Presentation - Actuaries Institute

Balancing Scheme Reforms
A Wicked Problem
© Tony Mobbs, Allianz Australia Insurance Limited
This presentation has been prepared for the Actuaries Institute 2015
Injury Schemes Seminar.
The Institute Council wishes it to be understood that opinions put forward
herein are not necessarily those of the Institute and the Council is not
responsible for those opinions.
Objective
Propose an alternative approach to scheme design that
focuses on political stability rather than outcomes.
Question
What does operating a Bodily Injury scheme have in
common with operating a restaurant?
WE OFFER 3 KINDS OF SERVICES
GOOD-CHEAP-FAST
BUT YOU CAN PICK ONLY TWO
GOOD & CHEAP WON’T BE FAST
FAST & GOOD WON’T BE CHEAP
CHEAP & FAST WON’T BE GOOD
Fast and Good
Cheap and Fast
Good and Cheap
Not Cheap
Not Good
Not Fast
All images obtained from Wikimedia.org
Image 1: Creative Commons Attribution-Share Alike 3.0 Generic license. Author Jacques Lameloise
Images 2 & 3: Creative Commons CC0 1.0 Universal Public Domain Dedication
WE OFFER 3 KINDS OF SCHEME
JUST-EXPEDITIOUS-AFFORDABLE
BUT YOU CAN PICK ONLY TWO
JUST & EXPEDITIOUS
WON’T BE
AFFORDABLE
JUST & AFFORDABLE WON’T BE EXPEDITIOUS
EXPEDITIOUS & AFFORDABLE WON’T BE JUST
A Wicked Problem!
What is a Wicked Problem?
1. No definitive formulation
6. No enumerable solution set
2. No stopping rule
7. Every problem is unique
3. Solutions are not true-or-false,
but better-or-worse
8. By-product of another problem
4. No test of an ideal solution
9. Many perspectives as to what
the problem is
5. Every solution is a ‘one-shot
operation’
10. Social planners are liable for
the consequences
Question
• In Utopia, how just would
compensation be?
• 50%
• In Utopia, how expeditious
would the process be?
• 70%
• In Australia, what percentage
of the Utopian level of justice
and expeditiousness will yield
an affordable and stable
scheme?
• 90%
• 60%
• 80%
• 100%
Applied Mathematics Approaches
Game Theory (MiniMax)
1. Maximise the good
2. Minimise the bad
Linear Programming
Scheme Objectives of the Game
Just
Compensation
Expeditious
Process
Affordable
Premiums
ACT
RT(TPI)A s.97(1)(d)
RT(TPI)A s.5A(e)
RT(TPI)A s.5A(c)
NSW
MACA s.80
MACA s.80
MACA s.5
QLD
MAIA s.41(2)(a)
MAIA s.3(e)
MAIA s.3(b)
MACA s.3(c)
MACA s.3(c)
MACA s.3(b)
SA
Parliament Sets the Rules of the Game
• Common law vs defined benefits vs hybrid
• Contested vs monopoly vs hybrid
• Third party vs first party vs hybrid
• Lump sum vs weekly benefits vs hybrid
• Funded vs unfunded
• Caps and thresholds
• Dispute resolution process
• Powers of the regulator
Parliament Sets the Rules of the Game
• Common law vs defined benefits vs hybrid
• Contested vs monopoly vs hybrid
• Third party vs first party vs hybrid
• Lump sum vs weekly benefits vs hybrid
• Funded
vs unfunded
• Caps and thresholds
• Dispute resolution process
• Powers of the regulator
Parliament Sets the Rules of the Game
• Common law vs defined benefits vs hybrid
• Contested vs monopoly
vs hybrid
• Third party vs first party
vs hybrid
• Lump sum vs weekly benefits vs hybrid
• Funded
vs unfunded
• Caps and thresholds
• Dispute resolution process
• Powers of the regulator
Schemes are Similar to Other Games
Could you make the following changes?
• Football : Make it OK to touch the ball?
• AFL : Introduce off-side rule?
• League : Introduce a maul?
• Union : Introduce a forward pass?
Regulator’s Role is to Umpire the Game
• Apply and champion the selected rules
• Propose fixes to runaway conditions
(e.g. Fraud, Superimposed inflation)
• Propose fixes to perturbations
(e.g. Superior Court decisions, Uber)
• Propose fixes to behavioral changes
(e.g. Moral, morale, externalities)
Behavioural Change Destabilises the Game
• Laws are established predicated on current behaviour
• Behavioural change often render existing laws ineffective
Claimants
Moral Hazards
Morale Hazards
Motorists
Lawyers
Insurers
Regulator
Fraud
Maintenance
Externalities
SI
Skills
Expectation/Awareness
New HOD
Focus
No Common Measure of Utility (KPIs)
Just Compensation
Expeditious Process
Affordable Premium
• Affordable for
majority
•
Equitable
• Prompt
•
Impartial
• Efficient
•
Objective
•
In accordance with
Law
• No unnecessary
delays
• Affordable to those
who can least
afford
• No hindrance to
claimants’ lives
• Less than other
Schemes
• Less than last year
Minimising Complaints becomes the Goal
• The absence of utility does have a common measure - complaints
• Minimising complaints becomes the proxy for maximising utility
Motorists: Complain if Premiums are Unaffordable
Claimants: Complain if Inadequate Process or Benefits
Total Complaints: Motorists + Claimants
Stability (KPI = Least Complaints)
Heuristics for Lawmakers
Enhance stability of schemes by:
1. Reform benefits to target a 30% variance from ideal*
2. Reform processes to target a 30% variance from ideal*
3. Delay reform until behavioural changes are understood
* Based upon current modelling parameters
Heuristics for Regulators
1. Tailor umpiring activities to favour stability rather than outcomes:
a. If motorists are the predominant source of complaints, consider
marginally reducing benefits and/or relaxing compliance and
enforcement
b. If claimants are the predominant source of complaints,
consider marginally increasing benefits and/or increasing
compliance and enforcement
Next Steps / In Progress
1. Conduct empirical studies of propensity to complain
(e.g. process, benefits and premiums)
2. Expand model to include other sources of complaints
(e.g. media, insurers, providers)
3. Develop weighting methodology for complainants
(including political perspectives)
Scheme Design Choice
Favour Outcomes
● Compliance
● Enforcement
Favour Stability
● Compromise
● Monitoring