Building Blocks for the Analytically Based - Data Driven Broker

Timothy L. Coomer, Ph.D.

SIGMA logoBlog 1: Intro to SIGMA & Scope and Data Requirements
Blog 2: Loss Development Factors
Blog 3: Reserve and Cash Flow Analyses
Blog 4: Trending, Pure Loss Rates, and Loss Projections
Blog 5: Confidence Interval and Retention Level Analyses
Blog 6: Loss Cost Analysis

As a current recipient of the Risk Management Blog, it’s likely that you already know of SIGMA and our work. However, we’d like to take some time to get you more acquainted with the specifics of who we are and what we do. Over the next several posts, we’ll be covering some of the basic studies that SIGMA is capable of, how they can be used, and why they might be right for you. The end of this series will hopefully see you gain both greater knowledge of our capabilities and a more personal perception of those you’ll be working with. Before we get into the topic of scope and data requirements, let’s focus on the company itself.

SIGMA was founded in 1995 in Nashville, TN by our current president, Al J. Rhodes. Initially, it began as a relatively small operation that involved Al and a few other employees, but SIGMA has steadily garnered a solid foothold in the actuarial industry and grown in both size and scope. We have prided ourselves on the tenets of not only providing accurate and reliable results, but also offering our time to go through these results with each individual client. Because of this, SIGMA’s clients are assured in the knowledge that they have both solid results and the ability to fully utilize them.

Though our work has touched a number of arenas ranging from actuarial reserve analyses to minor league baseball studies, we specialize in a few areas that we think would be of particular note to readers of this blog. Many of these will be covered in subsequent posts and will provide a basis of introductory knowledge, along with resource links for those who’d like to investigate further. For this post, we’ll be discussing the scope and data requirements of an actuarial analysis.

In order to maximize an analysis’ benefit, begin by discussing how it will apply to the unique business operations and plans of the company. Some important questions to help determine the initial scope include:

  • What are you trying to accomplish with an actuarial analysis?
  • What is the overall structure of the program, including coverages and policy years included?
  • Have there been any changes in reserving practices, third-party administrators or claim reporting procedures over the years?
  • What operational details of your company affect loss experience?
  • What types of loss control programs have been implemented?

Once these questions are answered, the next step is to gather the necessary data. Below are five items typically required for an actuarial analysis:

  1. First and foremost is a current loss run for all open and closed claims. In general, loss runs include the following field for each claim: claim number, claimant name, loss date, report date, status, state, accident description, incurred losses, paid losses, and outstanding reserves. Loss runs should be provided for at least the past five policy years and should include all years with any remaining open claims. This allows the calculation of ultimate losses without relying on industry average frequencies and severities.
  2. Annually evaluated loss runs for past policy periods are also needed in order to compile loss development triangles, which track year-over-year development on incurred losses, paid losses and claim counts. Past development history is used to estimate future development in losses from the current evaluation date to the ultimate paid amount when all claims are closed. If past loss runs are not available, industry loss development factors are used.
  3. Exposure information for at least the past five policy years and for the projected year is used to adjust historical losses by the volume of exposure for each policy year. Typically payroll is used for workers compensation, revenue for general liability and number of vehicles for automobile liability.
  4. Retention levels for each policy year are used to cap losses at per-occurrence retentions, aggregate retentions or quota share amounts when calculating the ultimate value of losses. The treatment of allocated loss adjustment expenses is also an important piece of information.
  5. Reliable data and discussion with your actuary on the front end will help produce reliable results from your actuarial analysis, impacting your balance sheet and influencing loss budgeting and financing decisions.

We very much appreciate you taking the time to quickly look at the various aspects of scope and data requirements and would like to offer additional information for those who’d like to delve a little further. Below are links to a few relevant RISK66 documents and videos covering this topic that we think may be useful.


SIGMA Talk: Current Client
SIGMA Talk: Prospective Client
Success with SIGMA Flyer


Guidelines on Sending Data to SIGMA
Changes within your Organization that SIGMA should Know
Assumptions Made by an Actuary
Beyond the Data: What Should Your Actuary Know

Feel free to contact us with any further questions, as we’d be more than happy to discuss them. We hope you’ll join us for our next post as we move on to a crucial component of actuarial analyses: loss development factors. Have a fantastic day!

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