Insurers Looking Abroad For Actuaries

Seattle — U.S. insurers and actuarial firms are increasingly outsourcing, offshoring and importing actuarial talent from abroad, actuaries were told at the 2008 Annual Meeting of the Casualty Actuarial Society, held in November in Seattle.

Yet, good management practices and an understanding of foreign cultures are keys to successful implementation of these practices, speakers noted.

Michael LaMonica, VP and chief actuary for Northbrook, Ill.-based Allstate Insurance Co., explained that outsourcing—the transfer of specific processes or work-streams from one organization to a third party—is distinct from offshoring, which seeks to identify work-streams that can be performed by an insurer’s captive organization in another country. Outsourcing and offshoring can be undertaken not only as a cost saving device, but also to access a larger talent pool with unique skill sets, and even to gain exposure to different thought patterns, pointed out LaMonica.

To determine whether offshoring is appropriate, he said, it is useful to consider the ease of knowledge transfer, the potential for required change, and the need for additional flexibility. For example, “more complex projects requiring extensive training in actuarial methodologies, such as rate level indications, are less suited for offshoring than simpler projects in which the process is more generic,” said LaMonica, who acknowledged that an organization with strong training capabilities could potentially overcome these obstacles.

Projects in which the potential for required change is minimal, such as those involving states or lines of business that typically involve a lower level of regulatory intervention, may be acceptable for outsourcing, he said. On the other hand, “outsourcing the development and negotiation of a homeowners filing in Florida may not be a good candidate.”

LaMonica cautioned that the initial “cost advantages may erode over time due to wage inflation in developing nations and the phase out of government subsidies.” Other uncertainties include the availability of staff to effectively manage a remote operation and the level of current employee buy-in to offshoring talent, he said.

James Kunce, chief actuary for Fort Wayne, Ind.-based The Medical Protective Co., a medical malpractice insurer that is part of Berkshire Hathaway, said the company based its outsourcing decisions on resource gaps and the need to staff for business initiatives.

One key to successful outsourcing, said Kunce, is the creation of a culture where the outsourced team feels like part of the home office team.

“You should include the outsource team in staff meetings by scheduling meetings at times when all can attend,” he said.

It is important to keep communications channels open, said Kunce. “The U.S. manager needs to be available when there is overlap—both early and late,” he said. Weekly status meetings also are important, Kunce added.

In addition, the U.S. team leader should visit the offshore office annually and select members of the offshore team should visit the U.S. for joint training. “You need to provide feedback for yearly reviews, get input for development plans, and have a one on one discussion with all team members,” Kunce pointed out.

It is vitally important for the U.S. contact to be a teacher, regularly testing understanding by asking what is a reasonable result, asking questions of the team, refusing to accept head nodding as understanding and requiring that team members describe the steps in the process, he said.

Source: Casualty Actuarial Society