The Actuary as Strategist

Traditional actuarial pricing procedures rely on historical experience to match future premiums with expected losses and expenses. The pricing methods give little emphasis to marketplace competition, expected returns, marketing strategy, or consumer desires. Competitive strategy places new tasks upon the actuary: -Successful pricing does not proceed from the bottom up: the compilation of experience data to generate indicated rate revisions. Rather, pricing must begin from the top down: estimating the expected return in the industry, based upon the characteristics of its market, as well as the expected differences in profitability by line of business and by type of insurer. - Competitive pricing requires examining the strengths and weakness of one's own firm relative to those of competitors, and aligning them with the attributes of the market. Successful strategy involves modifying internal company operations or external industry characteristics to enhance the alignment between the firm and its environment. -A firm's products are tools to satisfy consumer needs. Insurance marketing and pricing must begin with an analysis of consumer desires and of alternative ways of meeting them. The pricing actuary's task is to evaluate the expected profitability of each method of satisfying consumers. The old role of the actuary was as a statistician, delving into the company's past. The new role of the actuary is as a strategist, charting the company's future. Profit Factor, Rate of Return, Risk