Tag Archives: Education

Actuarial Tool Adjusts for Climate Change

Insurance Information Institute (I.I.I.) chief actuary James Lynch  on an innovative actuarial approach.

It was a record-breaking rainy day in Colorado Springs when I attended a panel last month describing a new climate index the actuarial community is introducing.

The 1.58 inches of rain that fell May 19 almost doubled the previous record for that day. The Actuaries Climate Index (ACI)—a joint effort between the  Casualty Actuarial Society (CAS), the American Academy of Actuaries, the Canadian Institute of Actuaries, and the Society of Actuaries—is intended to monitor how often extreme events — blistering heat, shivering cold, record winds and rain — strike 12 regions in North America.

It addresses an interesting conundrum about insurance and climate change. Given that the climate is changing — though quite a few in the industry dispute that – how can insurance incorporate the change into pricing?

The ACI, which will be introduced later this year, tries to address that. It will measure how many severe events occur every quarter. Since catastrophes are an important component of claim costs, changes in the long-term trend can affect insurance prices.

As I wrote for the CAS:

The index is an educational tool that could help pricing actuaries incorporate long-term trends into their mathematical models; it could also help actuaries and others working in enterprise risk management by quantifying the risk in a subtle, long-term trend.”

Insurance prices are famously based on historical data, trended forward. The index would help show whether extreme events are becoming more or less common, and actuaries could trend this information forward to set rates.

Actuaries have been working on the index for a couple of years. Historical data has shown that over the past few years, the frequency of extremely hot days has increased, while the frequency of extremely cold days has decreased. The overall ACI climbed from the 1990s on, though it appears to have leveled off in recent years.

In its Facts and Statistics section, the I.I.I. gives comprehensive snapshots about catastrophes, both in the United States and worldwide.

Love, Actuarially…

Actuaries have the top-rated job in America, which gives I.I.I.  chief actuary James Lynch a chance to crow.

Actuaries — the number crunchers of the insurance industry — have the best jobs in the United States, according to the latest annual analysis by CareerCast.com. Newspaper reporters have the worst.

This has a personal resonance, because I am an actuary and I used to be a newspaper reporter. I wrote personal finance stories for the Miami Herald in the late 1980s. Before that I was a general assignment reporter for the Washington Missourian.

I think I’m the only person who can make this claim, and the fact continually sparks conversations, the most recent being April 14 after I spoke at the AIPSO Residual Market Forum in Warwick, Rhode Island.

This time the questioner was Karen Furtado, a partner at Strategy Meets Action, a Boston consultant to insurers. She asked: “That’s such an interesting change of careers. How did that happen?”

My response is a practiced tale:

I worked nearly a decade in journalism and had many reasons for leaving. You have to have lots of reasons to change careers. If there’s only one thing wrong with your job, that’s a good job and you shouldn’t leave it.

Before I left, I made some lists, as career guides urge. One list was of the things I wanted to do but never found time to do, because of the constraints of my career. One item on the list was “Take Math Classes.” (I had always gotten good math grades.)

So I quit my job and enrolled at Florida International University, near where I lived then. This was about three months before my wedding. I was 29.

At first I wanted to become a computer programmer because I had enjoyed writing the code that generated charts in the newspaper.

I quickly learned that programming is an art governed by a muse, and much of a programmer’s job is to stare at a screen  until the muse whispers the correct code to write. This muse might alight in an hour, or in a week or maybe three weeks. In the meantime you faced a blinking cursor and ate Snickers.

That was not the career for me.

I had loved my math classes, though, and decided to change my major. I walked into the math department offices, and — serendipity! — the admin handed me a brand new brochure touting the university’s brand new certificate program in actuarial science.

You need to be curious about a lot of subjects: mathematics, statistics, economics, law. You need to be able to explain complex ideas in a simple way. Actuaries surely need those skills — but reporters need them, too.

This I can do, I thought. I got the university’s first certificate in actuarial science and picked up a bachelor’s in statistics along the way. After a mere decade of brutal exams, I was a fellow of the Casualty Actuarial Society (CAS).

My I.I.I. job combines my two careers. I work closely with the CAS, for which I write press releases and the occasional article. And I write research papers for the I.I.I., like this one on alternative capital, or the occasional magazine article, like this one on autonomous vehicles.

In fairness, I’ve never thought newspaper reporter was the worst job in the world, even back when I was so disenchanted a quarter century ago. Much of its poor rating today comes from future of newspapers, more bleak today than when I worked for one.

And the job that one person hates another may love. The journalist who can barely add (I’ve met them) would be an unhappy actuary, as would the actuary who struggles to write.

I feel lucky to have a job that blends my unique skills, and I always hope that others can find their own way as well.

Irrational Exuberance

Tomorrow is Pi Day, and a very special one writes I.I.I. chief actuary Jim Lynch.

For one second the date and time will represent pi’s first 10 digits (3/14/15 9:26:53), a moment both trivial and mnemonic.

Pi is an important number in insurance, as any actuary who has reflected on the matter will tell you.

Actuaries grapple with the mathematical discipline known as statistics, the heart of which is the normal distribution. The normal distribution is famous for its bell-curve shape, but relevant on March 14 is that the number pi appears in the formula for the normal distribution:

NormalDistribution

If I may be a bit hyperbolic, the mathematical foundation of insurance balances upon the number pi.

Pi is famously irrational, its digital expression neither ending nor repeating, but it is not the only irrational number in the normal equation. There’s the square root of 2 (1.414213562 . . .). There’s also the number e (2.71828 . . .), which you might remember if you studied logarithms in precalculus, but probably not.

So irrational numbers play an important role in insurance as elsewhere. Some, like pi, help us understand the world better. Others, like the irrationally small percentage of homeowners who purchase flood insurance, are less honorable, and the I.I.I. notes them in this infographic.

Insurance Facts at Your Fingertips, 50 Years On

Hot off the press, the latest edition of the Insurance Information Institute’s  flagship publication Insurance Fact Book is now available. I.I.I. chief actuary Jim Lynch reflects on this  comprehensive resource:

It’s not important why, but the other day I needed to look up auto insurance written premiums for 1963.

My source: Insurance Facts 1964, an Insurance Information Institute publication that was forerunner to the  Insurance Fact Book, our one-stop property/casualty almanac whose 2015 edition went on sale this week.

FactBooks

I.I.I. has been printing some version of the Fact Book for more than 50 years, and we have earned a reputation for scrupulous accuracy.

This excursion was where I saw how well-deserved that reputation is.

Auto written premiums were $6.839 billion in 1963, according to Insurance Facts. I wanted to verify the number. To do that, I was stumped for a minute — who else would have this bit of information?

First stop: the federal government. That’s the sort of minutiae that would fill up the Statistical Abstract of the United States, the Census Bureau’s collation of the nation’s vital signs. And it was there — but the government got the information from I.I.I. — that same Insurance Facts 1964. I shouldn’t have been surprised; we continue to provide information for the Statistical Abstract and similar works.

So I went back to where I.I.I. got the data all those years ago — A.M. Best’s Aggregates  & Averages, another statistical compendium with a peerage. (We get much of our data now from SNL Financial.)

In those days before the PC, Excel and Big Data, Aggregates  & Averages was much simpler. For the most part, it resembled a bound computer printout, with most information divided among three types of insurers: stock companies, mutuals and reciprocals. To calculate an industry total, you had to pick out numbers from each section.

That’s what I did, 50 years after the fact. Sure enough, all Best’s parts added to $6.839 billion, just like our old Insurance Facts said it would.

I was reassured, but I shouldn’t have been surprised. I got to see firsthand how much double-checking and questioning every line of the 242-page book received. Our editing is scrupulous, now, just as it was in 1964, when the first Mustang rolled onto the street and some band named the Beatles put out some records.

You can buy this year’s Fact Book at www.iii.org/store or by emailing publications@iii.org or calling (212) 346-5500.

How To Get To Sesame Street

For many children and their parents Sesame Street is synonymous with childhood as characters like Big Bird, Elmo, Ernie and Bert deliver education and entertainment to the pre-school set.

So the launch of an early literacy education initiative for underserved children via a partnership between the Insurance Industry Charitable Foundation (IICF) and Sesame Workshop, the nonprofit educational organization, is a notable development.

The IICF has pledged $750,000 to Sesame Workshop over the next three years, to create a literacy skills program that helps parents and caregivers support young children’s development of conversation, reading and writing.

The program will launch in the fall of 2013 and will include video segments, downloadable materials and a dedicated section on the Sesamestreet.org website and mobile site.

This is the IICF’s largest single grant pledge to-date since the organization was established in 1994.

The initiative will target low income communities within IICF’s four regional divisions; Midwest, Northeast, Texas/Southeast, and the Western United States and will also engage volunteers in all of these regions.

William Ross, chief executive officer of the IICF, says:

It’s an honor and privilege to be working with the Sesame Workshop, an organization that is passionate about making an educational impact for children in the communities in which we work and serve. Through this program, we are hoping to create a meaningful difference by creating an impactful literacy foundation for the underserved children in this country.†

 

Financial Strategies for Victims of Domestic Abuse

October is Domestic Violence Awareness Month and while providing shelter and security for victims is often the first priority, helping them attain financial or economic security is just as important.

Financial security and access to resources is the number one predictor of whether domestic violence victims will stay in or leave an abusive relationship. And insurance is a key component of financial planning that helps survivors prepare for a better life, according to the Insurance Information Institute (I.I.I.).

Loretta Worters, vice president, I.I.I. says:

The financial cost of leaving an abusive partner can be crushing. Once you decide to leave your partner, you may be solely responsible for providing for yourself and your family and insurance can play a critical role in gaining your financial freedom and self-sufficiency.†

To mark Domestic Violence Awareness Month, the I.I.I. suggests the following financial
strategies for anyone who is leaving or has left an abusive situation:

1. Secure your financial records: It’s essential to prevent identity theft or damage to your credit. Birth certificates, drivers licenses, passports, bank and credit card information needs to be kept with a trusted family member or friend, or in a bank safety deposit. It’s also a good idea to set up a P.O. Box to conceal all your important mail from your abuser.

2. Know where you stand financially: Knowledge is power, and it is critical that you understand where you stand financially. That means knowing your main sources of income, bank account balances, property owned and debts owed.

3. Build a financial safety net: Once you have a good idea of your financial picture, you are in a better position to plan your exit. Begin with estimating your income and expenses to see if the money you earn right now will allow you to meet your basic needs. Also, start a savings plan and create an emergency fund so you have a safety net if things get difficult financially once you leave.

4. Make necessary changes to your insurance plans: If you plan to take a car with you when you leave your abuser, you will need to get separate auto insurance coverage immediately. Also, when you move out of the house, it is likely you will be renting a place to live and will need to purchase a renters insurance policy. If a life insurance policy on your own life is payable to the abuser, and you own the policy, you have the right to change the beneficiary, and probably should.

5. Maintain good credit: Having a good credit report is going to be essential when it comes to starting your new life, as it can help you more easily rent an apartment, get a new credit card and get better rates on your insurance—it can even affect your ability to get a job. Take care of your current debts and avoid missing any payments. Obtain a copy of your credit report and monitor your credit often.

6. Seek assistance: If you are in a precarious financial situation, or have limited money management skills, it may be difficult to implement some of the steps mentioned above so it is important that you use all the assistance available. Local domestic violence programs, libraries, the Internet and faith-based organizations are all places that you can go to get assistance, and many offer free workshops and seminars that can help you with money management.

Making Your Home More Disaster Resistant, One App at a Time

You may not be surprised to hear that more than half of American cell phone users now have smartphones, according to a report in the New York Daily News.

As Americans increasingly rely on their phones to do more than just make phone calls, there is a growing market for applications to enable those mobile lifestyles.

While many apps fall into the entertainment category, the Insurance Information Institute (I.I.I.) has just launched a free mobile disaster preparedness app that could protect your home and family.

Whether it’s a hurricane, wildfire, severe winter weather, earthquake, or other disaster, the I.I.I.’s “Know Your Plan† app for iPhone provides check lists and vital safety tips to help users prepare for catastrophe before disaster strikes.

“Know Your Plan† provides consumers with a library of preloaded checklists to learn about important property protection and preparedness steps. Customized lists can also be built from scratch.

Each checklist gives users options to set task completion dates, chart their progress and make additional notes for individual tasks.

One of the cool features of the app is that in the event of a disaster, users will be able to access a geotargeted emergency alert feed guiding them to up-to-the-minute information about local evacuation routes and other details about the disaster.

Also included are resources to help plan for an evacuation—including one for pets.

“Know Your Plan† is available in iTunes, or by searching “Insurance Information Institute† in the App store from any iPhone.

All property mitigation information was developed in partnership with the Insurance Institute for Business & Home Safety (IBHS).

“Know Your Plan† is the second in a series of apps created by the I.I.I. It follows Know Your Stuff – Home Inventory app, which is available for both iPhone and Android platforms.

Stormstruck? There’s An App for That

I’ll huff, and I’ll puff, and I’ll blow your house in. No, I’m not talking about the Three Little Pigs.

The Federal Alliance for Safe Homes (FLASH) is launching StormStruck ®, a new 3D animated app from the USA Science and Engineering Festival in Washington, DC today.

This new app allows users to create an intense windstorm with a simple swipe of a finger and see in 3D the kind of damage it can do to an average home.

Users then choose from a variety of upgrades that protect the home and enable it to withstand damage. Everything from garage doors to roof connections can change the fate of the home and increase its chance of survival.

The aptly-named StormStruck app is free and compatible with the iPhone, iPad and iPod touch.

It is available now for download in the  iTunes App Store.

Once you’ve seen how severe weather has the potential to damage your house, you might want to make a home inventory of your personal possessions. The good news is that the Insurance Information Institute (I.I.I.) has a new home inventory app for iPhone to make the process even easier.

The I.I.I.’s Know Your Stuff ® – Home Inventory is Web-based software that can be found at KnowYourStuff.org. If you have an iPhone, you can also download the  free Know Your Stuff ® – Home Inventory app in the iTunes App Store.

What’s in your house?

If your home is ever burglarized, or burns down, the best way to demonstrate what needs to be replaced is with a home inventory – a record of your valuables, when you purchased them, and what they cost. Your insurer needs this information to properly adjust your claim.

This blogger’s home inventory is in a fireproof lock box. Here, for example, is a picture of the home computers:

Bad blogger!
Find the Zip drive

How old is this photo? That hole in the front of the desktop is for a 3.5-inch floppy disk, a feature now most frequently seen on display at the Smithsonian.

Clearly, the Lynch home inventory needed an update.

Fortunately, we have kids.

Our kids (13 and 9) are at the every-media-object-is-a-toy stage, so Dad has given them a new mission: Photograph everything valuable in the home. And since blogging pays less than, say, running Goldman Sachs, there’s not much to photograph. Then we’ll put it all on the laptop’s hard drive. (The kids are better at downloading and uploading than the old man.)

But that laptop can be stolen. It can be destroyed in a fire. So how do we preserve our home inventory?

Thankfully, as we now say in the I-phone age, “There’s an app for that.”

Or several: The New York Times last week rounded up home inventory apps, including one for $25 that lets you scan in the bar code of items like CDs, books and DVDs – speeding the process considerably.

I.I.I. provides a free online home inventory service. (App is coming soon, I gather.) Basically you sign on, upload pictures of your stuff and fill out the details. A I.I.I. video describing the service is here. And, to get you on your way, here is a good list of what sorts of items end up in most inventories.

Cyberbullying: Prevention and Response

The problem of school bullying was the subject of a recent post  here at Terms + Conditions. In it we noted that with increased access to and use of technology, cyberbullying is a growing concern.

An article in the New York Times over the weekend reports that as bullies go digital, parents are struggling to know the best way to respond. As the NYT states:

It is difficult enough to support one’s child through a siege of schoolyard bullying. But the lawlessness of the Internet, its potential for casual, breathtaking cruelty, and its capacity to cloak a bully’s identity all present slippery new challenges to this transitional generation of analog parents.†

According to the NYT, it’s not just about parents being technologically a step behind or failing to acknowledge the issue. Many struggle with how to supervise their children’s’ Internet activities, and how to proceed in the event their child is the victim of an attack.

Part of the problem is also that schools may be reluctant to get involved when the behavior occurs off-campus, and going the law enforcement route may involve a protracted process.

What about the legal environment? According to the Cyberbullying Research Center, at last count 44 states had laws regarding bullying, and 30 of those included some mention of electronic forms of harassment. Almost all of these laws direct school districts to have a bullying and harassment policy, though few delineate the actual content of such policies.

The Center advises educators, parents and law enforcement officers to carefully review and understand the statutes in their own state to understand the formal legal implications of participating in cyberbullying.

Check out  the Center’s  fact sheet on cyberbullying: identification, prevention and response.