Ratemaking Seminar 2005

The Convergence of Technology, Data Standards & Analytical Tools The Need for Better Information Arthur R. Cadorine - ISO

Insurance Industry Standards  Standards for policy and claim transactions are being developed ACORD ACORD IAIABC IAIABC IDMA IDMA  These standards will change the industry

Impact of Standards  If everyone speaks the same language, communication is possible  Information quality and timeliness improves

Data Standards Who Needs’Em and Why?  Trading partners such as insureds, insurers, TPAs, vendors, and brokers  Various sources use different definitions  Need data that is clean and consistent  Reduce duplication and cost  Numerous indirect benefits  Some obstacles remain

Data Standards Don’t They Exist Already?  Financial services and some retailers use data standards  Some insurance standards developed for specific applications  Standards are not identical

Data Standards Current Working Groups  IDMA TPA Data Standards Work Group  ACORD  ANSI  RIMS  ISO  WC Insurance Organizations (WCIO)

Data Standards Current Tools  PDRP - GL database for public entities  IDMA Claims Data Exchange Standard  IDMA Policy Data Element Dictionary  IDMA TPA Data Standards White Paper 

Value of Knowing Sooner  Delays in claims reporting cost money  Real-time fraud detection could save $$  Early claim-trend detection means corrective premium action

Integrating EDI Reporting  Straight-through processing becomes possible  Data quality improves  Information can be aggregated  ASP model has many advantages

Integration of Data  ASP can have policy and claim databases  Systems can talk to one another  One source/multiple outputs

Analytical Tools  Predictive models  Web access  User-friendly report writers  User-friendly analysis software

ASOP #23: Data Quality  Purpose is to give guidance in: Selecting data Selecting data Reviewing data for appropriateness, reasonableness, and comprehensiveness Reviewing data for appropriateness, reasonableness, and comprehensiveness Making appropriate disclosures Making appropriate disclosures  Does not recommend that actuaries audit data

ASAP #23: Data Quality Considerations in Selection of Data  Appropriateness for intended purpose  Reasonableness, comprehensiveness, and consistency  Limitations of or modifications to data  Cost and feasibility of alternatives  Sampling methods

ASOP #23: Data Quality Definition of Data  Numerical, census, or class information  Not actuarial assumptions  Not computer software  Definition of comprehensive  Definition of appropriate

ASAP #23: Data Quality Other Considerations  Imperfect Data  Reliance on Others  Documentation/Disclosure

IDMA Data Management for Insurance Professionals Chapters at a Glance I. The History of Insurance Data Management II. Role of Insurance Data Manager III. Key Data Elements of Insurance IV. Insurance Company’s Use of Data V. The External Insurance Environment VI. Data Quality VII. Data Repositories VIII. Future Data Management Issues

C.A.S. RATEMAKING SEMINAR New Orleans 2005 INT-1 Introduction to Insurance Data Management 101 Nathan Root CNA

A group of people within insurance organizations whose primary day-to-day function is to provide business managers with the information they need to accomplish the goals and objectives of the organization. –Core data managers are involved in: Internal data coordination External data reporting Information systems development Data administration Data Managers, Who-What-Where

What is a Data Manager? A Data Manager: –Provides data To internal customers To external customers –Is concerned that the data provided Is accurate & consistently derived & defined Is readily available and timely Is comparable/reconcilable Secure

Who are the customers? Internal customers include: –ACTUARIES –Underwriters –Accountants –Claims –Marketing and Distribution Network –Management

Who are the customers? External customers include: –Statistical organization –Rate making organization –Insurance research organizations –Investors –State & Federal regulators

The data manger’s job? To interpret requests for data Determine how to obtain data Determine where to obtain data Control the cost of development and maintenance Provide data to customers in appropriate format

Data Management’s Task The data manager’s task is to assure that the same data in different systems can be reconciled, that the data is consistent, and that derived data is defined and calculated consistently.

Partnerships Data users are, and should be, involved in a partnership with insurance data managers. -A partner in = defining systems = building systems = testing systems = and final acceptance of a system.

Knowledge and Other Users Just as Data Managers need and must have knowledge of the customer’s they serve, so must other insurance professional understand the Data Manager’s function. EACH TIME AN INDIVIDUAL WANTS INFORMATION, DATA MANAGEMENT SKILLS COME INTO PLAY. It must be determined where the data is, how it is identified, how it is defined AND HOW IT CAN BE VARIFIED.

What do you need to know about Data Management Data definitions and how they differ. Coding conventions. Data redundancy. Level of data available/needed. Where did the data come from and how is it maintained. Schedule for updating. Reasonability and reliability of the data.

Who are Insurance Data Managers? Managers of data which can be anyone –Professional insurance data managers –Actuaries –Underwriters and Agents –Claims personnel and SIU’s –Marketing personnel and Researchers –Accountants and Economists

Who Owns the Data? Data use - implies data ownership - which mandates control. An individual companies data is one of its most valuable assets, if not its most valuable asset. With control comes definite responsibilities. - You also become responsible for your data’s - VALIDITY - ACCURACY - REASONABILITY - COMPLETENESS

Confidentiality and Privacy All users and managers of data MUST be constantly aware of the issues surrounding Confidentiality and Privacy. Confidential data is very different from data that is controlled by privacy laws. -Confidential data: given with the understanding that the information will be treated as confidential -Privacy of data: usually governed by law, either State or Federal or both. -GRAMM-LEACH-BLILEY(GLB) - HEALTH INSURANCE PORTABILITY and ACCOUNTABILITY ACT(HIPAA)

DATA for the REGULATOR Solvency Data Accounting Actuarial Ratemaking Data Rate Filings Special Calls

The Data Management Environment Micro-Computers have changed the data management environment. Literally every user of a micro-computer has had to become a data manager. The Insurance Data Management Association(IDMA) provides education and a forum for knowledge in this field

Insurance Data Management Association(IDMA) IDMA has partnered with the CAS and is prepared to share its knowledge of data with CAS members. The IDMA’s “Data Management for Insurance Professionals” is available today. It is designed as a primer and is intended for both the professional and those yet to become professional within the insurance industry. For further information on this course contact the IDMA at

IDMA Data Management for Insurance Professionals Chapters at a Glance I. The History of Insurance Data Management II. Role of Insurance Data Manager III. Key Data Elements of Insurance IV. Insurance Company’s Use of Data V. The External Insurance Environment VI. Data Quality VII. Data Repositories VIII. Future Data Management Issues

Casualty Actuarial Society Ratemaking Seminar New Orleans 2005 INT-1 Introductory Data Management 101 Al Hapke Meadowbrook Insurance Group

Your Role in Data Management Demanding User Lack of defined needs Lack of knowledge about information technology Lack of business knowledge in the IT staff

Therefore, you must communicate your goals effectively and clearly. Objective of Data Management: To store and organize data in a way that allows the analyst to answer questions about the business. These questions should help direct and guide the management of the business.

Processing Systems are not adequate to satisfy the analytical needs of the company. They’re designed to do work, not answer questions.

Steps That Help Communication: Formulate many specific questions –Brainstorm yourself –Talk to your customers/clients/boss –Read actuarial papers –Review competitive rate filings Write them down Design your spreadsheet or model to answer the question Determine what you need to populate the spreadsheet

Example of Questions: What do we expect to pay for claims in this class vs. other classes? 1. Age/experience of driver 2. WC class code 3. Property construction 4. State/territory/location 5. Other characteristics such as credit rating, new/renewal, etc.

Issues with this Question: Volume in each class or characteristic How much history? Can premium be appropriately matched with losses? Can earned exposures be captured? Can class definitions be multidimensional?

Other Questions: What is our exposure to maximum loss? –Answer can be found in limit/location studies How much development can we expect on reported losses? –Considerations: Report date Historical claim distributions

Other Questions (continued) Has our underlying book of business changed? –What types of losses are we seeing? This is only meaningful if we have been profiling our mix of claims so that we can see what’s different. e.g –Size of loss at consistent points in time –Minor coverage detail –Cause of loss

Other Questions (continued) Who, how much, and what is your producer selling? What are the characteristics of the business being brought in the front door? Or…. Leaving through the back door?

Issues to Consider in Your Management Information System Ease of Access - level of independence from programmers Flexibility - new classes, new characteristics, new products Quality of data