| Many elements of project management (see Project | | | | corrective action before a deviation in the plan |
| Management Institute's website for more | | | | occurs. Actuaries call it "modeling" and have applied |
| information) could be applied to help insurance | | | | the concept to forecasts of future profitability, |
| companies manage their operations and projects | | | | premium levels, claim costs for certain lines of |
| better. One method in particular should be an area of | | | | business, enterprise risk management, or dynamic |
| interest for insurance company actuaries - the | | | | financial analysis. |
| CONTROL area. | | | | The steps of Feed-Forward Control are as follows: |
| Control is the mate of Planning, another area that | | | | |
| strong actuarial help is valuable. Control gets a bad | | | | 1. Identify all relevant input variables. For project |
| rap from people that feel that the term implies | | | | management, these variables relate to time, volume, |
| heavy-handed oversight or punitive measures, but is, | | | | and money (or costs of the project). For actuarial |
| in reality, an essential part of the planning process. | | | | work for insurance companies, the variables might be |
| Where planning says what you are going to do and | | | | premiums, loss costs, expenses, investment income, |
| when, control checks on those plans and can suggest | | | | risks of various company functions or operations, etc. |
| corrective action when plans are going awry, as they | | | | 2. Build a dynamic model representing the process |
| so often do. | | | | and keep it updated. |
| There are three types of control processes - (1) | | | | 3. Collect data and enter into your model. For most |
| Feedback Control, (2) Concurrent Control, and (3) | | | | projects I do, the data gets collected into the model |
| Feed-Forward Control. | | | | before, during, and after it is built. |
| Feedback Control is frequently done by actuaries in | | | | 4. Perform regular assessment of the projected path |
| insurance companies. Studies of rate levels, | | | | and the variation from the plan. Are the loss costs |
| unallocated expense allocation, projected expenses, | | | | out of range? Is persistency decreasing off planned |
| loss reserve calculations are often purely or nearly | | | | values? Is the level of risk for a type of insured |
| purely Feedback Control, in that they base the future | | | | coverage/policy unacceptably high? Are the number |
| projections on historical results. In project | | | | of claims or policies off plan? |
| management, Feedback Control is considered the | | | | 5. Take action - Feed-Forward Control provides the |
| least optimal control method, since the undesirable | | | | early warning system needed to take action before |
| events have already occurred well before the control | | | | getting too far away from plan. Actuarial work for |
| function is initialized. Interestingly, projections based | | | | insurance companies generally uses the Feedback |
| on historical events is quite favored by insurance | | | | Control type the most, but Feed-Forward methods |
| departments of insurance, that frequently require | | | | have the potential to change the profitability of the |
| explanation if your projections are based on anything | | | | company quicker and more reliably. |
| else. | | | | The major disadvantage for insurance companies is |
| Concurrent Control is a type of control that takes | | | | the more complicated filing and approval process for |
| place when a process is about to occur. The final | | | | applications that require state approval, but that is |
| checking before sending rate filings, Annual | | | | overcome with clear actuarial memos and an |
| Statement reports, agent's bonuses, large claim | | | | education process. The advantages of getting ahead |
| settlement reports, etc. are are form of Concurrent | | | | of deviations to your insurance company's plan |
| Control. Training and periodic checking of employee | | | | outweighs difficulties getting the process approved. |
| work is also considered Concurrent Control. | | | | Rating agencies also appreciate the use and |
| The last form of control is an interesting one. It is a | | | | application of Feed-Forward Controls both for the |
| form of control more and more actuaries are getting | | | | added stability of the company and the evidence of |
| involved in. This type of control function is called | | | | careful planning that is implied in the use of such a |
| Feed-Forward Control and it's goal is to inspire | | | | method. |