Actuarial & Management
Session 01: What’s Driving Your Product Portfolio?
Steve Schoonveld
Head of Linked Benefit Product Solutions
Head of Linked Benefit Product Solutions,
Lincoln Financial Group
Dawn Helwig
Dawn Helwig
Consulting Actuary and Principal,
Milliman, Inc.
Ross Bagshaw
Principal,
What’s Driving Your Product Portfolio?
Steve Schoonveld
Dashboard Exercise
“Factory Installed Items”
• ActuarialActuarial • ManagementManagement
“Options”
Options
“Dashboard Panels”
Financial Operational Sales
Competitive Competitive
Landscape
Dashboard Exercise
A Dashboard Sketch
Guidelines:
– Data should be comprehensive and actionable
– Consider the initial and ongoing cost of acquiring the information
– Enable forward looking decisions – Look beyond your own reach
– Note how frequently the data should be refreshedq y – Overcome limitations
– Misinterpretation and credibility – Re-evaluate estimationse e a uate est at o s
“Dashboard Dials”
Does this enable management action or simply inform?
Does this enable management action or simply inform?
What are the “levers” that you can push/pull?
Examples
Revolutionary
Dangerous
Keep Your Eyes Focused
“Driving” without a Dashboard
Functional
Simplistic
What’s Driving Your Product Portfolio?
Dawn Helwig
Characteristics of a LTC Dashboard
• Simple end: periodic reports prepared by actuarial, sales, orSimple end: periodic reports prepared by actuarial, sales, or operations that summarize results. Prepared from a number of sources. Preparation is often heavily manual.
• Mid end: periodic reports prepared by actuarial, sales, orMid end: periodic reports prepared by actuarial, sales, or operations that have significant level of detail in the
background, with dashboard summaries. User can do drill-downs to get to different summaries of results. Often
prepared from a number of sources.
Sales Dashboards
• High level:High level:
– Total sales volume, compared to goals – By premium and by number of policies
• Drill-downs:Drill-downs:
– Sales by agency/agent – Sales by geographic area
Sales by product option (with inflation by BP with shared care – Sales by product option (with inflation, by BP, with shared care
rider, etc.)
– Sales mix by product option compared to expected in
pricing…index comparison of expected effect on profits of
p g p p p
Competitive/Product Dashboards
• Usually updated only periodically, as new products areUsually updated only periodically, as new products are introduced
• Compares product features
• Compares premiums for selected benefit configurations • Compares premiums for selected benefit configurations • May contain “normalization” factors, to put competitive
Operational Dashboards
• Tracks items related to measuring underwriting, claims andTracks items related to measuring underwriting, claims and policyholder service. Compares to industry standards (if available) or to agreed-upon company standards.
• Underwriting:Underwriting:
– Time measurements
– Tool measurements (% getting phone interview, medical records, cognitive test)g )
– Percent accepted
– Percent standard/preferred – Percent with married discounts
– Compared to pricing (e.g., does higher percent preferred imply better morbidity than assumed in pricing, or relaxation of
Operational Dashboards (cont.)
• Claims:Claims:
– Number of potential new claims (call-in pended, receipt of information, etc.)
– Time measurement from pended claim to approval/denialp pp – Number/percent denied
– Number/percent contested
– Number of claims closed; number re-opened; p
– Distribution of new claims by key characteristics (e.g., lifetime BP, with inflation)
• Policyholder Service:y
Financial Dashboards
• Financial effect of sales, claims, underwriting can and shouldFinancial effect of sales, claims, underwriting can and should be included in other dashboards!
• In addition, need specific reports on
– Sources of earningsSources of earnings
– Morbidity actual to expected
Source of Earnings Dashboards
• Starts with earnings expectations from pricing or from recentStarts with earnings expectations from pricing or from recent projection models
• Compares results for subsequent periods, identifying deviations from projected based on:
deviations from projected based on:
– Effect of terminations higher/lower than projected – Effect of morbidity higher/lower than projected – Investment income/new money rate deviationsInvestment income/new money rate deviations – Changes in distribution
Morbidity Actual to Expected Dashboards
• In “guts” of the data, create an expected claim cost for eachIn guts of the data, create an expected claim cost for each person, based on issue age, duration, gender, benefit
configuration, etc. Create seriatim actual claims incurred with incurral date and discount defined consistent with claim costs creation.
• Have high level summaries (by product group, incurral year, claim duration) with multiple drill-down possibilities
• Drill-downs: gender, marital status, state, benefit type, inflation type, EP/BP, etc.)
• Ideally, do separate A to E dashboards for total claims dea y, do sepa ate to das boa ds o tota c a s incurred (by incurral year), claim frequencies, and claim termination rates
Lapse/Mortality Dashboard
• Ideally, calculate actual to expected mortality by identifyingIdeally, calculate actual to expected mortality by identifying true deaths from correlation to Social Security death master file. Reflect selection period (10 to 20 years).
• Death A to E could vary by product generation (related toDeath A to E could vary by product generation (related to underwriting) and issue/attained age (mis-match of table) • Back into voluntary lapse rates, adjusting for people who go
onto NFO and including waiver of premium onto NFO and including waiver of premium
• Do A to E on voluntary lapse rates and mortality, compared to pricing/projection assumptions
• A to E should be able to be viewed by issue age duration • A to E should be able to be viewed by issue age, duration,
policy group, inflation option, EP/BP, etc.
Claim Dashboards
• Summary of disposition of claims:
New potential claims/claims pended – New potential claims/claims pended – New claim information received
– New claims incurred and claims denied Cl i l d
– Claims closed – Claims re-opened
– Average payment per week/month and trends
“S l f t ” ( t k/ th di id d b i
– “Salvage factor” (payment per week/month divided by maximum benefit possible)
• Comparison of new claims open and claims closed to
expectations (frequency A to E’s and claim termination rate A expectations (frequency A to E s and claim termination rate A to E’s)
Management Dashboard
• Should include key summaries from each of the individualShould include key summaries from each of the individual dashboards
• E.g., sales results, earnings variations and reasons for, morbidity A to E, lapse A to E, claims changes, investment morbidity A to E, lapse A to E, claims changes, investment earnings variation
Dashboard Results
• If used and interpreted correctly, dashboards can guide the “d i ” t t k i t ti h lt t
“driver” to take appropriate action when results are not as expected/desired
• For example:
– Sales below expected? Due to new competitor product, loss of an agency?
– Large increase in claim reserve? Due to more new claims than drop offs? New claims concentrated in lifetime BP with inflation? drop-offs? New claims concentrated in lifetime BP with inflation? – Increase in loss ratio? Was it expected…or is morbidity A to E
increasing? Problem in a particular state or with a particular policy?
p y
Keys to Successful Dashboards
• To be effective, development needs input from all users…what are they looking for?
• Development needs input and possible metric creation from • Development needs input and possible metric creation from
actuaries
• Users need to be educated on what they can and can’t derive from dashboards and what conclusions can be drawn from an from dashboards, and what conclusions can be drawn from an available drill-downs
What’s Driving Your Product Portfolio?
Ross Bagshaw
Principal,
Managing with and without a Dashboard
I separate dashboards from infrequent reports. We had great reports, and they were electronic, and they were slick. But,
l k d t M bidit A2E’ thl d l k d t we looked at Morbidity A2E’s monthly, and we looked at
Source of Earning Information Monthly. These were generally in the form of Pivot Tables hooked onto SQL structures.
But, 15 years ago, they would have been a thick, bound report, that we’d have called a “Key Indicator Report”.
Having it online, doesn’t make it a “dashboard”.
Managing with and without a Dashboard
Managing without a dashboard:
• Hope, feelings, confidence, common sense, intuitionp , g , , , • Young ages have fewer claims, sell young ages
• Hard questions require creative storytelling • Assumptions based on industry data
• Assumptions based on industry data
• Management actions require consensus building Managing with a dashboard:
• Facts replace impressions • Facts are not always pleasanty p
Managing with and without a Dashboard
Managing open blocks without a good dashboard leads to someone else managing a closed block with or without a someone else managing a closed block, with or without a dashboard.
LTC Jeopardy for $200. They sang:
“I know the pieces fit ‘cause I watched them fall away; mildewed and smoldering, fundamental differing...
I’ d th th h t k
…I’ve done the math enough to know the dangers of a second guessing…
… I know the pieces fit, I know the pieces fit, I know the pieces fit, I know the pieces fit.”
Pieces to Fit – Closed Blocks
Liability Assumptions:
Policy Terminations – Lapses and Deathsy p Claim Costs
• Incidence, Terminations, Utilization by Claim Type • Transitions
• Morbidity Improvement?
• Lots and lots of good pieces. Dashboard Opportunities. • Fitting doesn’t always get easier with more data.
On/Off Claim inventorying for incidence. Asset Assumptions
Expenses Commissions Taxes Expenses, Commissions, Taxes
Earnings – Reserve Basis performance; Source of Earnings
Pieces to Fit – Closed Blocks
Closed Block Management - Pieces to Fit
Discussion of Actuarial Axiom 101:
“Good long term models often
perform poorly in the near term.”
perform poorly in the near term.
Pieces to Fit – Model Assumptions
Review focus is often on the atoms, bottom up, as examples: • Development of Disabled Life Death Ratesp
• Development of Active Life Incidence Rates • Both are very important assumptions
• Both are (and should be) A/E’d to death and presented into • Both are (and should be) A/E d to death and presented into
dashboards – Policy Duration, Calendar Year. It looks good. • Everyone’s comfortable with the development, but no one
would use the model to set next year’s business plan would use the model to set next year s business plan • Rationale is Axiom 101.
• Problem is a lack of holistic view.
Pieces to Fit – Model Assumptions
A focus on Claim Reserves
Claim Reserve Assumptions (Termination Rates and Utilization Rates) are critical for Active Life Modeling.
Often claim reserves are somewhat short (shouldn’t be) but the Often claim reserves are somewhat short (shouldn t be) but the impact on Active Lives is ignored.
If claim reserves are wrong, the model has no chance.
When (if) retrospective testing is performed, it is done at too high of a level and important, easy information is lost.
Pieces to Fit – Model Assumptions
Historical Incurred Claims
First Principled Termination and Utilization studies
A2E Studies look good Something is wrong
Pieces to Fit – Model Assumptions
Retrospective Tests uncover a lot of faults.
Be able to slice on Gender, Service Type, Marital Status, Attained Age, Policy Form, Claim Duration, etc…
Excel can now handle one million rows of information
Be sure to test IBNR as well and include provisions for reopens Be sure to test IBNR as well, and include provisions for reopens. Review this as a dashboard at least quarterly.
Dashboard Management – Closed Blocks
Other Key Dashboards for Closed Block management: • Claims Operational Reports - weekly
• Rate Increase Tracking reports • Expense Reporting by UnitExpense Reporting by Unit
• Operational Performance Tracking by Unit – e.g. Average Call Center response time, calls dropped, etc.
• Customer and DOI complaints • Customer and DOI complaints
Dashboard Management – Open Blocks
Open Blocks
N d ll f th i f ti f l d bl k Need all of the information for closed blocks.
Plus nearly real time sales and operational performance information.
information.
Helps stay on top of new business service.
Helps sales leadership defend “back office” performance or Helps sales leadership defend back office performance or helps put a spotlight onto performance issues.
Helps you know who your distribution friends are beyond “relationship building”.
I had sales data in the form of Pivot Tables driven off of huge SQL databases that were updated nightly
Dashboard Management – Open Blocks
Open Blocks
You know the conversations on distribution partnership. You know the conversations on distribution partnership.
Two distribution sources who did $150,000 in sales last month. • One has grown 20% per month has a good mix of businessOne has grown 20% per month, has a good mix of business,
and has a 75% placement rate not even including worksite business.
• One sold 4 single pays to 2 couples before you raised married rates on Compound Inflation in CA and had a 40% placement rate.
Dashboard Management – Open Blocks
Open Blocks – Operational Statistics
H i d h i ti l d t th t h t
Having and sharing timely data that shows strong process performance reinforces credibility with the field and with management.
Otherwise, customers of the information are subject to one-case-itis or to being swayed by inaccurate reports from their down-lines.
Having Operational Dashboards handy also keeps Ops more accountable, which they should want and often do want.
Sharing information with distribution is strong marketing.
Dashboard Management – Open Blocks
Managing with and without a Dashboard
P li Pl t i K D i f N B i P fit bilit Policy Placement is a Key Driver of New Business Profitability: Most companies now pay distributor bonuses to some degree based on acceptable policy placement.
based on acceptable policy placement.
Financial Rules for Acquisition Costs changed in 2012.
Formerly all underwriting costs were capitalized and amortized Formerly, all underwriting costs were capitalized and amortized under US GAAP. That’s not true any more. Only costs
associated with placed policies can be treated this way. Creates greater pressure on placement ratios for financials.
greater pressure on placement ratios for financials.
Managing with and without a Dashboard
Worksite business is a dangerous game. You need participation, Worksite business is a dangerous game. You need participation, you need placement, you might have a comp give up. At
different levels, you are giving a discount and underwriting concessions.
If you get a 75% placement rate on 1 percent participation rate, your company lost a lot of money on that case.
On the other hand, you have a 60% placement rate on
Dashboard s that Misinform*
* Lies, Damn Lies, and Statistics:
Beware of Statistics on: • Placement Rate
Sales Volume and Average Premium • Sales Volume and Average Premium
• Actual to Expected Incidence (or Claim Costs) • Loss Ratios
Dashboard s that Misinform*
Dashboards that Misinform*
Dashboard s that Misinform*
• Looking at 55 year olds for 15 years.
• There isn’t much data in the later years
• There isn t much data in the later years.
Dashboard s that Misinform*
• Even with Actual Severity at 100% of Expected, Inflation Coverages would need a huge Rate Increases.
Comparison to Other Lines
All are similar, but unique in some ways. All are similar, but unique in some ways.
No concern for Cash Surrenders or Assets Under Management. Fewer transactional costs with LTC.
Lots of work on Underwriting and Issue • Lots of work on Underwriting and Issue. • Lots of work at Claim Time
• Operating Expenses are less significant to LTC economics. • Minimal customer interaction thereafter (except Rate
Increases)
Claims Incidence is more challenging than all others and needs more timely ITD refinement.
Dumbing it Down
• Your management and especially your management’s management doesn’t want to dig into thousands of data points
points.
• But, they want to believe that you have an outstanding grasp of all potential issues or questions.
• Use of flexible, drill-through dashboards meets all levels of need. I like pivot tables on SQL platforms.
• Select some standard slices to roll up.
• Remember that providing information usually leads to more questions
questions.
Dumbing it Down
Continued:
• Your management may not be able to articulate what they • Your management may not be able to articulate what they
want to know. Unfortunately, that’s your problem not theirs. • All management always wants to avoid the “surprise”.
• Your dashboards should be preparing you to demonstrate that you are on top of your responsibilities, no matter how broad
broad.
• Your dashboards should help you answer any surprises before their explanation is urgent.
What’s Driving Your Product Portfolio?
