Demotech is The Disruptor with Joe Petrelli

My guest this week is Joe Petrelli (mp3, youtube), the founder and CEO of Demotech, a rating agency based in Columbus, Ohio. This interview was a particular delight for me, folks, because I’ve finally found a real example of classic Clay Christensen Disruption in Insurance. Demotech has been quietly disrupting what he calls “the legacy rating agencies” for decades.

THIS is what real disruption looks like:

JP: We were actually the first company to review and rate independent regional insurance companies. The Legacy rating agencies back in the late 80s, the Legacy rating agencies would rate a small independent company if it was part of a large group but there was no one reviewing and rating independent Regional and specialty companies. And we heard that from Fannie Mae and Freddie Mac about smaller companies that they had been doing those sorts of analysis on their own to qualify a company for offering homeowners insurance coverage in the in the secondary mortgage Marketplace selling off the the mortgage of the home that was insured [DW: the mortgages needed homeowners coverage from a “rated” insurance company to qualify for the secondary mortgage market]

JP: and at that point in time they contacted the Legacy rating agencies who would not rate the independent Regional and Specialty Company so we got to talk..

DW: So these companies had no rating.. like a small Mutual company.. because you know what’s amazing because I think of that these days as being kind of the bread and butter for let’s say an AM Best, a Regional Mutual insurance company that’s all they’ve got and they’ve been around for a long time but they’re very small I mean were those guys also excluded from this or is this mostly newer organizations?

JP: No, it was, ah, the smaller independent companies all of them were not rated and actually after we’ve been approved by Fannie and Freddie I actually had a conversation with Arthur J Schneider the president chairman CEO and largest shareholder… the conversation I had with the Arthur J Schneider II was they never wanted to rate the smaller companies.

DW: because you’d think that’s where the rating agency would offer the most value, right, because the smaller companies are the ones perhaps are a little less certain..

  • Underserved, low end market? Check.
  • Looks like a ‘toy’ product that no serious player should consider? Check.
  • Slowly creeping upmarket against all odds? Yep.

That’s disruption kids. And he did it at least two more times with Florida Homeowners and Title insurers. Astonishing. Joe should be an insurance innovation celebrity.

Another amazing point is Demotech’s track record, a much under-publicized fact.

JP: So for A” [DW: called double prime] we said for A”, a hundred percent of the companies we rate A double Prime will survive at least 18 months after we withdraw that rating. At least 99% of the A primes, at least 97% of the A’s at least 95% of the S’s and at least 90% of the Ms after if we withdraw the rating and it goes from rated to unrated you got at least 18 months and those are the survival percents. In terms of what we do to show people that we have confidence in a rating, we have self-published our record from 1989 to date annually updating it.

And this last year year end 2016 and getting a 2017 update, we retained two distinguish professors both of whom had worked with the National Association of insurance Commissioners. Robert Klein was their Economist for years and he’d been at the Michigan Insurance Bureau, he’s a Georgia State University, Dr. Robert Klein and Dr. Michael Barth is I think assistant Dean at the at the Citadel, he’s another PhD, he’s also CPCU. He was at the NAIC and developed was actively involved in the development of the risk based capital framework.

So we got two distinguish Insurance profession we gave them every one of our ratings from 1989 to date and said check our math and they did it and they publish the report in February of 2018 and they basically said we hit our marks every year from 1989 to date.

Here is a link to the latest version of the report. And another to some graphs. Demotech is one of the most fascinating and underrated stories in insurance innovation and in the insurance market in general. Thanks to Joe for his time!

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Todd Hart on Managing Hedge Funds, Reinsurers and Insurers

Todd Hart (mp3youtube) has had the following jobs: political campaigner, investment banker, hedge fund trader, hedge fund portfolio manager, private equity investor, reinsurance company CEO, insurance company CEO and stay at home dad. I’ve seen Todd in action in all kinds of capacities from the lofty heights of deal finance to the gnarliest systems issues in personal lines insurance and I’ve always admired his level-headed attitude in what otherwise might be very difficult situations.

You can be smart and hard working, and Todd is both those things, but to me he is more of a model for *how* to be smart and hard working. In the interview I want you to listen for evidence in the more universal qualities that set Todd apart: curiosity, optimism and a fundamental decency especially towards people that work for him and with him.

One of the things I really wanted to ask Todd was whether management is different in hedge funds, reinsurers or insurers. It is not:

TH: It’s not just capital. You think about your resources. You’re doing resource allocation period. Whether it’s time, it’s people. Attention. Money. A lot of what you’re doing as a manager of anything is you’re allocating. What do you think the most probably outcome and most beneficial use of those resources.

So yeah I guess there is a universality across those things. If you’re running a fund, your biggest resource you have, besides time, which is always your biggest resource. Capital is a huge one. But it’s no different than if you’re running a reinsurance broker, how are you going to spend your time and whatever precious resources you have and not spend and increase your margins.

DW:  How about Risk Management capital allocation and those kinds of functions, those kinds of domains of expertise. Any thoughts on contrasting those between the capital markets and the insurance/reinsurance world?

TH: It’s all basically the same principles. Measure. Keep it simple and measure. I’m sure there are folks who are doing very sophisticated jobs you know when we were putting together our own tools it’s really simple stuff, what are your PMLs what are your limits.

DW: What’s the worst that can happen.

TH: What’s the worst that can happen. I think one of the big differences between the insurance and reinsurance world is the sum of limits you write relative to your capital. You do not want to be publishing that.

DW: a definition of Leverage.

TH: but then if you turn that around equate it to you know you own the Equity slug in a CDO it’s not dramatically different just a question of what capital do you have ahead of you. So we had a lot of conversations around you know what is your limit and that’s why reinsurance works pretty well for a fund because they want to know what the absolute downside is. I do too, and everybody should. For an insurance that’s really the amount of capital you have provided but the leverage is pretty dramatic. It’s actually quite dramatic at a reinsurer as well but in insurance it’s just off the charts.

Todd on systems:

DW: is there a example to come to mind where you know like I made this mistake and then this was the outcome and now I would make a decision later. I don’t know how specific you want to get.

TH: I think as an executive you know we made mistakes around not being firm enough on staying in that customization and configuration zone.

DW: What’s the temptation to leave it. Why do you not? Because everybody probably realizes that on some level right?

TH:What seems to be the interaction that I saw and I would push back on if I saw it again is that ‘we’ve always done a business flow this way we’ve always done it this way and I want the system to mirror our business flow right’. In some circumstances I saw, with a modification of business flow which would have made no material difference you don’t have to redo everything. Part of that is that a system implementation is as much a cultural issue as anything else.

When I walked in to the company we’re in the process of transitioning one system to another and I thought it was not going well and a lot of.. I think I was probably more sensitive to making sure the business Parts the business users were happy and then the technology people were making them happy and so when we went to the second question around technology and I think that lingered through where is I probably should have pushed back a lot harder on the business folks say look, the technology can’t do that and it would be too expensive to create that way.

It’s all about a balancing act. A lot of lessons to learn but you don’t learn these things until you actually make mistakes.

DW: this reminds me of high school football. So my coach.. he was alright, our team was not that good. One of the things he said, which was good, was he said to design the playbook around the team you have as opposed to take the team and force them onto some plays they can’t execute. You have limited talent.

I think what’s interesting about this is that sometimes truths are universal and sometimes they’re not. In this case they’re not because in this case of a system that you actually do want try to redesign the team around it. Swapping a play out in a football playbook is cheap. Changing a system is not. And maybe if there’s a weakness in insurance executives or any executives is that they don’t understand the cost of system changes and so they underestimate them.

TH: Yeah, I think that’s universal.

Folks, there is so much more. I haven’t even given you any quotes on management! Todd is probably the best manager of people I’ve ever witnessed in addition to being one of the best negotiators and strategic thinkers in insurance. And in the show we hear about his strategic thinking and management style but also why American Airlines called him to see if he was ok, what it was like failing in a hedge fund, what a good business opportunity looks like.

You will learn from Todd Hart!

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If you’re an actuary you, like me, probably dread the professionalism continuing education requirement. I think the best time to satisfy this in podcast time. While on your commute, while walking your dog, mowing the lawn. Head over to notunprofessional.com where, for the price of a CAS webinar you can get content dedicated to continuing education for actuaries. Especially professionalism CE.

Why Systems Are So Hard to Build

My guest this week is Bill Jenkins (youtube, mp3). Bill is a technology specialist in the insurance industry. I like to joke that the customer satisfaction rate for insurer systems is 0. But does that need to be the case? I’ve finally had the chance to ask these questions of an out and out expert. Bill has headed up internal technology projects at insurers, he’s run the technology at brokers. He’s been a consultant. A Board member. An industry standards advocate. If there is a puzzle in insurance technology, Bill has probably thought about it and here he is today to help us all better understand why we struggle with technology in insurance.

First, the classic question. Why so many systems? This one always puzzled me. It’s not just about acquisitions. It’s because it’s actually easier that way! Such a satisfying answer (for me) since it aligns with the idea of hidden and underappreciated costs as being the main reason why some problems persist in the world.

BJ: some carriers have multiple and duplicate systems so I worked for a large/ medium sized carrier and we had a eight billing systems.

DW: why, acquisitions?

BJ: Partly Acquisitions partly because it’s one system than address one problem with the other system did so they decided that they needed that this additional functionality that the old system didn’t provide. We just want another one. We had three Bop systems. I was listening to a talk that the chief technical officer at the Hartford was giving and he said every year that goes through the examination and review to determine if they should replace all their legacy systems they had over 330 system. I said to replace all these are they that they projected out would be in 50 years or so and the cost would been astronomical. So all they did was just add systems.

Bill on how project management can achieve great things:

BJ: we also use the project management discipline that we called black hat white hat. Black hat was a hired gun. A project manager who comes in and his or her and only charge was to make sure that the specifications for the system were done and was going to be followed for the requirements of the system and that the time frame that was said would be adhered to. The white hat was an internal project manager who basically made sure the right people were on a project to do the work and also did all the reporting to the Senior Management and navigated the political Waters.

BJ: We built the entire system in 9 months.

DW: Wow, so these things can be done.

BJ: let me tell you the antithesis. Next time around we went with an internal project manager, kept the same skunkworks: 22 months…

DW: So what’s the difference?

BJ: Project Management

DW: So what makes a good project manager?

BJ: well first of all the problem with an internal project manager, and I argue this all the time even when I sit on boards and people are having project problems, a project manager for internal may know all the project management disciplines but they pretty much don’t have the personal characteristics to do the work. You have to be a pitbull.

DW: Put the black hat on

BJ: Put the black hat on.. and you go native too quickly so therefore your scope creep becomes scope leap and you’re fitting more and more into the project and doomed to failure.

And we cover so much more, including how legacy systems are defined by what data they capture and how the information technology industry is perhaps 150 years behind other infrastructure industries. We have a long way to go but things can (will!) be dramatically better!

By the way Bill recommends a book In Search of Excellence, which will hit my reading list soon.

Thanks to Bill for his time. And thanks for listening!

Are you an actuary? Someone you know? Check out the Not Unprofessional Project, content dedicated to Continuing Education Credits for Actuaries, especially Professionalism credits. CE On Your Commute!

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Product Development from Kenya with Barbara Chabbaga

Hi Everyone,

I lived in Hong Kong for a semester in college. The thing that struck me most about that experience actually how familiar life was there. Succeeding in life takes the same qualities everywhere: honesty, hard work, relationships, fun. For whatever reason, learning these lessons in really foreign environments lends another layer of meaning. Or maybe just makes them more memorable.

That universality shines through in today’s interview with Barbara Chabbaga (youtube, mp3), who lives and works in the insurance business in Kenya. How about this for a lesson we can use anywhere in the world: Get the @#$@ out of the building:

How we do it now at AB consultants we call it a bottom up approach. We would never sit in a boardroom and say this is a really good idea.. the kind of product we’d design. I look back at my previous life of working in the corporate world is very tempting you know to sit in a marketing meeting or a product design meeting and say I really really think that if we did this kind of products would work.

What we do now.. we’d probably commission a study, so if it’s with farmers not bring them to our office, go to the field, go to the tier states or go to the informal settlements here in Nairobi. And to be very honest, David, I actually did that for the first time after I left CIC.

But of course not is all the same in Kenya:

…it was a shooting attack, right, shooting, grenades and just shooting anybody in their sight it didn’t matter whether you’re a child. They shot a children’s convention, a cooking class for children, and they shot the children it was horrible and so I was stuck in this little filing room and I was very lucky because it was very hidden. And there were about 30 of us and we hid there for about 8 hours.

…It went on and on and on and you hear the grenade. And you hear the grenade is rolling on the floor because when you roll a pen on top of a table it makes a similar sound and I never knew that until after that ordeal. And a pen rolling on a table, it terrifies me.  And I sat there in this dark room and I think I’ll probably die today and that we knew that for sure they’re going to find us, that’s what we thought, you know, they’ll find us. and I prayed.. please spare my life and I’ll live my life to its fullest.

After I made a couple decisions and one of them was I was going to leave my job at CIC.

There is so much more to the conversation, including the changes she made to her life after surviving that attack, where the Swahili word for insurance comes from, how many actuaries there are in Kenya (guess!) and how the most successful banker in Kenya made his fortune.

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Insurance is Not Sold with John Shettle

Recently I’ve gotten to know today’s guest, John Shettle (youtube,mp3), and all along I’ve been trying to figure out how to just hook up the cables and suck as much information out of him as I could. But how do you ask someone: hey can I just pepper you with the most challenging questions I can think of in insurance for an hour or so.. you know, for fun?

I’ll tell you how.. you start a podcast and pretend “it’s all for the audience”.

John Shettle is awesome. He’s currently an operating partner at Stonepoint Capital and grew up at a family-run MGA, running brokerage and underwriting divisions before taking that company public. The breadth and depth of John’s experience is extraordinary. As another highly successful insurance executive put it to me recently, you can never have enough time with John. I’m honored to have the chance to bottle a bit of him up for us all.

Here is the story of him firing a cherished employee for selling insurance on price:

JS: when I was running an Insurance Brokerage, it had a very very what I thought of was a low retention rate and it was an area that certainly needed to improve on… and so when I reorganized the sales function one of the things that I really emphasized was we’re not going to sell on price and when the client comes in and asks for, ah, says you shopping and he wants to get a quote we don’t respond by getting him the quote we begin to go into a process of Engagement and I also said that to the Salesforce that: “we’re all kind of salary plus commission based, if I catch any one of you just selling price and getting quotes you’re going to be instantly fired.”

And to that extent one day a young gentleman named Eric who I love to death like a son I would keep my office right in the in the area of the office where we had all of our sales reps and I would put myself in the loop when I have time to take sales calls and I overheard him on the phone: “sure mr smith, let me go and get you three or four quotes and I’ll call you back in about an hour” and it broke my heart and I fired him on spot in front of the whole sales organization.

David Wright: No kidding. What should he have said?…

John then gives one of the most lucid lectures I’ve ever heard on how to sell. He’s a master. It’s phenomenal.

But that’s not all! John also explains quite clearly how insurers get it wrong, too:

all the myriad examples of when companies got it wrong… it really comes down always to the combination of 3 things.

One is the underwriter didn’t understand the risk.

Secondly, the underwriter mispriced the risk.. sometimes that happens on purpose.

And third is what I would call sloppy underwriting so when you know you should get certain information and you don’t get it. Where the broker says yeah I know but look it’s the same as last year nobody else is asking for a renewal app why are you asking for it, right, if you want all this stuff I’m just going to go take it somewhere else. What I’ve found is that underwriting disasters happen when two of those three things happen.

And of course there is so much more, including that description of how to sell, a deep dive into the difference between specialty and standard lines and John’s first sales experience (because it’s always good to hear how even the legends start out as doe-eyed newbies like the rest of us).

JS: I remember being scared to death

DW: yeah

JS: 25 years old.. to a retail customer a policy for $110 and it was like a nothing policy and I just remember

DW: were you kind of surprised that he bought it?

JS: yeah and I remember walking on air the rest of the day. And just the adrenaline rush of selling something and having it accepted by somebody you never met was actually pretty cool

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Our Spirit Guide

My guest today is Rick Lindsey (mp3, youtube), who has attracted some attention in the insurance market because his company, Prime Insurance Company, is willing to take on the toughest risks in the toughest lines of business, particularly commercial automobile insurance which is going through a wrenching dislocation right now. Very, very few insurers are making money there. Prime is making a fortune.

Why? How? Then I heard that Rick is from Utah, pilots is own helicopter all over the country and I instantly knew I needed to get to know this remarkable contrarian. I was not disappointed. Rick has built an amazing organization with an amazing culture.

Rick Lindsey: Every other business you’re not asking someone else to tell you what the product is worth… what we do is use common sense. First thing I ask you let’s see what you have.. show me the claims.

Every year we ask them: how did we do on your claims. Because that’s all I care about. I want my insured to tell me you guys were great. You talked to us about the claims, you kept us informed about them and we agreed with the result. With what you did.

What I hear from everybody else is..

what happened on your loss run?

I don’t know.

Well did you know they paid it?

No, I didn’t even know they paid it.. first thing I know it’s on my loss run.

Well why’d they pay it?

I don’t know. I wish they wouldn’t have. they shouldn’t have paid it.

As a company we need to have a relationship with our insured… they feel scared and uncomfortable and their insurance company doesn’t communicate with them. You should be contacting them the minute you have a claim.

I am not going to punish you for reporting claims. I will cancel you for not reporting a claim because then I can’t do my job.

And of course we learn that Rick isn’t just interested in distressed business. That’s just the easiest entry point for his to build a relationship with a client:

If I charge somebody who can’t get insurance anywhere else an extreme price and think I’m going to keep getting that if they perform for me? I’m an idiot.

Perhaps the most fundamental human quality is trust and the thing that great underwriters are great at is figuring out who is worthy of that trust and nurturing it. Rick Lindsey is to me the embodiment of the humanity in insurance. His insurance isn’t about technology and data transfer and machine learning. Rick understands a few really big ideas better than the rest of us and has the force of personality to show us the way. I’m calling him our spirit guide. Listen to hear why…

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Gabe Glynn on Iowa, Manufacturing and Sending People Home from Work

Today’s guest is Gabe Glynn (youtubemp3), co-founder and CEO of MakuSafe and host of the Advanced Manufacturing Podcast. Gabe’s company is a technology startup designing wearable sensors to dramatically improve workplace safety in manufacturing. Here is Gabe on the mission of MakuSafe:

Gabe Glynn: one of the heartbreaking statistics we came across was more than a thousand people a day die in work accidents on this planet so that means since I started this company more than half a million people have not gone home to their families at the end of the day and we believe that with data like this we’re going to be able to send more people home from work and that’s our driving factor.

Gabe is an excellent example of someone with a product that is awesome for insurance but really has very little to do with insurance itself.

David Wright: I like to think about Innovation and insurance as there actually is no such a thing as Innovation in insurance, there is only Innovation in risk management. People in the insurance industry I think get distracted little bit by what they do every day which is insurance and they forget that the social value of what we’re doing is is insulating people from risk and the only way to really affect insurance is to affect the risk

Gabe Glynn: yeah to your point when we started this journey it wasn’t about insurance for us it was about how do we how do we make sure that the environment these people are working in is it is a safe and productive as it can possibly be.

We cover a lot of ground in our conversation, including the culture of manufacturing, why unemployment is so low in Iowa and, of course, how to spot shoplifter.

Here is Gabe’s podcast homepage and MakuSafe’s homepage. Big thanks to Gabe for his time and use of his podcast equipment for our recording! Thanks for listening.

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Bryan Caplan on the Case Against Education

This show’s guest is Bryan Caplan (youtubemp3), Professor of Economics at George Mason University whose latest book is *The Case Against Education: Why the Education System is a Waste of Time and Money*. In this book Bryan makes the point that if we judged education based on how much, as adults, we use what we learned in school, we’d have to admit it’s a shocking waste of time and resources:

David Wright: I remember the first time it occurred to me. I was in third grade gazing out the window and I figured this whole racket was basically just free babysitting for my parents, ah, was I right?

Bryan Caplan: For young kids it’s definitely that, but there’s definitely a lot more going on. Schools definitely teach skills, most obviously literacy and numeracy. But then a big thing that’s going on is that you’re jumping through hoops trying to impress future employers.

Now employers don’t know what you’re actually doing in third grade but since the whole system is so cumulative and sequential.. basically in third grade you’re getting ready for forth grade and fourth grade for fifth grade and so on. And then Junior High and middle school you’re getting ready for high school and high school then is preparing you for college. So very often what you’re learning you’re going to use in a subsequent class. It is used for gatekeeping. But then it’s finally, when you get a job, that’s when the stuff you learn you can safely forget.

Instead, education is about signalling qualities you need to succeed in the workplace. That means more education doesn’t really benefit society!

Bryan Caplan: So the problem is this: when you go and get a better degree this selfishly raises your earnings because you look better but it does not enrich society in the same way. If everyone were to go and get a college degree this would not mean that everyone is good in the same way. This would mean you now need additional degrees in order to convince employers of your awesomeness and we can see very clear empirical evidence of this that over time there’s been massive credential inflation this means if for one and the same job you now need a lot more education to be considered worthy of employment.But if the whole society gets more credentials this doesn’t make the whole society better instead this means that employers will say what’s so great about a high school diploma, almost everyone’s got one now so now you’ve got to get more… as a result there’s this rat race…

So what kind of a world does Bryan want? One with a lot less education spending:

Bryan Caplan: I call it educational austerity. If very wide access to education has caused fruitless credential inflation then reducing access will cause fruitful credential deflation and basically go back to a world where you can get a good job out of high school right so this is the main thing that I push. I talked about a lot of different ways you can cut spending there’s so many different possibilities. I’ve got a blog post on 47 ways to cut spending right so I’m agnostic but there’s just not much research on what’s the optimal way to cut education spending. It’s just not a big topic as you might guess.

And of course we talk about actuaries…

David Wright: Why don’t more people go into vocational jobs?… By training I’m an actuary and that is in some ways I vocational job because I (only) have a bachelor’s degree but it’s it seems to me quite an interesting sector because there’s no other there’s no other profession I think that would be a comparable to actuary where you don’t have to get a graduate degree and so that school system doesn’t hold the keys to the Actuarial profession.

… so I think vocations are great and I think that they’re underrated go by our society why do you think that might be?

Bryan Caplan: Basically there is a pile of government money in favor of the status quo and the status quo is a modest modification of the system from Oxford and Cambridge, right, so basically modern colleges have the fingerprints of early [inaudible] was basically there to train the elite for Law and Medicine and the Ministry…

and one of the main things that education signals is sheer conformity.

I have to admit I remain uncomfortable with the length to which Bryan follows the logic but this book is much more convincing than you’d expect.

We much more than the above, including Bryan’s very interesting idea of the Ideological Turing Test, that just because education is signalling doesn’t mean it doesn’t work and the impact of educational signalling on the civil rights movement!

At The Coal Face of Insurance Analytics

Ladies and Gentlemen, welcome to the coal face of insurance analytics.

Today’s guest is Jim Weiss, the director of analytic solutions for ISO. ISO houses perhaps the richest insurance data repository on the planet and among Jim’s responsibilities is building models that don’t use it! I joke.. Actually, Jim is exploring new frontiers of modeling for insurance purposes. This episode works very well in conjunction with the Cathy O’Neil episode which of course I recommend you listen to right away!

Right out of the gates Jim discusses his view on whether big data in insurance is overrated or underrated:

Jim Weiss: I think if you were gonna write a history of big data in insurance ending today, I would probably have to say that maybe big data in insurance is a little bit overrated. If you look at our industry in recent years, I think it’s kind of a graveyward of big data and analytics type projects that went overbudget overdeadline. I think there were a lot of factors contributing to that, but they can largely be characterized as maybe we’re not doing these projects very well but moreover we’re not picking these projects very well.

Jim on proxies:

Jim Weiss: I feel it’s very difficult to identify something to predict risk behavior that isn’t a proxy unless you’re doing individual risk rating. Unless you’re using something like prior claims to predict future claims, what variable isn’t proxy-ing for something? [From there we talk about my own history as a teenage driver (not great)!]

Jim on how good we are at what we do:

Jim Weiss: Myself and a colleague did a study of some rate level reviews that had been conducted in our industry over the past several years to see how many of them reversed themselves over one or two years.

David Wright: change signs.

Jim Weiss: Not even change signs, substantially reverse themselves. So you have a plus five rate percent rate indication. You notify your agents, you put it in your systems, you sent out hte policy holder notices. you tell the regulators you do eerything you ahve to do. you spenda ll that money, time and effort. then one or two years later. boom, negative five. Completely reversed…

Luckily in the study we did, the majority of the time at the time the rate level indications didn’t reverse themselves within one or two years. It did happen a little bit more often than perhaps I would think.

DW: why do you think that would have happened.

JW: because, Yogi Berra has an expression that making predictions is hard, especially about he future. Ther are so manythings you don’t know at the time you make the analysis.

Finally, in my favorite part of a conversation full of big insightful moments, we discuss whether and how to use complex modeling (and what on earth is modeling for?!):

Jim Weiss: I think, to some degree, applying the smell test to the types of variables you’re looking at, ‘is there some basis in reality’, can be a healthy thing, but I don’t htink it should be preclusive of exploring more complex approaches where prudent. But I’m not sure pricing is necessarily the prudent place for it. It may be but there are a lot of use cases for big data and analytics and sophisticated techniques in our industry which far transcend pricing.

and later..

Jim Weiss: the mix of complicated problem and complicated solution is a particularly problematic one… if you don’t really understand why exactly the approach you’re taking does solve that problem then how do you know it’s not a coincidence.

David Wright: I’m wondering what the objective is of modeling. So one characterization of the objective of modeling is to get an answer you can use. So I get a rate, or I get a loss estimate. I wonder if the real objective is to develop an understanding of the problem. Which is a human consumable… So the output isn’t the answer the output is the story.

This conversation was jam packed with fantastic stuff and the time we spent together flew by. Thanks to Jim for his time and the opportunity to learn! Subscribe in iTunes, stitcher, or by rss feed.

 

Turning Reinsurers Around With Joe Taranto

Joe Taranto is one of the most successful reinsurance executives in the last 40 years. He has turned around and taken public two reinsurers who even today are very prominent and successful companies: Transatlantic Reinsurance Company and Everest Re, the latter of which he spent 20 years leading as CEO and 10xing the firm over that period.
Joe started his career at AIG, a firm that has produced some of the most important leaders in the insurance business, Joe among them. We learn what is was like working there, Joe’s turnaround experienes, his strategy and philosophy of management and leadership.

Listen to whole thing!
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