Articles - Insurtech for the Actuarial Profession

Actuarial modelling has gone through a series of notable phases throughout its history, defined for the most part by the technology platforms underpinning it at the time. Today, as insurers look for greater accuracy, flexibility and speed from their digital tools and ecosystems, the actuarial profession is once again being redefined, arguably fundamentally, by cloud computing. Cloud-based services currently encompass software-as-a-service (SaaS), infrastructure-as-a-service (IaaS), and platform-as-a-service (PaaS).

 By John Bowers, Actuarial Product Director, RNA Analytics

 The majority of general business software in use today is delivered via the SaaS model, allowing end users to focus on their core activities whilst systems and updates are taken care of centrally. For actuaries, this heralds great change, whether they are working in the health, life, or property and casualty segments.

 With the days of manual spreadsheets and complex legacy systems behind them, actuaries are already beginning to leverage new datapoints in ever more powerful ways – from exploiting data, artificial intelligence and machine learning for greater accuracy in reserving, ratemaking, pricing and capital modelling; to interrogating new input and statistics to help tackle changing dynamics in life and pensions; and better understand emerging risks such as ESG and even AI itself.

 Drivers of innovation
 As the Institute and Faculty of Actuaries points out in its presentation at the most recent GIRO Conference in November 2022, a number of internal, external and industry-specific drivers lie behind the current phase of actuarial modernisation. Internally, benefits include actionable insights, more efficient processes and enhanced controls; whilst externally, the scalable nature of cloud computing provides the advanced analytical team with greater access to data and analytics, where, and when they want. Today's pay-as-you-go approach to cloud services means clients can easily scale resources when needed, and scale back down when not in use, with pricing that flexes accordingly.

 Flexibility and cost savings aside, cloud is becoming critical to enabling the level of compute power that is needed to fully understand and make use of new and incredibly large datasets; and to remain competitive in the digital era. This shift paves the way for a level of innovation that the insurance industry has until now not fully leveraged – and, far from the notion that machines might replace people in their day-to-day roles, it's a shift that promises to supercharge the value of the actuarial function and secure its worth and contribution a long way into the future. In order to make the most of the shift to the cloud, actuaries will necessarily need to continually invest in and hone their technology skills, such that they may keep pace with change, and they are able to retain both their attractiveness to prospective employers, and take advantage of the many benefits that the cloud can bring. By accessing software from the cloud, actuaries can also overcome the version control issues that arise when multiple versions of the software may be in use across the organisation – each with variations in underlying algorithms or sampling methodologies. The cloud is increasingly home to a growing number of APIs, supporting smoother connectivity, and thus enriching policyholder information with external data sets, in a secure fashion.

 We are working in an era in which speed in a digital tool is no longer merely a 'nice to have', with expectations high and rising. The pressure to do more with less further builds the case for cloud deployments. In addition to faster and more advanced analytics, the cloud offers actuaries greater opportunities to benefit from collaboration through centralised processes. And, whilst an initial investment must be made, cost savings and benefits manifest quickly – something that all insurers are looking for in an era of tight margins; making informed decisions quickly makes both operational and strategic sense amid a highly competitive landscape, and against a challenging economic backdrop.

 Regulatory demands
 A cloud-first strategy is particularly well suited to larger companies looking to devise tailored approaches to resource ownership, and apportion – and monitor – visibility of those resources across the group's subsidiaries. Meanwhile, smaller companies benefit from the scalability that cloud services offer.

 Easily configurable, cloud solutions offer a level of functionality that meets the entire spectrum of actuarial workflow requirements, whilst providing oversight and control over user roles and permissions to help insurers meet the progressively complex demands of multiple regulatory and legislative requirements.

 Solutions are being developed to respond to a raft of accounting, solvency and capital adequacy rules introduced across the global insurance industry in recent years – from Solvency II to IFRS 17, and ICS to the China Risk-Oriented Solvency System. The strength of these new software propositions lies in their ability to produce highly advanced reports, with visually impactful, custom dashboards featuring charts that are both informative and user-friendly.

 The need to calculate and maintain precise and up-to-date mathematical reserves, to model different scenarios and assess the associated risks has led to a sharp uptick in investment in cloud-enabled infrastructure and advanced data analytics, as having the right data management framework and cloud strategy in place has become a top priority. According to a report published at the end of 2022 by Accenture, 60% of equity analysts say that cloud is one of the most important cost transformation levers for insurers today, whilst just 20% said it was a priority some 5 to 10 years ago.

 It is our view that the transformation that cloud is generating today is one that is not only redefining the way the actuarial function operates, but also the value it can create for the successful insurer of tomorrow.


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