What Does Insurance’s Digital Future Hold for Actuarial?
Information asymmetries can differentiate companies, as small information advantages often translate to large competitive advantages. But as companies innovate, what is the future role of actuarial, and how can the actuarial function adapt and advance to continue to be leaders in the organization?
Niche insurers may carve a place in new markets, but traditional and regional insurers risk being outpriced and consumed by the market if they cannot adapt. Companies too slow to adapt will not remain competitive, will sink into a bog of adverse selection, and may become a victim of aggressive M&A activity, leading to the board and the street asking tough questions about deteriorating loss ratios and lower market share.
Currently, many companies worry that they do not have sufficient innovative processes to respond to the new reality for insurers. Investments in data analytics and cognitive technologies are expected to produce great returns and enable innovation within the Insurance sector. Yet, integration of cognitive processes and artificial intelligence (AI) across the organization can be challenging due to competing priorities, time to deploy, resource requirement, resistance to change and skillset needed.
Successful insurers are transforming their actuarial roles and responsibilities. While the industry landscape is changing, the actuarial function has largely remained static in traditional Reserving and Pricing roles. To remain relevant, empower the actuarial team, and drive company goals around growth and profitability, the actuarial workforce and business operating model needs modernization.
In forward-thinking organizations, Actuarial will move from being actuarial-centric—focused on traditional Reserving and Pricing roles—to being an insight-centrics trategic partner and an advisor across the organization, driving business performance through data analytics. Actuarial as a service will be connected, integrated and embedded within Finance, Claims, Pricing/Underwriting, Analytics/Modeling and the Customer Agenda.
In Finance, Actuarial will be involved in the convergence and automation of tasks such as data reconciliation and financial reporting to accelerate the expense agenda, as well as drive insights into Financial Planning & Analysis (FP&A), assumption setting and monitoring. Standard Claims practices will be improved with real-time claim level insights from AI/ML claim level models to stay ahead of trends and inform claims decision making and strategy. The Pricing/Underwriting function will leverage actuarial expertise and modeling to evaluate exposure/mix changes, monitor profitability by sub-segment, and facilitate more refined rating for risk improvement to move faster to market. Actuaries with industry knowledge and expertise in data analytics and modeling will work along with the data science/analytics team to prioritize model build, rationalize model results considering AI ethics in modeling, and communicate results to the business so faster and more effective actions can be taken. The actuarial role in the Customer Agenda will expand to facilitate product development, customer risk prevention, and help model market and customer behavior.
The actuarial community must not only embrace advancements in technology to improve current processes, but also embrace new and expanded roles and responsibilities aligned with the business across Finance, Claims, Underwriting, Modeling and Customer-directed activities. Theevolving actuarial responsibilitiesare achieved by breaking down traditional silos. To achieve success, many traditional actuarial responsibilities will be largely automated, including Pricing activities such as rate filings and external reporting and Reserving processes like internal reporting and data preparation and reconciliation.
Cognitive insurance analytics will enhance existing responsibilities in reserve reviews, rate indications and other experience studies to drive earlier and deeper insights and more informed assumption selections. Many of the new actuarial responsibilities within the Customer Agenda that require analytical and industry expertise such as rating plan refinements, product development, company reinsurance strategy, claims strategy, new product pricing, sales strategy, and other non-traditional roles will be largely human-led, supported by cognitive automation and technology
Transformation requires an active embrace of new roles and responsibilities. The Actuarial function needs to be re-imaginedin order to evolve with the new reality for insurance. An approach that envisions a bold future with a defined framework across people, processes, data and technology will enhance operational efficiency and increase value to the organization. With active contribution and expertise from the actuarial function, companies will be able to better utilize internal data and integrate external data, incorporate innovative analytical solutions, redesign management reporting, and pursue deep automation at scale to create capacity within an organization. Transformation under disruptive pressure must be nimble and innovative, with data-driven insight first, and a willingness to break down organizational silos.
Achieving success in the new insurance reality requires a journey from the current state of traditional actuarial roles to a re-imagined data driven future. To make the journey, key actions need to be taken, including envisioning the future, streamlining much of the current repetitive processes, advancing capabilities through data analytics and cognitive technologies, and transforming holistically. Typically, companies will begin their journey by assessing their current state, articulating a vision, identifying gaps, and developing a roadmap to the future state. But to drive a successful transformation program, leadership dedication, clear vision and communication, and quick wins are essential. While challenging in the past, quick wins are more achievable than ever with current capabilities and assets (e.g., automating legacy processes with low code/no code user friendly software, enhancing data exploration and static management reporting with visualization tools). This will both improve current processes to create capacity and drive insights, as well as excite the team on the direction of the actuarial function.
The time is now. Disruption is here and actuaries with industry and technical expertise are well positioned to steer companies into the future. Do not sit idly aside. Start your transformation now to meet those roles and responsibilities.
Source: Digital Insurance