UNSW Actuarial Students Work Overview Daniel Tess 26 August, 2002 Sydney 

Contents Warmup My favourite topic—me! CAS info Health Financing NSW WCA Premium Analysis

What do we want from today? –Free Pizza!

Career Summary 1987 BS Computer Science, Duke University, NC High School Teacher, Salzburg & NC Aetna Casualty, Hartford CT Fireman’s Fund, San Francisco National Accounts Allianz International, Munich International Casualty Underwriting Allianz Australia (MMI), Sydney Chief Actuary;Workers Compensation 2000-now PricewaterhouseCoopers, Sydney

CAS Key Facts Started in 1914 as a special interest group of the SOA Generally covers USA and Canada Initial Workers Compensation focus; now all “P&C” Only separate society dedicated to GI business Over 2,500 members 10 Exams in 14 parts Very little university training/preparation in US

CAS University Liaison Role Information point for interested students General promotion of GI Actuarial careers Information on CAS research calls & commissions  Is there a place for the CAS in Australia? What can/should the CAS do to strengthen (establish!) its role here?

Health Financing in Australia Who funds healthcare? –Government—Commonwealth, State & Local (AHCAs) –Private Health Funds (PHI) –Accident Compensation Schemes (e.g. NSW WCA) –General Insurance Companies (for accident comp) –Individuals (patients!)

Health Funding Overview (AIHW)

Actuaries in health funding –New appointed actuary role—being developed by the HPC together with PHIAC –Pricing of member contributions (premiums); estimation of reserves, certification of financial position –Broader health arena—little involvement so far –What makes actuaries special? – Competition is health economists & epidemiologists – Connection to operational drivers – Projection of future values – Risk pooling / insurance concepts

Basic economist’s modelling approach Intergenerational Report 2002 (Australia): –Demand model, cost as output –Past commonwealth government health spending as % of GDP, trended forward (adjusted for age & gender). A simple high-level expenditure projection.

Intergenerational Report 2002

IGR Points: Technological change is main driver of growth (not demographics) Government health spending (shown here) is growing faster than total health spending (more indicative of workforce trends)

AHMC Workforce Modelling –PwC recently asked to develop a framework for a model of Australia’s health workforce –Want to analyse mismatch between supply & demand in the future –High-level concept only (so far)

AHMC Workforce Modelling (spreadsheet) –Flowchart of modelling approach –Public hospital admissions example

Demand example: hospital services

NSW WCA pricing analysis framework Sequential pricing variance –How can we form a simple measure of the relative accuracy of various pricing approaches? –Basic concept is to minimise the variance of employer loss ratios under different pricing approaches –Another concept is to measure “within class” vs. “between class” variance –Both concepts will allow for objective evaluation and concise quantification of the relative performance of alternative options

Sample analysis output (not real #’s!)

NSW WorkCover Insurer Remuneration Background: NSW Work Comp has been a managed fund since 1988 Large scheme deficit ($2.0b?) Plans to privatise in 2000 have been delayed indefinitely Current claims manager (insurer) remuneration system will expire June 2001 WorkCover and insurance industry want to devise a new system which provides as much incentive as possible to manage to better claims outcomes

“Loss Ratio measure” analysis framework Pricing “fit” by insurer –Loss ratio measure may require a more “correct” pricing approach than the actual premium calculation system ever uses –We need to determine whether and to what extent any current insurer/agents are “out of the money” on the measure –The L/R measure may provide no real incentive to some insurers unless a more appropriate risk-based premium calculation is used –For example, an insurer may be significantly better than average in managing claims that arise, but that insurer’s employer portfolio could have a much higher than average claims frequency rate

Sample analysis output

“Business Card” Daniel Tess, FCAS Director PricewaterhouseCoopers 201 Sussex Street GPO Box 2650 Sydney, NSW 1171 (p) (f)

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