Predicting the Unpredictable
The element of surprise. Facing the unknown. Making predictions. That’s what comes to mind when students interested in the actuarial profession ask me why I have enjoyed this career for the past 22 years. There are always problems to solve, but on any given day, I can never fully predict exactly what will come my way. Every morning, I start with my short list, but something unanticipated is usually on the horizon, case in point, the Coronavirus.
When cases of COVID-19 started to flare up in the United States, we had to adapt quickly. Even before we began working from home full-time in mid-March, the HM Insurance Group (HM) actuarial team had already modified a previously built pandemic projection model to assess how the disease might affect our Stop Loss business.
Like many of the models created back then, initial estimates on the impact to Stop Loss were higher than they are today. Some of the early challenges involved predicting how many people would get sick and what percentage of those people would end up hospitalized, with our main concern being how many patients would end up in the ICU for lengthy hospital stays that would lead to Specific Stop Loss claims.
After we got through the initial alarm, we began to think about the impact to Specific and Aggregate Stop Loss claims, as well as how comorbidities in people who test positive for COVID-19 could impact our risk exposure. We also began to see the consequences of the lockdowns and how much elective or other care was being deferred. Throughout the last few months, we have been working to improve our approach to attacking this problem in order to better develop our projections and assist our underwriting team in their decision-making process.
Addressing the Situation
We have looked at our Stop Loss book of business a number of different ways to assess the impact of COVID-19, and in the beginning, we were projecting a range of impact in the ballpark of $12 million to $18 million, which did not include the impact of deferred care. We have since revised these estimates several times to get to our current projection of $6 million to $8 million. While these are just best point estimates given known information at the time, our claims area has been tracking any COVID-19 positive covered lives by assessing whether or not COVID-19 is the primary diagnosis driving the claim cost or if other comorbidities are the main driver.
They are keeping track of more than 200 notices of COVID-19 positive covered lives, but, at the time of this publication, we only have total paid claims of around $1 million where COVID-19 was the primary diagnosis. Most of the notices will not turn into claims that exceed the Specific deductible, but we feel good about the tracking mechanism that we have in place in order to keep everyone at HM informed on a weekly basis.
Depending on Collaboration
Another thing worth mentioning is the teamwork our actuarial, underwriting and strategy units have demonstrated in completing a snapshot of the potential impact of COVID-19 on Aggregate Stop Loss coverage. By sharing knowledge, observations and needs, we have been able to determine pathways to proper risk evaluation given the challenges of this environment.
Currently, we expect that care deferred in March through June will cause a dip in Aggregate claim activity, which would not be maintained into future months or years. But, through our joint efforts, we have discussed several different ways for the underwriters to review the past and project future Aggregate claims in order to inform their decision-making process.
Approaching the Future
No one knows how long the pandemic will last. Self-funded employers thinking about their risk going forward should consider where their employees are located and what kind of exposure they have to the virus at work, at home or in their leisure time. The waves of hot spots change often, so it’s very difficult to determine what kind of exposure an employer could have. A second wave or additional shutdowns could change the outlook, so it’s important to keep a close watch on the situation and realize that we are attempting to predict the unpredictable, which is exactly what actuaries love to do.