Building a Stronger Casualty Pres ence : Academy Vice President Michael Tootbman ril he Academy's new vice president for casualty practice is Michael Toothman, who comes to the post after years of service to the profession, including a term on the Academy Board of Directors and presidency of the Casualty Actuarial Society (CAS) in 1991-92 . He recently talked to the Actuarial Update about current public issues that affect casualty actuaries Michael7bat man
and the future of the property/casualty industry. How well has the Academy represented casualty actuaries in the public policy process? The Academy has done an extremely good job on the casualty side, especially on insurance issues with the National Association of Insurance Commissioners (NAIL) . However, casualty issues have not been as prominent in the public debate as health and pension questions, and so have not captured the limelight. A notable exception was the Superfund report that Raja Bhagavatula's work group issued Last year, which was very well received on Capitol Hill.
What will be your tap priority in your now role as VP? First, I want t up the good work that my edecessor as VP, Dave Flynn, and his committee chairs have done over the past 2 years . Jan ele, Paul O'Connell, F Kist, and their committees have been serving the Academy in an outstanding fashion. My second priority is something the Academy hasn't thoroughly addressed: self- insuran ce reserves-especially, but not limited to, workers compensation . Dave Flynn has asked Lane Onufer to begin work in this area, but the project is very new. This is a state issue, an area where historically the Academy has not been very active . When our work is completed, we will have to mobilize effectively at the state level to communicate our message. Actuaries of all practice areas should help the Academy establish a stronger presence in the state capitals .
The chairmen of the House Commerce Committee recently said that Superfund will be an early agenda Ram in the next Congress. What do you think the final agreement will look like? Congress has come to realize that change is needed, but industry will have to reach a consensus to effect compromise. A time limit on retroactive liability must be settled upon-1987 or some other date . The current thinking is that transporters of toxic materials will be relieved of liability, which will be confined to owners and operators with certain de minimis exclusions .
The Academy's assistance will certainly be in demand on the Hill, following up on our 1995 report .
Do you think natural disaster insurance
reform will come out of the next Congress? With the increase of natural disasters in the past few years, the time is right to consider such legislation. Sen . Stevens ofAlaska has introduced a bill that keeps all catastrophe insurance in private hands, instead of creating a federally guaranteed corporation . However, the Treasury would sell excess-of-loss reinsurance contracts for disasters of above $50 billion in losses . I expect this plan to be the starting point for debate in the next Congress . The Academy will continue to monitor the debate and offer its analysis to the House and Senate committees of jurisdiction.
The Academy currently is assisting the NAIC on a proposal for prepaid catastrophe reserves that are federally tax exempt. Do you think such a plan will win the approval of industry, regulators, and eventually Congress? There's been an amazing turnaround on this issue. When it was talked about in the 1970s, no one believed Congress would take it seriously. However catastrophes like Hurricane Andrew and the Northridge quake have awakened public concern about access to insurance . With the NAIC now strongly in support, tax deductibility of catastrophe reserves actually has a chance of passage . Again, industry and regulators will have to work out an agreement to be able to present a united front to Congress. Washington will have to be convinced that tax deductibility will help keep property insurance available to Americans in high-risk zones. Even without tax breaks, prepaid catastrophe reserves might help companies stay in risky markets . The Academy will help Congress make sure the legislative end-product is feasible .
In a 1992 speech you called this era the golden age of the casualty actuary. Is this still true? Certainly. Casualty actuaries have maintained a strong position in their traditional activities, but also are taking on new roles. Actuaries are slowly beco ming more involved in determining prices charged in the marketplace We're certainly seeing more actuaries move into underwriting departments, often as chief of that function. Some actuarial talent is now
being used on the asset side-Dave Flynn's career, for example, has moved in that direction .
What will the property/casualty insurance industry look like in 20 yearn Will there he a greatly reduced number of carriers? The conventional wisdom predicts increased concentration in the in-
Even without tax breaks, prepaid catastrophe reserves might help companies stay in ris markets. The .A. emy will help Congress make sure tlgislative end-product is feasible .
dustry, and I think that's true. However, major insurance groups tend to establish specialized subsidiaries, so the number of carriers
might increase even in a greatly consolidated industry . And we'll continue to see new entrants in the marketplace. What are the employment prospects for actuaries in casualty practice? Excellent. Of course, many casualty actuaries no longer depend on traditional insurance company employment. Twenty years ago, 10% of CAS Fellows worked as consultants; that figure is now 25% . Ten years ago, the CAS didn't even tally reinsurance companies as a separate employment category ; now 147 Fellows work for reinsurers . Also, the definition of casualty practice is being extended to all entities that assume casualty risk . A few major self-insurers have already hired actuaries, and I expect that trend to grow. In 20 years, a significant number of actuaries-both life and casualty-will be employed by banks, brokerage houses, and other financial service companies .
What is the impact of technology on the profession? It's eliminated some of the grunt work, and so has slightly reduced traditional employment at the
trainee level. However, technology frees us to use our skills in more valuable ways and gives us the opportunity to expand our range of activities because our models are so much more sophisticated and complex .
By making actuarial science more accessible to non-actuaries . isri t tachnulogy a double- edged sword? That's a danger. Non-actuaries have the ability to perform traditional actuarial techniques in a very mechanical fashion : Run the numbers and get an answer. However, no model is well enough constructed to replace an actuary's judgment . Doing the math is not enough . Company management s not make the mistake of dis ring with actuarial analysis . Nott because of the impact on actuaries , but because of the wrong lions and bad decisions th will result . Actuaries , in my opinion, are clearly the best equipped of all insurance professionals to understand and integrate the financial, operational , and interpersonal dynamics that affect all insurers .
Casualty Standard Gets Final ASB Approval atemaking actuaries for casualty and
accident/health insurers have a new standard to help them determine credibility procedures. On October 23, the Actuarial Standards Board formally adopted Actuarial Standard of Practice No . 25, Credibility ProceduresApplicable to Accident and Health, Group Term Life, and Property/Casualty Coverages . . .
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to balance responsiveness and stability The standard is relevant to ratemaking and prospective experience rating when credibility procedures are used. Other applicable areas include experience rating, reserve analysis, solvency testing, and asset/liability management . The credibility standard was drafted by members of the ASB Casualty and Health Committees and exposed to the membership in 1994 . The final
Credibility procedures are integral to ratemakg ing and prospective experience rating and also may version reflects comments made by more than thirty Academy members . The new standard is the first be used for other functions . The new standard foapproved by the ASB cuses on selecting credsince the adoption of ibility procedures and format changes in assigning values to subMay. The new forject experience, asat is designed to sumptions , and related separate substantive experience . According standard requirements to the standard, the acfrom general infortuary should select mation . credibility procedures that produce reasonable See the December results , do not materiUpdateforfurther news ally bias results, are ASH casualty practice numbers Dave Hartman and Phil Bon Zari pre- from the ASB's October practical to implement, pare for the board's October 23 meeting in the Academy 's Washington meeting. and consider the need exce.
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