin, fsA, CerA, mAAA, fIA, is president members and employers have asked for cues from other countries—for example, of the SOA. He can be contacted at [email protected]. CPD in a variety of formats to help meet in Australia and South Africa, actuaries budget requirements and time restrictions. are working for banks and asset manag- ers, with financial product pricing and In addition, we are using employer feed- management. We should also look at how back to develop new CPD offerings—one we can apply actuarial skills to solve example could be partnering with others problems in other areas such as manu- to develop a leadership training program. facturing, technology and transportation. august/sEPtEMbEr 2010 | tHe ACtuAry | 09 letter to the editor less tHan ideal eDItor of tHe ACtuAry, I would like to address a statement made in the captioned article would have likely avoided what I believe is a financially catastrophic reform “Responsible Health Care Reform Part 2: Access to Care,” found in in access to health insurance that is now the law of the land. Thank you for the April/May 2010 issue of The Actuary. the opportunity to comment (vent?). The article states that “Because of HIPAA, any person who is Best Regards, covered for at least 18 months under a group or individual Jim galasso, fsA, mAAA, CerA, president & Consulting Actuary health care plan has a right to maintain continuous cov- Actuarial Modeling, [email protected] erage without ever again being required to undergo assessment of health status (underwriting) or facing new reply from AutHors of tHe ArtICle: limit on pre-existing conditions.” (emphasis added) The statement in the article is accurate, but as Mr. Galasso points out, there is no doubt that the current situation is less than ideal. The way the It is my understanding that HIPAA and most (but not all) states do right can be exercised varies by state from the extreme of being guarantee not prohibit health insurers from requiring health status assessments issue by any carrier writing individual health insurance in the state, to (underwriting) for all individual and small group health insurance only accessing the state high risk pool as the insurer of last resort. The applicants—even individuals and small groups applying for alter- individual can purchase insurance without a new pre-ex and without native health care policies from their current insurer. While the 18 exclusionary waivers through the appropriate mechanism in his/her state, months provision will provide guarantee issue rights, there is no pro- but, as stated in the article, coverage may well be unaffordable. A useful tection against a health insurer’s requirement that individuals submit guide to understanding the options by state can be found at: http://www. to health status assessments for the purpose of rate setting and for healthinsuranceinfo.net/. substantial policy exclusions with respect to individual health insur- ance plans. It has been my premise and contention that precisely Our article was written prior to passage of PPACA. PPACA will change the because of this lack of underwriting protection, the health insurance rules significantly, certainly beginning in 2014 when guarantee issue industry has been successfully (justifiably?) vilified and our already becomes the law of the land. In the short run, funds allocated under overly debt-laden government passed health care reform that further PPACA to support high risk pools will also provide another option to some expands government intrusion, threatens the insurance industry people seeking to purchase insurance. itself, and imposes requirements that further threaten our nation’s financial condition. If the health insurance industry would have pro- barbara niehus, fsA , mAAA, president, actively addressed this substantial defect in insurance protection, we Niehus Actuarial Services, Inc., [email protected]. A 10 | tHe ACtuAry | august/sEPtEMbEr 2010