There are two high-level motivators in the case for actuarial transformation.
First, there is insurance profitability. Insurance profitability has its roots in actuarial precision and efficiency. Insurers stand to lose profits (and reserves) if they do not properly understand risk and price it accordingly. Actuarial precision (and profitability) can be dramatically improved through better data management and the right technology tools. An insurer’s actuaries may be doing everything “right,” but they are hindered by their inability to tap into a well-organized warehouse of recent data that has been cleaned and structured.
Second, there is actuarial expertise. Actuaries are trained to thrive on insurance’s unique mathematical challenges, but they commonly find themselves saddled with the mundane motions of finding the right data, reconciling the data and manually updating reports, spreadsheets and databases. For those actuaries who are wondering, “What is there left to be done that I haven’t done before?”— today’s actuarial responsibilities may give them a higher level of enterprise-wide value. Most insurers aren’t tapping deeply enough into their actuaries’ capabilities and expertise. Expanding their roles can happen once an insurer has reduced their manual processes.
So, why do some insurers continue to postpone efforts that will make better use of their actuaries while giving their business increased precision and profitability? It may be that insurers DO know many of the benefits, but they don’t understand them well enough to make them a priority.
If insurance profitability and better use of actuarial expertise aren’t enough to push insurers into actuarial transformation, there is a relevant third dimension to actuarial need — actuarial speed. Faster actuarial answers are needed to meet the growing demand for quick product development, testing and rollout. But faster answers won’t work if they can’t be based on the best and most recent data available. Data integrity and quality are crucial to any modernization.
Striking actuarial gold at the end of data rainbow
The answer to accelerating actuarial processes is to begin by acknowledging that the insurer’s data house may not be in order. Starting from there, a program of process discovery, simplification and modern tool implementation will bring insurers into the proper actuarial realm to meet today’s business needs. In July 2016, Majesco released a white paper titled, Accelerating Actuarial Processes, that outlines some of the steps insurers need to take to create real actuarial innovations. Without going into the deep detail given in the paper, we can discuss what some of those steps are and how well they fit within an overall strategy for competitive preparedness.
An evaluation of the actuarial environment is deep because there are many facets of the current process to consider. Where does actuarial data come from? What tools are used, if any? What manual processes exist? Roles and functions need to be outlined. In some cases, observation or recording may be needed to grasp how long tasks take and where inefficiencies lie. It is important to recognize the value in this step. To create solutions that “fit like a glove,” insurers need to know both what they have now and where they would like to be when the process is over. Evaluation is also where the excitement begins to build for all of the opportunities in actuarial transformation.
The core of a technology-based solution to actuarial modernization will be a unified data architecture that will improve reporting, collection and manipulation of data. The data will need to come from varied sources: the policy administration system, claims, reinsurance and other systems. But added to those core insurance systems will be the ability to accept data from all entry points, including external data sources. From various APIs to the Internet of Things and connected people, cars, homes and businesses — actuaries will develop a thirst for using the most up-to-date, relevant data. To meet the need, insurers will need to define standards and formats while building a framework for analysis that is easy to use.
It is worth mentioning that the updated data architecture will bring value and relief to the entire organization…not just actuaries. The full range of benefits will start to be uncovered during evaluation, but they will continue to be found long after transformation is complete.
The speed of actuarial processes is not merely a goal unto itself, but it is a contributor to interdependent strategic goals for the business. Actuarial transformation’s success will be measured against its support for meeting those strategic needs. Throughout all measurement, planning and implementation, it is important to keep business impact at the forefront of conversations and decisions.
See also: Data and Analytics in P&C Insurance
Accelerating actuarial processes is really a win-win-win for actuaries, the business and an insurer’s data management program. As the company gains precision in risk and pricing, along with faster decisions that will support the business, actuaries themselves are able to open new doors of opportunity to provide impact and value throughout the enterprise.