Author: Abbey Samyint
Despite the insurance industry’s historically slow adaptation to change, recent years have witnessed numerous efforts to modernise the actuarial function. Several of these initiatives have gained significant traction. However, many still fail to deliver on their anticipated benefits. Much like IT projects, the Boston Consulting Group reported that 70% of digital transformations fall short of their objectives. This failure rate is concerning considering the high costs and effort associated with these projects.
In this article, we’ll explore some of the reasons why actuarial modernisation projects fail and offer our solutions for success.
In PWC’s recent Global Actuarial Modernisation report, 42% of survey respondents stated that they have started modernisation initiatives but have no well-defined roadmap in place. A defined roadmap is crucial for providing direction, setting expectations, ensuring efficient use of resources, and ultimately achieving the desired outcomes of a project. Without one, projects can become chaotic, inefficient, and are more likely to run over budget.
Legacy Technology Debt
Legacy systems built on outdated technology and methodologies, present integration challenges. These challenges can result in inefficiencies and possible inaccuracies. Adding layers of new tech to old architectures not only heightens operational risks and maintenance costs, but also complicates the ability to adapt to changing regulatory and business demands.
On the other hand, a total replacement strategy for these systems can be very expensive and fraught with risk. Insurers might be unwilling to wait years to see a return on investment. As a result, these systems can cause a whole host of problems and undermine the core objectives of modernisation and restrict future transformation and growth.
Lack of Automation
The actuarial function is complex, as it involves many moving parts like multiple data sources, intricate systems, and complex processes. Over time, the complexity of actuarial work has grown, driven by factors such as shifting regulations and evolving risk landscapes. Because of this, the availability of qualified professionals is finding it challenging to match the rising demands
We’ve spoken before about the broken actuarial value chain, as a consequence, actuaries are spending much of their time running BAU models and undertaking repetitive and manual tasks. PWC’s survey also stated that more than 55% of respondents indicated their teams are spending more than 50% of their time on data scrubbing, aggregation and manipulation. The limited capacity, resulting from an emphasis on BAU combined with minimal automation, is a primary factor constraining modernisation efforts.
As the demand for actuaries intensifies due to these additional pressures, the supply of qualified professionals is struggling to keep pace with the escalating requirements.
Actuaries possess a profound understanding of mathematics, statistics, and risk analysis – skills that have been indispensable to the insurance industry for years. Yet, with the arrival of technologies and methodologies like machine learning and big data analytics, there’s a case to be made: if actuaries don’t adapt, their traditional skill set could become a limitation in the face of modernisation efforts. As a result, they face growing external pressure to adopt new tools, develop their unique skill-set and expand their roles.
As the insurance industry begins to incorporate more data scientists, software engineers, and other tech roles, actuaries also need to be able to collaborate and communicate effectively across disciplines. However, a prevalent lack of synergy, especially with IT departments, often results in misaligned resources and strategy, hindering the flexibility crucial for the sector’s evolution.
Such discrepancies can lead to data management issues, causing potential inaccuracies in actuarial tasks. For software solutions to truly cater to the actuarial department, there must be mutual understanding, effective communication, and apt technical skills.
The Path to Success
Successful actuarial modernisation is crucial for streamlining processes, enhancing accuracy, and enabling the actuarial function to respond more effectively to changing business and regulatory environments. With this in mind, here are our top recommendations for successful actuarial modernisation
- Clear Vision and Roadmap: Begin with a clear understanding of what you want to achieve. Establish a future-proof target state and work backwards to develop a roadmap to reach it.
- Assess Legacy Architecture: Before initiating a modernisation project, evaluate existing technologies and systems. Understand the gaps, integration potential, and longevity of your current setup.
- Prioritise Automation: Embrace technologies that automate routine tasks. Examine process efficiencies across the entire value chain, investigate automation opportunities, and optimise resource allocation.
- Invest in Training and Development: Embrace ongoing professional development to stay prepared for evolving work environments. Likewise, insurers should cultivate a positive culture and support employees in developing their unique skills.
- Address Specialist Skill Requirements: Engage non-actuaries or other professionals to handle non-actuarial tasks and consider outsourcing or bringing in consultants to address capacity challenges. This empowers actuaries to focus more on high-value activities, and enhances the skill set of permanent staff.
- Foster a Collaborative Culture: Effective modernisation isn’t just about technology; it’s also about people. Promote an environment where different departments collaborate seamlessly, particularly between actuarial functions and IT.
Actuarial modernisation isn’t a one-size-fits-all endeavour. Each organisation has its own unique needs and challenges. The key is to approach the process methodically, prioritising both technological enhancements and employee development.
If you are embarking on an actuarial modernisation initiative and require assistance with project delivery, solution design, resourcing, or any other aspect, please get in touch.