“Negotiation Styles for Actuaries”, by Claude Penland for the Actuarial Review

“Negotiation Styles for Actuaries”, by Claude Penland
for the CAS Actuarial Review

One attribute that any professional can benefit from improving is being a more skilled negotiator. To be a good negotiator is to have methods and techniques at your fingertips when compromise is desired by either or both parties.

Negotiation is part of life. Property and casualty actuaries negotiate daily with their co-workers, bosses, regulators, brokers, clients, consultants, underwriters, spouses, and children. They negotiate over reserve analyses, pay raises, pricing, capital requirements, model constraints, model inputs, model outputs, household chores and bed times.

It’s been said that the best negotiation is considered one where both sides win. Each side is happy and the results pay ongoing benefits to the parties going forward. You’re not looking for too much or too little; patience and time is generally needed to get to that point.

But this is not a perfect world. One or both sides are not going to be completely happy and satisfied. This is where a good understanding of negotiation styles can help you get what you want—be it all, some or none of the marbles. Following are some of the negotiation styles that come into play.

When time is limited and both parties have strong trust in one another, compromise can work well. Compromise “splits the difference” between the two parties. Essentially, both sides are only partially satisfied, but both sides agree to this. Be cautious and take your time, however. If the negotiation goes too fast, you may compromise yourself out of key concessions and deny yourself what you really want.

By combining both sides’ concerns and goals into one matrix, a solution can be achieved where both parties have maximum satisfaction. Collaboration involves carefully examining both sides’ interests, which can complicate the negotiations. For example, in one firm the finance department wants smooth quarterly results with reserve adequacy adjustments blended in, while the actuarial department wants adequate reserves, period. The two departments have definite wants and will have to take pains to look at their processes to discover how they both can benefit from the collaboration.

One negotiation style is not to negotiate at all. Avoidance negotiation is neither assertive nor cooperative. With avoidance, nothing may be achieved, but something does happen. Avoidance can buy you time to develop your position. It can defuse a situation that may be too heated for negotiation at the moment and allow things to cool down. Avoidance can also be useful if the balance of power is heavily weighted on one side. Avoidance may be considered tactful or uncompromising, which may manifest itself in good or bad ways in future negotiations.

This approach focuses on winning, not finding the best solution for all concerned. An actuary may be driven to win and compete for the short-term goal at the expense of long-term relationships. This style is useful if one or both parties do not care about each other. To be concerned about what the other side thinks is a sign of weakness. Employ this style with care.

An accommodating style will yield all there is to yield to the other side—quite the opposite of a competitive style. Naturally empathetic actuaries can be pulled in this direction to maximize the other side’s satisfaction. I’ve seen accommodation work either fabulously or terribly, depending on how much the other side values a long-term relationship. If there is no value to the relationship, then the other party will let you maximize their satisfaction, with little or no concessions in turn. However, the yielding party may gain a better relationship with the winning party that may help them in the future.

Understand Both Sides of the Negotiation
Regardless of what style you use, studying and understanding the other side’s emotions can make a big difference in the negotiation’s outcome.

If the other side is proud and has professional reputation tied into the negotiation, (for example, actuarial, accounting, financial or legal qualifications) collaboration, compromise or accommodation will tend to work best as negotiation styles.

If the other side is angry, it may be best to use avoidance. You’ll want to keep your head straight and not concede points needlessly simply because someone is angry. When people are angry, they’re not terribly interested in collaboration, accommodation or compromise. If an avoidance strategy doesn’t do the trick, a competitive one often works.

Let’s say the other side comes to the table disappointed. For example, they now have to negotiate with you after having lost a promotion to you). Employing a collaborative negotiation strategy can raise up both parties to a satisfactory position and can contribute to a long-term professional relationship.

What if the other side attends unwillingly? Your reluctant negotiator could be an underling who doesn’t agree with the boss, someone forced into the negotiation or a person too proud to negotiate. Again, collaboration, compromise or accommodation will likely work best.

When the other side practices avoidance, in true rock/paper/scissors fashion, the best solution may be to practice avoidance right back. Sometimes your only recourse may be straight-forward competition. For example, if you get your voice heard by the CEO or business line head before the other side, you may be able to get the top leaders to act on your info. If you are heard first, the other side avoiding the negotiation may just not get a say.

Two More Things to Remember
In my work with actuaries as an actuarial recruiter and a casualty actuary over the last 20+ years, I’ve noticed that some actuaries have to resist the urge to go back and negotiate one more time, especially when they’ve received all or almost all the concessions they wanted in the first place. A good negotiation can unravel with just one unnecessary iteration.

Also, I cannot stress enough that actuaries and other professionals should practice separating their emotions from their negotiations. Emotions can be an enormously useful tool for the other side in any negotiation.

Claude Penland, ACAS, is an actuary and partner at Ezra Penland Actuarial Recruitment in Pittsburgh.

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