Casualty Quarterly, Fall 2019

Q&A—Rich Gibson, Academy Senior P/C Fellow

Gibson
Rich Gibson, the Academy’s senior property/casualty fellow, has been tackling multiple key P/C issues this year, giving presentations around the country on everything from automobile insurance to climate risk. Casualty Quarterly undertook a Q&A with Gibson for a look at some recent and ongoing key P/C issues.

Automobile insurance always seems to be an important P/C topic. In the past few months, you have spoken in rate hearings in the District of Columbia, at the National Council of Insurance Legislators, and at the NAIC’s Insurance Summit. Where are you going next?

It is hard to overstate the importance of the automobile and automobile insurance industries to the U.S. and world economies. Consequently, there is a high level of focus on the work that we actuaries do in helping to keep the auto insurance mechanism sound. I feel fortunate to have had a chance to be involved in those meetings, and have also appreciated the opportunity to work with volunteers on the Academy’s Automobile Insurance Committee. In November, I will be moderating a panel at the Academy’s Annual Meeting and Public Policy Forum on predictive models and external data. While not strictly focused on auto insurance, it will no doubt get some ongoing attention. [Editor’s note: See the full list of P/C topics in the Annual Meeting breakout sessions webpage.]

All of that said, the Academy has considerable breadth regarding P&C issues. Lately, I have had a chance to work with our Cyber Risk Task Force volunteers as they work to expand the knowledge base on this emerging topic. I have also had a chance to work with the cross-organizational team from the Casualty Actuarial Society, the Society of Actuaries, the Canadian Institute of Actuaries, and the Academy as they work on the Actuaries Climate Index (ACI) and the impending Actuaries Climate Risk Index (ACRI). I can’t say enough about the dedication that this team has had in the efforts to research and quantify how climate events are changing—and changing our lives.

Predictive modeling for automobile insurance rates seems to get a lot of attention. Do you see issues being raised in workers’ comp or other lines where it is being used?

Part of the reason predictive modeling has gotten so much attention in auto insurance is that the models are continuing to evolve rapidly, and they are doing so at a time when auto insurance rates have been moving up. This can create a perception that the models are driving overall rate increases. While the models clearly impact the premiums of individual insureds, the broader need for rate increases is being caused by cost increases in the insurance system. Other lines of coverage will no doubt have issues, but the care and skill that actuaries put into their models and the training and guidance that we get from the actuarial standards of practice will serve well as things evolve in those lines.

At the NAIC seminar on predictive modeling, there was a lot of discussion about quality control of data that comes from external sources. How big of an emerging issue is this?

The trend is clearly in the direction of more data and more granular data. I suspect that it means more data vendors as well. One has to be concerned with what standards are being used to assure the veracity of the data. Actuaries have always been concerned with data quality, and I can envision the profession having a strong impact on the issue of quality standards for external data.

It’s the tail end of hurricane season, and climate risk always seems to be a big topic this time of year. Is it a growing topic among insurance audiences? Related, you’ve spoken with various audiences about the Actuaries Climate Index, and the upcoming Actuaries Climate Risk Index. What do they want to know?

The answer to that is it depends on the audience. The ACI tracks changes in extreme weather over time and demonstrates how the weather in more recent periods is more extreme than in the selected reference period. While this is an important finding, I suspect interested parties are looking for how that translates into insured losses and claims dollars. The ACRI aims to address that. Considerable research efforts by members of the team across the four sponsoring organizations has gone into answering that question. As the process moves forward, I would expect more clarity around that question as well as improvements from more granular data that underlies the ACI.

The Academy just recently updated its 2017 flood insurance monograph (see story, below)—what’s the latest that’s been happening with the National Flood Insurance Program (NFIP), and what is your role in the Academy’s efforts regarding the NFIP?

Gibson in his office at Academy headquartersObviously, the Academy has a strong public policy focus. If I can be helpful to policymakers as they seek to understand the actuarial aspects of flood insurance, that would be very gratifying. The federal and state governments have considerable impact on hard-to-insure exposures in many lines of insurance. Flood is certainly one of those, and the NFIP has carried the load on flood insurance for several years. It has paid out over $66 billion of claims to flood victims from 1978 through 2018. The Academy will be interested in providing guidance regarding ongoing renewal legislation, and we will be interested in the rollout of “Risk Rating 2.0” by the NFIP.

What are some of the other big P/C issues you see on the national agenda?

P/C coverage is very important to a well-functioning economy, so it is difficult to boil it down to just a few lines. I will reiterate some that we have already talked about, as I don’t think you can emphasize them enough.

Extreme events—weather-related, wildfires—are frequently in the news. Flooding has been especially problematic this year throughout the Midwest and parts of the South. Predictive modeling and its impact on pricing accuracy and soundness will continue to be debated. I’d very much like to be wrong, but I think that the issue of cyber risk is going to continue to grow.

Turning to some that we have not mentioned, renewal of the Terrorism Risk Insurance Act (TRIA) is very important. TRIA’s statutory authority expires at the end of 2020, but commercial insurance contracts already are being written that extend past that point.

Insurance fraud adds considerable cost to the insurance system and impacts the price of policies for honest insurance consumers. And finally, availability and affordability of quality coverages for insurance consumers is an area where actuaries can have ongoing impact. Auto and homeowners’ insurance lines are politically sensitive, because they affect consumers everywhere at very basic levels.

Flood Insurance Monograph Updated

The P/C Extreme Events and Property Lines Committee has updated a public policy monograph, The National Flood Insurance Program: Challenges and Solutions, originally published by the Flood Insurance Work Group in early 2017, to include more recent data on hurricane-related damage, the National Flood Insurance Program (NFIP), and more.

The update includes damages assessed from the big storms of the 2017 Atlantic hurricane season—hurricanes Harvey, Irma, and Maria—and the 2018 season, and outlines recent legislative activity and the multiple stopgap extensions to the NFIP in the past few years.

The monograph provides objective information to policymakers on differing approaches to premium setting and program financing for the NFIP, including both public and private financing mechanisms.

Academy Presents at NAIC Summer Meeting

Ackerman (left) and Odomirok at NAIC
Academy volunteers presented at the NAIC Summer 2019 National Meeting in New York City in early August, addressing professionalism, property/casualty, and other practice-area topics. Academy President Shawna Ackerman, President-Elect nominee and Committee on Qualifications member Tom Campbell, Actuarial Standards Board Chairperson Kathy Riley, and Actuarial Board for Counseling and Discipline member Godfrey Perrott gave professionalism updates to NAIC’s Casualty Actuarial and Statistical Task Force (CASTF). Volunteers also presented to CASTF and attended other NAIC group meetings.

Casualty presentations included:

• Lauren Cavanaugh, Academy board member and chairperson of the Property and Casualty Risk-Based Capital Committee, reviewed the scope letter that her committee submitted to the Property and Casualty Risk-Based Capital (E) Working Group, outlining research they will be doing on underwriting risk.
• Kathy Odomirok, chairperson of the Committee on Property and Liability Financial Reporting, gave a presentation to the Statutory Accounting Principles (E) Working Group on the committee’s recent comment letter regarding inconsistencies in how loss portfolio transfer is handled in financial reports.
• Senior P/C Fellow Rich Gibson gave a presentation to CASTF on recent initiatives by several committees of the Casualty Practice Council, emphasizing the day-long seminar on predictive modeling that the Academy presented at the NAIC’s Insurance Summit in June. He also provided a progress report on the Actuaries Climate Risk Index.

CLRS Features Academy Presentations

Freihaut presents at a sessionSeveral Academy representatives gave presentations at the Casualty Loss Reserve Seminar and Workshops (CLRS), held in mid-September in Austin, Texas, and jointly sponsored by the Academy and the Casualty Actuarial Society.

Academy volunteers were on the CLRS program faculty. Kathy Odomirok, chairperson of the Academy’s Committee on Property and Liability Financial Reporting (COPLFR), held a workshop on writing Statements of Actuarial Opinion, at which COPLFR Vice Chairperson Derek Freihaut was a presenter.

Other sessions included:

• Senior P/C Fellow Rich Gibson and Deborah Rosenberg, vice chairperson of the Actuarial Board for Counseling and Discipline, led a session on the Code of Professional Conduct.
• Ralph Blanchard, a longtime Academy volunteer, and COPLFR member George Levine presented at a session on reporting retroactive insurance, drawing heavily on the comment letter COPLFR sent to the NAIC earlier this year.
• COPLFR members John Gleba and Michelle Iarkowski led a presentation on data and documentation, previewing a portion of the Academy’s annual P/C loss reserve opinions seminar.
• Susan Forray, chairperson of the Medical Professional Liability (MPL) Committee, led a discussion of new developments in MPL insurance.

Academy Presents at NCOIL

Academy Senior P/C Fellow Rich Gibson gave a presentation in mid-July to the National Council of Insurance Legislators’ (NCOIL) Property and Casualty Insurance Committee at NCOIL’s Summer Meeting in Newport Beach, Calif. The presentation focused on factors influencing automobile insurance rates.

The presentation covered regulatory issues, claim cost trends, and other considerations including distracted driving. After his presentation Gibson spoke with, among others, California Assemblyman Ken Cooley (pictured), about the subject.