Balancing Scheme Reforms

Transcription

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2 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.

3 Objective Propose an alternative approach to scheme design that focuses on political stability rather than outcomes.

4 Question What does operating a Bodily Injury scheme have in common with operating a restaurant?

5 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

6 Fast and Good Not Cheap Cheap and Fast Not Good Good and Cheap 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

7 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!

8 What is a Wicked Problem? 1. No definitive formulation 2. No stopping rule 3. Solutions are not true-or-false, but better-or-worse 4. No test of an ideal solution 5. Every solution is a one-shot operation 6. No enumerable solution set 7. Every problem is unique 8. By-product of another problem 9. Many perspectives as to what the problem is 10.Social planners are liable for the consequences

9 Question In Utopia, how just would compensation be? In Utopia, how expeditious would the process be? In Australia, what percentage of the Utopian level of justice and expeditiousness will yield an affordable and stable scheme? 50% 60% 70% 80% 90% 100%

10 Applied Mathematics Approaches Game Theory (MiniMax) Linear Programming 1. Maximise the good 2. Minimise the bad

11 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) SA MACA s.3(c) MACA s.3(c) MACA s.3(b)

12 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

13 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

14 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

15 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?

16 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)

17 Behavioural Change Destabilises the Game Laws are established predicated on current behaviour Behavioural change often render existing laws ineffective Claimants Motorists Lawyers Insurers Regulator Moral Hazards Fraud Morale Hazards Maintenance Externalities SI Skills Expectation/Awareness New HOD Focus

18 No Common Measure of Utility (KPIs) Just Compensation Expeditious Process Affordable Premium Equitable Impartial Objective In accordance with Law Prompt Efficient No unnecessary delays No hindrance to claimants lives Affordable for majority Affordable to those who can least afford Less than other Schemes Less than last year

19 Minimising Complaints becomes the Goal The absence of utility does have a common measure - complaints Minimising complaints becomes the proxy for maximising utility

20 Motorists: Complain if Premiums are Unaffordable

21 Claimants: Complain if Inadequate Process or Benefits

22 Total Complaints: Motorists + Claimants

23 Stability (KPI = Least Complaints)

24 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

25 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

26 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)

27 Scheme Design Choice Favour Outcomes Compliance Enforcement Favour Stability Compromise Monitoring