Board game recommendations (and reasons to use them)

I’ve played plenty of board games in my life. I’m not (only) talking about Monopoly.

I went to Cambridge (to visit, very sadly, not to study) in 2003. I found an awesome board game store and tried to buy Diplomacy.  The incredibly wise assistant basically forced me to buy Settlers of Catan before he would allow me to buy Diplomacy.

About Settlers of Catan

I have played hundreds of hours of Settlers, and recently gave Diplomacy away never having played it. I still believe it’s an awesome game.  (Strategy, relationships, IQ and EQ, competition and a little backstabbing. What’s not to like?) However, it  requires having enough people, the right sort of people. enough time (a weekend apparently is ideal) and ideally a couple people who have played before because it is complicated.

Now, Settlers has plenty of scope for tension as it is.  I kicked my best friend out of my flat once after a kingmaking incident. I’ve had arguments with significant others over games. And this is Settlers, not Diplomacy.

Do I recommend Settlers? Continue reading “Board game recommendations (and reasons to use them)”

Modelling one side of a two-sided problem

Ah models, my old friends. You’re always wrong, but sometimes helpful. Often dangerous too.

A recent article in The Actuary magazine addressed whether “de-risking in members’ best interests?”  I say “recent” even though it’s from August because I am a little behind on my The Actuary reading.

In the article, the authors demonstrate that by modelling the impact of covenant risk, optimal investment portfolios for Defined Benefit (DB) pensions actually have more risky assets than if this covenant risk is ignored.

The covenant they refer to is the obligation of the sponsor to make good deficits within the pension fund. Covenant risk then is the risk that the sponsor is unable (typically through its own insolvency) to make good on this promise.

On the surface it should seem counterintuitive that by modelling an additional risk to pensioners, the answer is to invest in riskier assets, thus increasing risk.

The explanation proffered by the authors is that the higher expected returns from riskier assets allow the fund to potentially build up surplus, thus reducing the risks of covenant failure.

I can follow that logic, particularly in the case where the dependence between DB fund insolvency and sponsor default is week. It doesn’t mean it’s a useful result. Continue reading “Modelling one side of a two-sided problem”

Credit Life regulations and reactions (1)

Credit Life regulations have been live for long enough now that insurers are starting to feel the impact and the shake-up of amongst industry players is starting to emerge.

There have been plenty of debate around the regulations, in part because of the dramatic financial and operational impact they will have, and partly because of how imperfectly worded they are and the scope for interpretation.

I’ll be posting about this more in the coming days.

Basing the premium on initial or outstanding balance

First, a real anomaly is the ability for insurers  to charge the capped premium rate either on initial loan balance or on the declining outstanding balance.

There are good practical reasons to want to charge a single, known amount to policyholders. It is easier to administer and policyholders have greater clarity on what they are paying. Continue reading “Credit Life regulations and reactions (1)”

Zero deductibles and innovation from insurtech

Insurance is misunderstood. Consumers ascribe malice where often practical restrictions are to blame.

Take deductibles for example. A deductible in an insurance claim decreases the number of claims an insurer has to deal with. More than that though, it reduces the claims where the administration costs of checking out the claim and paying it are large relative to the benefit to the policyholder. Sometimes these costs would have been larger than the claim itself.

In that case it does not make sense for the insurer to be processing and paying the claims – the increase in premiums required would be more than reasonable to policyholders.

Lemonade’s new “zero everything” removes the deductible and guarantees no premium increases for up to two claims per year. The reporting on this innovation has generally been silent on the practical reasons why this is hard for traditional insurers and easier for Lemonade.

Lemonade on the other hand explicitly recognise (or at least claim) that due to their AI-based claims underwriting process they can drive down costs and therefore manage small claims cost effectively.

This is important. Many complain about the lack of innovation in insurance. Removing deductibles isn’t innovation. Reducing costs to the extent it becomes viable is the step that enables differentiation and better value for customers.

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Claims analysis, inflation and discounting (part 2)

This is part 2 of a 3 part series. Part 1 is here.

Non-life claims reserves are regularly not discounted, for bad reasons and good. This part of the series looks at the related issue of inflation in claims reserving. (You’ll have to wait for part 3 for me to talk about the analysis that prompted this lengthy series.)

In many markets, inflation is low and stable. Until a decade ago, talk of inflation wouldn’t have raised much in the way of deflation either. That’s still sufficiently unusual to put to one side.

Low, stable inflation means that past claims development patterns are mostly about, in approximate descending order of importance (naturally depending on class and peril) Continue reading “Claims analysis, inflation and discounting (part 2)”