It's a Numbers Thing

By Ty Wooldridge

CBS has a new show in its lineup about an FBI agent who recruits his mathematical –genius brother to help him fight crime. The show is called Numb3rs and although most things on TV don't really capture my imagination, I do enjoy this one. For one thing it gives my teenaged daughters a point of reference with their friends. "Yes, my dad is an actuary. He's kind of like that crazy guy on Numb3rs, saving the world, one math problem at a time."

Actuaries love numbers the way badgers love dirt. One of the annual rites each winter at our company is the day the last November exam is put to bed and the actuarial students set down the books for other pursuits. Typically, actuarial students spend these periods unwinding with things involving lots of numbers, like fantasy football leagues and this year, something called Sudoku. (Over the years though, I've caught them doing all sorts of things to blow off steam, from stairway luge to grilling Brats on the corporate balconies. But most are much less like caged wildcats suddenly let loose on the world, and so the steam they let off is more appropriately compared to a hamster jailbreak at the PetSmart.)

I suppose it won't surprise anyone that a number puzzle, or anything involving statistics, would enamor a mathematician. Such was the case as I sat at the PC wondering what to write for this editorial. Having that food for thought, I thought that I'd offer a few numbers myself.

• Number of Americans who purchased a long–term care (LTC) policy in 2004: 362,009.
• Number of coaching changes in the NFL during World Champion Pittsburgh Steelers coach Bill Cowher's career there: 93.
• Number of companies tracked by LIMRA as being active in the long–term care marketplace during 2005: 23.
• Number of interceptions this season by the Oakland Raiders: 5.
• Number of companies who sold at least 25,000 LTC policies last year: 4.

Among the things in this issue that you won't see are any discussions about the number of controversial penalties called by the officials at the Super Bowl, but you will see the first of a two–part series of articles on long–term care. It's a very young practice area, but one that has garnered a lot of press recently and we at the editorial board have decided that this is long overdue.

Long overdue or not, this is an industry that has caught more than its share of criticism. An article a couple of years ago characterized it as one with products that were substantially under–priced, cost structures that greatly exceeded revenue capability and investment returns that were inadequate to support the product. But other than that...

So why would the editorial board choose this product to feature? Why indeed? It may be that the editors have simply lost their minds.

as I thought about this piece, I remembered something a truly great actuary from our field once shared with me. His name is Tom Skiff and a few years ago he gave me his Top 10 reasons to be in the long–term care market and they are as apropos today as then. I feel obliged to share them with you.

• 10.  The LTC industry is a "perfect storm" opportunity. The largest demographic group in
• recorded history will be facing retirement during the next 20 years and will outlive previous generations by decades. For perhaps half of these people, some of those years will be spent requiring the care of others, care that is often complex and always expensive. It is this need that is at the same time as under–served as it is under planned by most Americans that has already created an emerging industry of epic proportion. To say that it is under–penetrated is to be very kind.
• 9.    The source of most of the funding today is not sustainable. The Federal Government is
• the largest payor today, even for families with means. Although good people disagree about the timing, few disagree that a day is coming when the cost of senior entitlement programs will exceed federal revenues.
• 8.    The source of the funding is motivated to develop alternatives. Our article on National
• Partnership is just one of many examples of government's willingness to consider better ideas.
• 7.    The growth rate could exceed other forms of insurance. The Baby Boomers have
• redefined every single form of insurance they've needed as they've come through their stages of life, and this form is likely to be no different.
• 6.    There is great potential for realizing a profit. LTC insurance is far from a commodity,
• and while many will cite the risks, few will deny the potential for reward.
• 5.    There are fewer irrational players in the LTC market. At times, as many as 60 companies
• have been active, and many opted to stop selling and came away with little more than an expensive lesson.
• 4.    The need is undeniable. For millions of Americans, long–term care will become an
• expensive reality.
• 3.    In spite of the fact that experience is sparse, it develops slowly, allowing a company
• to correct its errors.
• 2.    Not all of the mistakes have already been made. What a great thing to think that you
• might be more innovative by accident than some actuaries can ever be on purpose in other industries.
• 1.    And the number one reason to be in this business: you make a difference in the lives of
• people. As with many forms of insurance, for those who need it, hav ing a company there to make good on its promises can be the difference in allowing an unpleasant eventuality to ruin your life or merely alter it. Long–term care companies have been making a difference in the lives of people for over 30 years.

Speaking of lists, the Emerging Issues Advisory Committee has been busy conducting its environmental scanning. There will be several reports based on their findings in the next few issues of The Actuary. Topics include: Global Economic Risks, Technology Issues, U.S. Federal Income Tax, Principles–Based Approach for Reserves, Distribution and its Impact on the Individual Life and Annuity Marketplace, Product Trends, Asset Markets and U.S. Demographic Changes.

Lastly, I have one more number to share with you—two. That's the number of articles in this issue that deal with the actuary as an expert witness and one more reason to wonder if the editorial board has lost its mind. However, when you read the pieces, you will find that our distinguished contributors offer two different angles on the subject—making for an interesting and in–depth illustration of the topic. Two might be the most interesting number of them all.