Insurance Rate Proceedings

Unlike the creators and sellers of most products, insurers don’t know the cost of their product when they sell it: when they’re setting rates in 2023 for 2024, for example, they don’t know and can’t know how much they will pay out in 2024. So actuaries have to estimate how much they will pay out in 2024 based on the past payments of the insurer, their analysis of the pattern of those payments over time, and their judgments about the future.

Putting it somewhat less diplomatically, actuaries make guesses. They make educated guesses, but they are still guesses. On behalf of state agencies or private clients in rate hearings I’ve challenged the reasonableness of those guesses regarding key elements of the rate filing, most significantly trend: the rate at which the actuary predicts underlying costs will increase—or in the all-too-rare case decrease—in the future.

Importantly, when a regulator approves a high trend it can become a self-fulfilling prophecy: in health insurance, for example, a high trend factor reflects an expectation that hospitals will increase their charges, and hospitals do increase their charges because they know the regulator approves rates that reflect those increases. Trend, as well as other actuarial assumptions, may also be overstated because actuaries are almost always more concerned about the possibility that the rates they set will be too low—and thus will not enable them to hit their profit target, or their target surplus—than they are about the possibility that their rates will be too high.

I’m happy to assist regulators in evaluating whether proposed rate increases are reasonable, and also to assist other state agencies seeking to intervene before insurance regulators, or private parties seeking to challenge proposed increases.