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UNSW Actuarial StudentsWork Overview
Daniel Tess
26 August, 2002
Sydney
Contents
Warmup
My favourite topic—me!
CAS info
Health Financing
NSW WCA Premium Analysis
What do we want from today?
– Free Pizza!
Career Summary
• 1987 BS Computer Science, Duke University, NC
• 1987-1990 High School Teacher, Salzburg & NC
• 1990-1991 Aetna Casualty, Hartford CT
• 1991-1996 Fireman’s Fund, San Francisco
National Accounts
• 1996-1998 Allianz International, Munich
International Casualty Underwriting
• 1998-2000 Allianz Australia (MMI), Sydney
Chief Actuary; Workers Compensation
• 2000-now PricewaterhouseCoopers, Sydney
CAS Key Facts
• Started in 1914 as a special interest group of the SOA
• Generally covers USA and Canada
• Initial Workers Compensation focus; now all “P&C”
• Only separate society dedicated to GI business
• Over 2,500 members
• 10 Exams in 14 parts
• Very little university training/preparation in US
• www.casact.org
CAS University Liaison Role
• Information point for interested students
• General promotion of GI Actuarial careers
• Information on CAS research calls & commissions
Is there a place for the CAS in Australia? What
can/should the CAS do to strengthen (establish!) its
role here?
Health Financing in Australia
Who funds healthcare?
– Government—Commonwealth, State & Local (AHCAs)
– Private Health Funds (PHI)
– Accident Compensation Schemes (e.g. NSW WCA)
– General Insurance Companies (for accident comp)
– Individuals (patients!)
Health Funding Overview (AIHW)
AIHW Australia's Health 2002Table S42: Total health services expenditure (current prices), 1998-99 ($m)
Government Non-governmentState Health
Health service type C'wlth &Local Subtotal Ins Funds Individ's Other Subtotal TOTALPublic hospitals 6,638 6,146 12,784 242 288 361 891 13,675Private hospitals 911 911 2,116 367 565 3,048 3,959Other institutions 3,055 935 3,990 105 977 86 1,168 5,158Subtotal institutions 10,604 7,081 17,685 2,463 1,632 1,012 5,107 22,792
Medical services 7,372 7,372 212 936 480 1,628 9,000Other professional services 232 232 197 1,191 240 1,628 1,860Pharmaceuticals 3,092 3,092 30 2,697 2,727 5,819Other 2,163 2,355 4,518 1,158 2,017 317 3,492 8,010Subtotal non-institutional 12,859 2,355 15,214 1,597 6,841 1,037 9,475 24,689
Total recurrent expenditure 23,463 9,436 32,899 4,060 8,473 2,049 14,582 47,481
Capital expenditure 104 2,416 40,271 1,009 41,280
TOTAL HEALTH 23,567 11,852 43,363 15,591 58,954
Actuaries in health funding
– New appointed actuary role—being developed by the HPC together with PHIAC
– Pricing of member contributions (premiums); estimation of reserves, certification of financial position
– Broader health arena—little involvement so far
– What makes actuaries special?
– Competition is health economists & epidemiologists
– Connection to operational drivers
– Projection of future values
– Risk pooling / insurance concepts
Basic economist’s modelling approach
Intergenerational Report 2002 (Australia):
– Demand model, cost as output
– Past commonwealth government health spending as % of
GDP, trended forward (adjusted for age & gender). A
simple high-level expenditure projection.
Intergenerational Report 2002
Tables 8 & 9: Projected Commonwealth health spending (% of GDP)
Component 2001-2 2006-7 2011-12 2021-22MBS subsidy 1.09 1.10 1.15 1.33PBS subsidy 0.60 0.63 0.79 1.31Hospital & health services 1.16 1.16 1.20 1.34Other 1.12 1.14 1.16 1.22All health 3.97 4.03 4.30 5.20
Alternate all health model Underlying growth rateAggregate Case A 3.0% 3.97 4.26 4.84 5.99Aggregate Case B 2.5% 3.97 4.14 4.55 5.36
All health excl. PBS 3.37 3.40 3.51 3.89
Alt model --implied ex PBS Underlying growth rateAggregate Case A 3.0% 3.37 3.59 3.74 3.98Aggregate Case B 2.5% 3.37 3.49 3.62 3.79
Intergenerational Report 2002
Table 7: Real growth rates for Commonwealth health spending (%)
1984/84 to 2000/01 1989/90 to 2000/01Non-demographic 2.1 3.2Population 1.2 1.2Age structure 0.5 0.5Total 3.8 4.9
IGR Points:
• Technological change is main driver of growth (not demographics)
• Government health spending (shown here) is growing faster than
total health spending (more indicative of workforce trends)
AHMC Workforce Modelling
– PwC recently asked to develop a framework for a model of Australia’s health workforce
– Want to analyse mismatch between supply & demand in the future
– High-level concept only (so far)
AHMC Workforce Modelling
(spreadsheet)
– Flowchart of modelling approach
– Public hospital admissions example
Demand example: hospital services
Components of Hospital Demand
0
5,000
10,000
15,000
20,000
25,000
30,000
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Year
Po
pu
lati
on
/ S
epar
atio
ns
/ Pat
ien
t D
ays
('0
00)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Ave
rag
e L
eng
th o
f S
tay
per
Sep
arat
ion
(d
ays)
Population--ABS ('000)
TotalSeparations(’000)
Total Patientdays --Admittedservices(’000)
Total Averagelength of stay(days)
NSW WCA pricing analysis framework
Sequential pricing variance
– How can we form a simple measure of the relative accuracy of various pricing approaches?
– Basic concept is to minimise the variance of employer loss ratios under different pricing approaches
– Another concept is to measure “within class” vs. “between class” variance
– Both concepts will allow for objective evaluation and concise quantification of the relative performance of alternative options
Sample analysis output (not real #’s!)
NSW WorkCover AuthoritySAMPLE EXHIBIT--INDICATIVE ONLYPRYs 1990-1995Reported Loss Ratios--paid + case estimates(90% of estimated ultimate claims $ reported)Variance of employer loss ratios under various premium formulas
Employer Loss RatiosPremium calculation method coefficient of variation
Fixed scheme employer average premium ($6,000) 100Fixed scheme employer average rate per payroll (3.0%) 50Old ASIC tariffs only 30New ANZSIC tariffs (smoothed) 25New ANZSIC tariffs (raw) 23Experience rated premiums 15Experience premiums with 5 years claim history 13Exp prem with improved ANZSIC tariff structure 14Exp prem with PDS discount 13Exp prem with no-claims discount 12
NSW WorkCover Insurer Remuneration
Background:
• NSW Work Comp has been a managed fund since 1988
• Large scheme deficit ($2.0b?)
• Plans to privatise in 2000 have been delayed indefinitely
• Current claims manager (insurer) remuneration system will expire June 2001
• WorkCover and insurance industry want to devise a new system which provides as much incentive as possible to manage to better claims outcomes
“Loss Ratio measure” analysis framework
Pricing “fit” by insurer
– Loss ratio measure may require a more “correct” pricing approach than the actual premium calculation system ever uses
– We need to determine whether and to what extent any current insurer/agents are “out of the money” on the measure
– The L/R measure may provide no real incentive to some insurers unless a more appropriate risk-based premium calculation is used
– For example, an insurer may be significantly better than average in managing claims that arise, but that insurer’s employer portfolio could have a much higher than average claims frequency rate
Sample analysis output
12
34
56
1995
1996
1997
19981999
0
20
40
60
80
100
120
140
Accident Year
Age (years)
Insurer A Loss Ratio History
1995
1996
1997
1998
1999
Ult
ima
te L
os
s R
ati
o %
Sample analysis output
1
4
1995 1996 1997 1998 1999
0
20
40
60
80
100
120
140
Accident Year
Age (years)
Insurer A Loss Ratio History
1995
1996
1997
1998
1999
Ult
ima
te L
os
s R
ati
o %
Sample analysis output
NSW WorkCover Loss Ratios by Accident Year(SAMPLE DATA ONLY!)
Latest Evaluation @ June 2002
0
20
40
60
80
100
120
140
1995 1996 1997 1998 1999
Accident Year
Lo
ss
Ra
tio
% Insurer A
Insurer B
Insurer C
Scheme
“Business Card”Daniel Tess, FCAS
Director
PricewaterhouseCoopers
201 Sussex Street
GPO Box 2650
Sydney, NSW 1171
(p) 8266 2849
(f) 8286 2849