Get a Fancy Business Card and Impress Your Friends!

If you ask an old-timer about the biggest changes in the insurance industry during his career (as I did recently), you get some variation on the answer I got: MBAs and lawyers and actuaries.

I see two sides to this complaint, actually.

First, the industry has taken the underwriting role and split it out into specialized functions.

Second, these various specialists pretend that they’re doing something different than their ancient predecessors and have introduced a steaming pile of jargon.

I’d say the first is actually good (sorry, Bob!), but the second is terrible.

Ok, specialization first. When you educate people, they specialize: lawyers do the legals, actuaries do the maths and MBAs do the MGT.

The trick is that these people think they’re doing something new when they’re not. It’s really hard to prove this empirically, but I’d argue that specialization improves the overhead part of the expense ledger and not the claims cost part. That is, they’re not doing any better of a job, but they’re doing it more cheaply.

But boy, you’d be hard pressed to figure that out if you listened to these people talk.

I’ll focus on actuaries since that’s the part I know best. They come up with the most impressive models: truncating this beta function, integrating that pricing curve. All to try and figure out whether the market price makes sense. And still their work boils down to 1) an inflation assumption; and, 2) a vague assumption about the relationship between reported and outstanding claims.

Now, I don’t believe for a second that an underwriter in the 50s knew any more or less about whether a piece of business would make them money than an underwriter does today, or will in a hundred thousand years.

More importantly, though, the ability for people to actually wade through the misleading math is an order of magnitude rarer than the ability to understand the driving assumptions.

They erect this fortress of jargon to keep people out and make themselves feel better about spending a decade or more in post-secondary education before they really get on with their careers.*

I’ve recently come across an interview with Freeman Dyson, famous mathematician, author, physicist, etc. No PhD here and it hardly stopped him. I found it amusing that in his day, the PhD was considered a ‘German thing’ and not as important as it is now.

Behold credentialism: a force for people to, in the words of a good friend of mine, “add value to themselves”.

*Actually these people are, individually, friendly, smart and hard working folks with not a drop of self-aggrandizing intent.

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