I normally do not post content in my blog that was written by other people. That is especially true if what they wrote is exceptionally funny, lest it be revealed there are two funny writers in the workers’ compensation industry.
I don’t need the competition, after all.
But today, I will make an exception, as the LinkedIn post I came across was just too good to ignore.
Vincent Capaldi, whose job title, according to LinkedIn is “Lifelong insurance nerd and wholesale insurance broker helping retail agents and their clients develop and maintain self-insurance programs for their workers’ compensation, property and liability programs” (his business cards are apparently printed on 3×5 index cards), posted some useful advice on how to understand the language of actuaries.
Personally I find the position of Actuary to be a fascinating one, and I’ve written about them before, concerning their apparent love of Cornhole, and the eloquence they employ in describing what they do. I once told my favorite actuary joke to an actuary friend (How do you know you are speaking to an aggressive actuary? They stare at your shoes instead of their own), and he vehemently objected, yelling, “No, those are accountants!”
I had no idea that the mathematical sciences were so competitive.
At any rate, the lesson here is that actuaries are people too, with personalities and everything. And Vincent’s “Hitchhiker’s Guide to the Actuarial Universe” is a step in the right direction when it comes to improving communications in the workers’ comp industry.
Without further ado, here it is, in its entirety. Enjoy.
For reasons I don’t understand, SOME people don’t like reading actuarial reports.
I think those people fail to see the intrinsic beauty of a good actuarial analysis simply because they don’t understand the lingo. If they did, they may not be quite so intimidated and may even be able to see an actuarial report for the exquisite piece of art that it is.
As a public service to all my friends in the actuarial profession and those they serve, I have developed (pun intended) the following list of terms commonly used by actuaries and their corresponding plain-English definitions:
Probability: The statistical likelihood of a specific event happening. For example, there is an 83% probability you will fall asleep before reaching the end of this post.
Loss Triangle: Similar to the infamous Bermuda Triangle, a loss triangle is an ancient symbol used by actuaries that foretells impending doom.
Accredited Actuary: Level 9 Dungeons & Dragons wizard
Case Reserves: (Policyholder): Hmmm… that doesn’t look too bad.
Development: (Actuary) Hold on! It gets worse…
Loss Development Factor (LDF): How much worse it gets in numeric terms.
Volatility: The potential for unpredictable fluctuations in certain conditions or values in a given period of time. Think red carpet interview with Jack Black.
Present Value: The cost of a set of informercial kitchen knives if you act now.
Discount Rate: The free cutting board you get with your informercial purchase if you order in the next 15 minutes (and pay separate shipping and handling).
Allocated Loss Adjustment Expense (ALAE): The separate shipping and handling fee
Confidence Level: I’m (this %) sure.
Bornhuetter-Ferguson Method (BFM): Cult founded in 1972 by Ron Bornhuetter and Ron Ferguson. BFM followers believe they can predict the future by performing ritualistic mathematics on past events. BFM was originally called the Ron-Ron method but later changed to its current name when the founders tired of people jokingly commenting the method gave them “The Rons”.
Incurred But Not Reported (IBNR) claims: I KNOW SOMETHING YOU DON’T KNOW! If an actuary was a horror film director, an IBNR would be the monster hiding in the back seat of the car waiting to murder the people who had just relaxed a bit thinking the worst was behind them.
Standard Deviation: Close enough.
Weighted Average: The real average test score of a classroom of students on a day when they smart kid was home sick and didn’t take the test.
Selected Values: Numeric values chosen by the actuary using a combination of the BFM, a Magic 8 Ball and an intense rock-paper-scissors match between two accredited actuaries.
Maturity: Many years and many zeros from now…
Full Final Loss: (Actuary): Told you so!!!
Did I miss anything? If I did, drop the term in the comments section below and I’ll do my best to provide a plain-English definition.
Better yet, tag your favorite actuary so they can offer their comments!