Credentialed actuaries adhere to a high standard of practice, so their work is necessarily going to be thoughtful and thorough. However, working only with an in-house team might insulate you from what is happening elsewhere in the industry. You might be falling behind in terms of competition and growth. But how can you really know? This is where the best practices review can be your company’s secret weapon.
Usually performed by an unbiased third party, a best practices review compares your practices to other companies and generally accepted actuarial methods to ensure that you are meeting or exceeding a high standard of practice. Close scrutiny helps to determine that you’re not missing key segments in your ratemaking. In short, it makes sure your business is keeping up.
However, that is just the broad look at the benefit. There are many more detailed ways that a best practices review can give your company a boost. Here are five specific ways your pricing actuaries could benefit from a review by an outside actuarial support partner.
Alleviate the time burden.
Reviewing your rate level indication processes ahead of time can relieve your actuarial teams of some of the pressure that accompanies a rate filing. Every state has specific requirements or considerations that are unique to that jurisdiction. If your company submits a filing with indications that don’t meet muster with that state’s department of insurance, you’ll have to go back and make revisions—which could delay your filing or require you to scramble to collect the appropriate information. Undertaking a best practices review before a major filing helps you stay on schedule.
Rank priorities to determine what will bring the most benefit.
Indications are also a significant part of internal decision making. Understanding how your processes stack up can help you determine the appropriate priorities to focus on in order to achieve your projected growth or other business goals. By determining how your actuarial methods compare to the indications from other companies and the industry as a whole, you can prioritize process enhancements or other aspects of your pricing methodology. You might discover that your teams are not performing an industry-leading procedure in some instances, but this might not be critical for overall business strategy. Knowing what to devote time and resources to can save you from wasting both.
Determine how your company measures up against competitors.
Beyond comparing your methodology and results to actuarial standards, a best practices review can also provide insight that you might not be privy to otherwise. While your reviewing partner might not be able to share specifics, they can alert you if some of the ways your pricing is out of the ordinary for the industry, or if you are overlooking things that other companies are including.
Build confidence in short-term and long-term growth.
Recognizing and determining how to respond to a particular finding is helpful for your business. With limited exceptions, every company has concerns about credibility. With indications, the data may say one thing, but how will you interpret it or react to it? A heavy reliance on your own data could lead to internal overreaction. A best practices review will compare your methodologies to other companies to make sure your decisions are not based on a myopic perspective.
Validating what you’re doing right.
A best practices review is not just about identifying weakness; it can also surface all the ways your company is ahead of the curve. You’ll see your own role in pioneering industry change. An objective, third-party assessment by a credentialed actuarial support team will equip you with valuable intelligence about all the ways you’re doing things right.
An actuarial best practices review is like getting a regular physical exam for your business. It’s not something you need to do often, but it’s smart to check in regularly to make sure everything is okay. When you take a closer look, you’ll find areas for improvement and create benchmarks against which to measure future gains. We recommend conducting an actuarial best practices review every five years or so. Like with everything in insurance, it’s better to know for sure than to be surprised.
Also, best practices reviews can help all aspects of your business, not just indications. Once you complete the review for your company’s rate indications, consider doing the same with your reserving methods, product development, internal operations, and other departments. When the entire cycle is complete, it will be a good time to check in on rate indications again.