Actuarial Transformation – All You Need to Know

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Actuarial transformation is about transforming the existing actuarial process into those that provide you with a competitive edge in the market. It represents a fundamental change to the operating model of an actuarial team by increasing process and cost efficiency, improving and maximizing the use of technology and data, transforming the culture of the team, and critically analyzing the team structure.

The Need for Actuarial Transformation

Increasingly, actuarial functions primarily fulfill compliance or regulatory purpose with a declining level of involvement in strategic and business roles. As per a recent survey conducted, almost every respondent indicated that over the last three to five years, regulation has been the key driver of change in their business and expects this will continue for the next three to five years.

The key themes impacting the actuaries are as follows –

  1. Even when operating at their full capacity, actuaries are not using their full potential. This is mainly due to bad data and technology management.
  2. Business process management and operational planning are not completely optimized.
  3. Challenge of overcoming limited resources for actuarial transformation work.
  4. Alignment of actuarial functions with business process management and strategy.
  5. Actuaries need to become a catalyst of change and create the desired perception for the collective actuarial profession.

Benefits of actuarial transformation

An actuarial transformation is an important step for organizations looking to realize the full value potential of their actuarial functions. It’s key to figuring out what changes are needed and how best to implement these changes consistently with the organization’s needs and culture, and that’s also consistent with the bespoke issues facing the actuarial function and its people, processes, and systems.

There are quite a few ways in which an actuarial transformation can benefit an organization. For instance, quicker financial closing, resource utilization for more value-added activities, headcount reduction, enhanced analytical capabilities, and efficient regulatory compliance. Some other benefits which are not so easily recoginzed are better service to organizational customers (claims, underwriting, finance) and increased actuarial footprint in organizational strategy development and execution.

Main forces driving actuarial transformation

Actuarial functions are ripe for modernization and although reserving methods have undergone a significant change, the risks being insured are unrecognizable and regulatory demands keep changing.

There are four forces behind actuarial transformation –

Building Talent Pool of the Future

Insurers will need to augment the work of existing actuaries by adding data and analytical talent and highly sophisticated new data sources in order to better anticipate and respond rapidly to market shifts, regulatory changes, and customer preferences. The insights gained from these sources can be a game-changer for the industry, but insurers must also have a deep understanding of sophisticated analytical methods as well as a right blend of data skills to take full advantage of their digital ecosystems.

Regulatory Changes

Every year, insurance becomes more complex and requires more data from customers to calculate risks. There are also new rules and regulations in place across different lines of insurance that take up time and resources just to understand their implications.

With each novel regulation, insurers require amplified focus on streamlining data, disclosures, models, and cost-effective solutions to develop additional analytics capabilities. As companies deal with this rising complexity, they’re looking for solutions to help them come up to speed without incurring significant overhead costs.

Data Infrastructure

Current actuarial models fail to provide insurers with the business intelligence needed to make vital decisions. Without accurate data and information, insurers cannot act as a whole. To overcome this hurdle, insurers must generate a solid foundation of trusted data that can be sent out throughout the organization. They should solidify their operations by developing a single source of truth.

Target Operating Models

Actuaries devote a lot of time on data wrangling instead of actuarial strategizing and analysis. Exploring value through process efficiencies such as automation and aligning these with broader enterprise transformation programs mean actuaries can improve value through more consulting rather than data-gathering and curating. Redesigning the actuarial target operating model (TOM) will optimize processes for a better customer experience and reap productivity benefits.

Ending Note

The actuarial industry is transforming because the role actuaries are traditionally expected to play has begun to change. Evolution will continue as actuaries face new obstacles and take on more diverse roles across the business. To succeed, actuaries need better tools, like data analytics and embedded insights into systems and processes, plus a modern operating model that will support their new technologies while minimizing risk.

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