Industry Change Demands New Actuarial-IT Partnership

Michael Hughes, Principal and Tim Pauza, Senior Manager, Insurance and Actuarial Advisory Services practice, Ernst & Young
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Michael Hughes, Principal and Tim Pauza, Senior Manager, Insurance and Actuarial Advisory Services practice, Ernst & Young

Is it true? Will MetLife separate from its retail business in the U.S.? No doubt the insurance industry is under­going tremendous change, and the pace of restructuring and change is accelerating. As companies innovate–and accounting and regulatory frameworks are modernized–actu­arial functions are reinventing themselves to meet the business needs of tomorrow. With the increasing need for scalable solu­tions and greater reliance on models and advanced analytics, actuarial leaders need true business partners in their informa­tion technology organizations now more than ever.

"The marriage between actuarial and IT departments at insurers can be rocky"

But the marriage between actuarial and IT departments at insurers can be rocky. Both organizations are complex and the language and cultural barriers can be formidable and dif­ficult to navigate. However, the time has come to move past these barriers so the company can achieve its full potential. The following are ten ways insurance chief technology of­ficers can help build a strong business partnership with their actuarial counterparts.

1. Shared Vision for Technology-Enabled Actuarial Excellence

Actuarial and IT can co-develop the vision for a leading-edge, industrial-strength actuarial technol­ogy environment and de­fine the guiding principles to get them there. Col­lectively, IT and actuarial can promote the view of a future-state ecosystem of interconnected data, software and services ena­bled through environment management, grid management , gover nance, a responsive IT support model and a culture that embraces promising new technologies.

2. Platform Upgrades and Rationalization

An unprecedented level of migration from legacy actuarial modeling and valuation systems is underway. Companies are moving to next-generation platforms and “all-in-one” tools, such as GGY AXIS, for their primary actuarial modeling and valuation needs. Given the implications of these choices, dis­ciplined platform and tool selection is critical. It is important to de-politicize the process and provide effective due diligence on how potential tools fit into the current technology architec­ture and align with the organization’s technology vision and enterprise standards. Insurers should also consider the total cost of ownership of maintaining legacy systems and an out­dated actuarial technology environment.

3. Reinventing Data Management

Actuaries need a new data management paradigm in response to insurers’ increasing reliance on actuarial models, the emer­gence of principles-based reserves and the growing importance of customer analytics. For accurate and timely production of key financial and risk measures, actuaries need a single source of the truth across many legacy source systems (inputs) and the ability to aggregate results across multiple actuarial mod­els and valuation systems (outputs).The core requirements are for high-quality, clean data and an effec­tive data integration strategy that does not leave orphaned data at the actuarial front step, but instead shepherds that data through the business process and facilitates efficient and controlled usage. The adoption of data management lead­ing practices in line with enterprise data strategies is essential.

4. End-to-End Automation and Control

Sarbanes-Oxley Section 404 has been with us for more than a decade, yet far too many companies still face recurring errors caused by highly manual and poorly con­trolled processes. IT can help to automate end-to-end actuarial processes in a con­trolled environment, utilizing fit-for-pur­pose job schedulers and Business Process Management (BPM) tools. Such automa­tion allows actuaries to focus their atten­tion on interpreting and acting on results.

5. Need For Speed

Today, actuaries must calculate and project results under more economic-based ac­counting and risk frameworks and manage­ment strategies. Thus, there is a clear need for processing capacity at supercomputing levels. Demand is growing for dynamic, high-performance computing capacity to meet the needs of multiple business ap­plications and actuarial platforms. Such capacity must also be elastic to efficiently meet peak demands experienced during periodic reporting cycles. There is also an opportunity to collaborate in the fine tun­ing of actuarial models and the computing environment to improve performance.

6. The Holy Grail–Control  and Flexibility

Many attempts to support actuarial needs through the introduction of controlled en­vironments run aground due to the failure to recognize and support actuaries’ need for flexibility. While hands-off and con­trolled production environments make in­tuitive sense, they may fail to address the demands for Adhoc analysis on very short notice to address the decision-support needs of senior management. Effective use of a sandbox environment, alongside the traditional development, test and produc­tion environments, can help address actu­aries’ critical need for flexibility.

7. Business Intelligence

The appetite for actuarial information has never been greater and actuaries require good tools to manage and provide trans­parency into their modeling results, in­cluding:

• Multi-purpose corporate models for plan­ning and forecasting, stress testing, capital management and Asset-Liability Manage­ment (ALM)
• Attribution and roll-forwards of complex valuations
• Monitoring and interpreting stochastic valuations
• Granular and summarized reporting
• More “what if” analysis

The real need is to demystify the actu­arial black box for internal customers and enable actuaries to focus on analysis and decision support. Fortunately, the tools to do so generally already exist within the en­terprise IT toolbox.

8. Help Wanted- The IT Support Model for Actuarial

It is not unusual to find actuaries in insur­ance companies performing certain tasks that are either more suited to IT or could be improved with the help of IT. For in­stance, actuaries often spend considerable time in validating, cleansing and manipu­lating data, maintaining large and com­plex models and valuation systems (some­times without a good system development life cycle methodology), supporting mod­eling and valuation processes and related grid environments, and managing model outputs. Closer collaboration between ac­tuarial and IT to better align roles and lev­erage skill sets can be a game changer. But there needs to be (at least some) dedicated IT support for actuarial needs.

9. Robotics

What doesn’t eat, sleep, need study time, use actuarial jargon or look at its shoes when it talks to you?

Answer: a data robot.

Much of the non-value-added work being done by actuaries today is address­ing data quality and data integration is­sues. The emerging field of data robotics may yield significant quality and produc­tivity gains when applied within the actu­arial domain. Robotics is an example of an innovative technology where actuarial and IT can work together.

10. Mind the Gap

First and foremost, there is a need to im­prove the dialogue and change the mental­ity on both sides of the IT-actuarial divide. The “us vs. them” thinking that commonly exists is counter-productive. Both groups have contributed to historical dysfunction. For companies to succeed going forward, actuarial and IT teams need to work as one and collaborate toward common goals. Success requires change by both parties, but the benefits that result from such syn­ergy will be worth the effort.

The current state of the actuarial-IT partnership varies considerably by car­rier—as will the appropriate path for­ward for each. But the need for stronger collaboration as a means to drive better overall performance is clear and consist­ent across the industry. Enhanced financial performance and risk management for the company and greater productivity and re­sponsiveness from actuarial teams are im­possible without it.

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