Figuring out the future and the now

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The hidden dangers of opinion shopping and trusting good news.

I had a recent discussion on the value of getting a second opinion. There’s the old line that “if you want five opinions, ask three people” – but in my experience that doesn’t often happen. Much of the time the second opinion does confirm the first. (If you are getting so many different views, it may say more about the question that the answer.)

The original discussion was about the value of a second opinion, when you get bad news. I have an opinion on this – informed by years of product reviews, IFRS, EV and regulatory audits, peer reviews of other actuaries, cleaning up the mess of failed insurers, being reviewed myself, attending actuarial, risk and audit committees for over 40 insurers in South Africa.

It is useful to get a second opinion when you don’t like the first answer. Opinion-shopping doesn’t end well though. If you keep asking for additional opinions until you get the one you like, don’t be surprised if it comes back to bite you. I’ve seen legal opinions waved around as if it proves a point beyond doubt – including when the opposite side is exactly as confident.

Whether it’s a legal or actuarial opinion, it is critical to:

  • look at what the team was asked to opine on, the exact wording of the request and answer;
  • ask the team to present their views and engage in an informed Q&A session;
  • explicitly ask how confident they are in the answer and then interrogate why; and
  • ask the team what information or facts would have led to a different answer (and then check how sure you are on those underlying “facts”).

My ultimate weapon is to, where possible, ask for the opinion without the team knowing which answer you want. We can’t quite do double-blind testing but the closer you get the more you can trust the output.

It it useful to get that second opinion when the news is good too!

We are too ready to believe the things we want to believe. Terrible decisions can result from not testing good news.

Independent reviews can provide additional insights, a new perspective, and challenge existing thinking:

  1. If it uncovers a fundamentally different perspective, you’ll be glad to have that additional information sooner than later. It is not a coincidence that it is when I am reviewing insurers in financial difficulty that I more often found problems in existing actuarial, financial, risk and governance matters. A series of bad advice has consequences and sometimes it takes a while for the results to be obvious. An earlier independent review can highlight these much sooner.
  2. If independent review confirms everything is as expected, you have still gained the benefit of confidence to continue basing decisions on that information.
  3. Best of all, the very practice of having occasional independent peer reviews helps to keep a sharp, objective focus from the original actuary. Knowing that someone will inspect your work is an excellent way to ensure quality of work, apply good practice and following actuarial guidance, not give in to pressure, steer clear of fraud, and ultimately think a little deeper.

Independent reviews aren’t only for spotting problems. In the past my reviews have identified new opportunities and insights to drive growth and innovation – identifying untapped complementary lines of business to drive growth, putting in place premium reviews to restore profitability, adjusting commission structures to skew sales towards profitable business, highlighting changes to renewal pricing practices to be more competitive, accessing Iterative Risk Margin and Loss Absorbing Capacity of Deferred Tax benefits to improve capital management.

As you read your next Board pack or actuarial report, consider how an independent review could help identify untapped opportunities, mitigate risks, and drive growth.

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