Insurers, prioritise actuarial modernisation

PwC Global Actuarial Modernisation Survey

Actuarial modernisation must move higher on insurers' priority list for the future resilience of the traditional insurance industry. That urgent call is made by PwC Global Actuarial Modernisation Survey, a global survey of two hundred insurers.

The future resilience of the insurance industry

Actuarial modernisation is essential for the future resilience of the traditional insurance industry. More and more fintech and insurtech companies may lack accumulated knowledge in the insurance domain, but they are using artificial intelligence and machine learning techniques to respond faster to social developments to strengthen their market position.

There is also the question of how best to respond to increasing legislative and regulatory changes, cost efficient processes and deal with labour market tightness.

Traditional insurers will therefore have to follow along and integrate actuarial modernisation into their operations. In this article, we zoom in on the outcomes of European non-life insurers and make recommendations to address the challenges hindering transformation.

Key drivers actuarial modernisation

The survey shows that about 85 per cent of actuaries worldwide currently spend at least 25 to fifty per cent of their time on unneccesary data operations that can be spend on analytics and reporting in case of more efficient processes. Forty per cent even spend at least half of their working time preparing data before they can perform analyses. However, with the application of algorithms and digital tools, the global insurance industry is undergoing unprecedented changes. Insurers will invest more than $5 billion in actuarial modernisation over the next five years.

Spending less time on traditional data processing frees up valuable time that actuaries can spend on performing analysis. Modernisation improves accuracy and efficiency, leads to cost reductions and results in timely and relevant information. It also gives actuaries more time for (additional) analyses, improving analyses, ad hoc activities, implementation of laws and regulations and disclosure to stakeholders.

'Compared to our 2020 survey, we see that the drivers of actuarial modernisation have not changed,' says PwC risk modelling specialist Juliska Tel. 'Insurance companies already cited regulatory changes and efficient reporting processes as the key catalysts for change at the time, driven by IFRS 17 and US GAAP-focused improvements. Non-life insurers set a goal of reducing the turnaround time of their reporting process by more than 25 per cent.'

The pace of transformation within insurers has increased significantly. More than 60 per cent of enterprise-wide initiatives are currently being implemented or are areas of focus. These include data & analytics, reforming administration systems and process improvements. Fifteen per cent of initiatives have been implemented, but small insurers in particular are lagging behind.

'When we also realise that the survey shows that 85 per cent of non-life insurers do not have a clear roadmap defined, it is more than logical that we motivate insurers to accelerate in modernisation,' Tel says. 'The most important next steps for actuarial departments are to define modernisation plans and design the corresponding roadmap, invest in the costs required for the modernisation goals, invest in in-service training and attract new talent.'

Operational challenges hamper transformation

While insurers recognise the importance of advanced technologies, they experience challenges in staffing, budgets, available data and data quality. Sentiment also plays a role in this. Actuarial departments feel mediocre support from the insurer's IT policy, which limits initiative taking. 'To successfully modernise, better alignment is needed between enterprise-wide objectives, IT systems and the issue of improving actuarial analysis,' Tel argues.

Effective data management is the backbone of modernisation. But, more than seventy per cent of insurers lacked a so-called 'single source of truth' across data systems by 2020. More than sixty per cent did not have automated workflows. Tel: 'In our recent survey, this comes up again, but we also see that non-life insurers do recognise the need for a solid foundation, efficient processes and data infrastructure supported by governance and controls. They are also increasingly prioritising achieving transformations that support today's data needs.'

A third obstacle has to do with staffing levels. "Especially at small companies, we see that there is a real 'key person risk',' Tel continues, 'in which case the continuity of business processes depends on one or a few people. This also plays out at larger insurers, partly because of the actuary's specialist skills and the tight labour market. Actuaries may be highly skilled in financial reporting, reserving and premium methodologies in the traditional way. But as skills become more related to advanced data analysis techniques such as cloud computing, machine learning and ethical artificial intelligence, today's actuary mainly has 'only' basic knowledge. Upskilling employees and building multidisciplinary teams, in which there is more collaboration with data analytics, deserves attention. By empowering each employee, you guarantee lasting added value.'

Actuary of the future

The role of the actuary of the future will be substantially different from that of today's actuary. As advanced and emerging technologies allow for more and better analyses, the actuary will have more and more time to apply these technologies. He will grow into a connector and a driver of process improvements. And he will increasingly drive and advance modernisation initiatives.

'By reducing errors and speeding up data analysis, actuaries can spend more time on process and methodology improvements, (ad hoc) requests from stakeholders and implementing changing laws and regulations,' Tel looks ahead. 'The actuary's expertise is thus not replaced by modernisation, but rather strengthened. The actuary can contribute to ensuring the insurer's solvency by implementing organisation-wide solutions that enable the insurer to continuously respond to ongoing changes and associated needs for adequate premium setting and reporting. Therefore, at a time when regulators and consumers are not only placing high demands on insurers, but more and more technology companies are entering the insurance market, it is crucial for insurers to further invest in actuarial modernisation.'