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  #1  
Old 04-07-2015, 02:03 PM
Coldaine Coldaine is offline
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Default "Not Priced in a Minimally Competent Manner"

Good Morning,

I'm filing rate increase filings on a closed block of business. I've been going back and forth with a state DOI through various objections, and their most recent objection to deny the filing is that the rates were not priced with minimal competence.

The state DOI of course reviewed and approved the original rates, and in this case, the same actuary is the one reviewing the current filling. I've countered with this point, and they have advised me that they rely on the expertise of the company's actuaries to set assumptions and rates correctly, and the burden rests on the company.

I have a two part question, if anyone would like to weigh in, does anyone have any advice on any further avenues of argument to pursue? And, in general, does the burden of correct pricing lie solely with the company? One would think that reviewing the rates to make sure that they were priced in a competent manner would be a requiste when they're filed, just for issues of solvency for carriers.

Apologies for being slightly vague.
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Old 04-07-2015, 02:09 PM
Locrian Locrian is offline
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I'm not sure I have much helpful advice as I've never seen that response from a DOI personally, but I am interested in the outcome and how you handle it.

Am I gathering from this that the rate increase is very large, and maybe they are inferring from the large change that the original (prior year?) pricing was done poorly?
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Old 04-07-2015, 02:11 PM
Locrian Locrian is offline
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And if so, what does it matter how the original pricing was done? All the matters is that the block be financially stable, so claims can be paid. If that requires X% increase, then that's what's required.
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Old 04-07-2015, 03:01 PM
SweetP SweetP is offline
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Can you demonstrate that the assumptions made in the filing were reasonable at the time of the filing with information available at that time? Then, note that as a result of whatever changed (such as higher than expected trend, or adverse selection).

Or, if there was an outright error, incompetence, or misrepresentation, admit to it and work with them on how to rectify the situation.

Just keep in mind that if the product is grossly underpriced and its a closed block of business, you'll likely start seeing a "death spiral" once you start increasing your rates if you haven't already, especially if they're increasing by more than just trend.
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Old 04-07-2015, 03:07 PM
Dr T Non-Fan Dr T Non-Fan is offline
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And if so, what does it matter how the original pricing was done? All the matters is that the block be financially stable, so claims can be paid. If that requires X% increase, then that's what's required.
That is very amusing. It assumes that the DOI is filled with rational actuaries and not politicians.

The "X%" is likely too high (at or above the scary two-digit mark), will create backlash from citizens complaining about their rate increase, and the DOI would rather not field those complaints.

I mean, these same citizens never bothered to thank the DOI for approving last year's lower-than-required rates.

To the OP: I think you should triple-check the competency level. Not meaning to offend, but you need to take that excuse off the table. And the only way to do that is to prove that the work is competent.
Is the experience credible, for example?
Is your trend backed by reason?
Is your experience actually the experience of the closed block?
Are there non-claims expenses being used or assumed in the rate filing? Make sure the allocation is backed by good reason.

Second option is to ask what rate increase they would approve. Then see if that is acceptable to your higher-ups.

Third, expensive option, is to hire an outside actuary to peer review.
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Old 04-07-2015, 03:09 PM
nonlnear nonlnear is offline
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Draft a polite response acknowledging that they are most undeniably the experts on minimal competence, and ask them how best to sufficiently reduce the competence of your pricing.

Spoiler:

Sorry, I know it's a professional section, but I couldn't resist. The setup is just too perfect.
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Old 04-07-2015, 03:38 PM
Locrian Locrian is offline
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That is very amusing. It assumes that the DOI is filled with rational actuaries and not politicians.


I agree that ultimately you're looking at your #2 and #3. I just don't think you start there, or you give up too much.
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Old 04-07-2015, 03:39 PM
Locrian Locrian is offline
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Originally Posted by nonlnear View Post
Draft a polite response acknowledging that they are most undeniably the experts on minimal competence, and ask them how best to sufficiently reduce the competence of your pricing.

Spoiler:

Sorry, I know it's a professional section, but I couldn't resist. The setup is just too perfect.
Hey, I liked it!
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Old 04-07-2015, 04:10 PM
Coldaine Coldaine is offline
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Quote:
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Can you demonstrate that the assumptions made in the filing were reasonable at the time of the filing with information available at that time? Then, note that as a result of whatever changed (such as higher than expected trend, or adverse selection).
Most of the earlier objections were exactly that, I even put together something fancy showing that our trends were in line with industry assumptions at the time.

Quote:
Originally Posted by Dr T Non-Fan View Post
That is very amusing. It assumes that the DOI is filled with rational actuaries and not politicians.

The "X%" is likely too high (at or above the scary two-digit mark), will create backlash from citizens complaining about their rate increase, and the DOI would rather not field those complaints.

I mean, these same citizens never bothered to thank the DOI for approving last year's lower-than-required rates.

To the OP: I think you should triple-check the competency level. Not meaning to offend, but you need to take that excuse off the table. And the only way to do that is to prove that the work is competent.
Is the experience credible, for example?
Is your trend backed by reason?
Is your experience actually the experience of the closed block?
Are there non-claims expenses being used or assumed in the rate filing? Make sure the allocation is backed by good reason.

Second option is to ask what rate increase they would approve. Then see if that is acceptable to your higher-ups.

Third, expensive option, is to hire an outside actuary to peer review.
I think you're right, I'll probably go with option #2. After some thinking and powowing, what's probably occuring is that they're just not going to approve rate increases for this product, and are actually giving some justification for it. In general, many other states have agreed to this exact rate increase I'm filing now, but there is one state in particular that just automatically disapproves and doesn't even proffer a reason.

Again, I'll shoot for a lower amount, but it looks like I might just have to write this one off.

Also, special award to nonlnear for a response to make me laugh today. Nothing wrong with a bit of humor in our very serious actuarial work.
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  #10  
Old 04-07-2015, 04:29 PM
TookTheScenicRoute TookTheScenicRoute is offline
 
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My advice, and I've dealt with every knucklehead rate review actuary under the sun, give the person a phone call. So much gets lost in terms of tone and translation when this is all done in writing. But a phone call offers timely back and forth, allows you to immediately respond if you don't understand, and can sometimes just set the stage for rapid approval and a better relationship.

Now I'm not saying that a phone call is always the solution. If you are dealing with someone being completely irrational it can sometimes backfire, but that's the exception.

And keep an open mind. You're trying to get something approved, and the regulators hold the key to that approval. Whether they are right or wrong, you can understand what they are looking for.

If you are pricing for a future period, and you use a 12 month experience period adjusted for trend, changes in benefits, changes in demographics, changes in blah, blah, blah, blah, I'm surprised that the work is being described as less than minimally competent.

But, if you are submitting a filing asking for a price change for 2016, and you've used 1 month of data with 20 members and no description of trend, benefits, demographics, blah, blah, blah, then maybe minimal competence is a good way to describe it.

Just my 2 cents. I've had phenomonal success with regulators both pre and post Obamacare. A phone call, in my mind, is always a good idea.
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