Actuarial modernization

We help life insurance companies develop best-in-class actuarial organizations by identifying the skills, competencies, and resources that enable companies to achieve their business strategy objectives and respond thoughtfully and agilely to changes in the environment. We support our accounting and advisory teams on the transformation of administration and finance functions and risk systems and processes as well, to ensure our clients approach modernization holistically and completely.

Our primary focus areas include:

Modernization strategy

Insurers are eager to take advantage of technology as a way to break the logjam of spreadsheets and manual processes, especially as an insurance company’s long-term profitability and capital strength depends on having an effective actuarial organization that deliveries timely and insightful information.

However, modernizing actuarial systems and processes is a significant task, especially in organizations and regulatory environments where change is constant. To be successful, re-engineering projects need to be carefully planned and understood in a larger context that includes people, processes, and technology as well as holistically as far as the involvement of not only actuarial, but also finance, risk, marketing and distribution, and IT.

Developing a modernization strategy that provides a path to real change involves visualizing a compelling future state, articulating and communicating expectations, defining a roadmap with achievable aims, and avoiding overreach during the implementation.

Potential issues

  • There is a new senior management team, acquisition, or changes in business strategy
  • Ongoing or planned finance transformation initiatives need to take into account the actuarial function
  • A lack of understanding regarding how to address redesigning the actuarial functional to address the company’s needs exists
  • Your company uses multiple actuarial systems with a heavy reliance on spreadsheets, or you have multiple actuarial systems

How we can help

  • Develop a best-in-class actuarial organization by identifying the types of skills, competencies, and resources needed to serve your organization
  • Enhance your understanding of industry trends by ensuring that the information management receives captures emerging trends and highlights anomalies
  • Deepen your company's knowledge of product pricing, including developing tools that process multiple views for better understanding of results
  • Develop more accurate reporting with increased business relevance
  • Offer insights on the advantages and disadvantages of different types of organizational structures

Our services

  • Actuarial function assessments
  • Actuarial organizational redesign
  • Actuarial function benchmarking and organizational structure analysis and recommendation
  • HR competency models, job descriptions, and performance standards development support
  • Product performance analytics and strategy development

Project management

Actuarial modernization of any insurance company will involve deep and critical coordination between both actuarial and IT units, and will require alignment with the larger business objectives of management and the company. The multiple workstreams that are anticipated in any modernization effort demand thorough oversight and robust project management to ensure effective implementation of systems as well as an approach that addresses aspects of human capital, reporting, and organizational structure.

Potential issues

  • Management is having difficulty identifying which skills are needed to execute on project and business goals
  • Roles and responsibilities for key initiatives and within business units are not clearly defined or articulated
  • Inconsistent dashboard information compromises budgetary and performance reporting
  • Critical milestones risk being missed because of a lack of encompassing oversight

How we can help

  • Assist management in understanding where investments need to be made as far as skills and training to target underperforming and/or critical areas and maximize return on investment
  • Outline roles and responsibilities based on best practice guidelines to help maximize efficiency in projects and larger business units
  • Identify key dependencies between initiatives and business units to eliminate redundancies
  • Document existing processes and procedures to identify gaps for remediation

Our services

  • Skills assessments
  • Gap assessments
  • Dashboard development
  • Budget analysis
  • Communications and stakeholder management
  • Performance management and reporting
  • Standard Operation Procedure development

Data management

Access to timely, accurate, and consistent data is essential for valuation purposes, setting best estimate assumptions, and developing management information. Companies are struggling with establishing the “single source of the truth” and managing their growing data requirements in the face of numerous external (e.g., the Fed, Bloomberg) and internal (e.g., policy administration and claims systems) information sources, driving the need to enhance not only the clarity of source information but also the accuracy of attendant modeling and reporting based on it.

Inaccurate or delayed data can lead to conflicting data sets and critical errors in reporting, may undermine the accuracy of product pricing, and can compromise overall controls and modeling results. Such potential ramifications have insurers focusing on the quality of their data and how to obtain data with business value more quickly than ever before.

Potential issues

  • Inadequate IT support for the actuarial systems or processes
  • An absent or unfocused data strategy, with data poorly managed across multiple repositories
  • Business units with many source systems of data but no means of conforming information for reporting and analysis
  • A lack of coordination between business units and IT on requirement development for data projects
  • Actuarial staff spending significant time moving data and creating data stores

How we can help

  • Develop an effective data team to automate actuarial processes, allowing your teams to perform all processes necessary to meet financial and regulatory reporting and business needs
  • Offer project documentation that can be used in development and in audits of the processes
  • Develop effective batch processes that translate data quickly and effectively to data stores within specifications to better address data volume
  • Design controlled data structures that are impactful to your organization and integrated into the overall master data practices
  • Integrate actuarial production systems with the IT functions platform for synthesis, with enhanced enterprise architecture available for data systems and tools

Our services

  • Business specifications development for IT
  • Data models, ETL, business rules, and controls design guidance
  • Data conformance support
  • Data model governance support
  • Testing, design, and implementation project management assistance

Assumption setting

Setting assumptions is one of the most critical steps in the valuation process and insurers understand that adequate assumptions will produce appropriate product pricing and valuation, increasing the competiveness and financial health of the company. However, while the consistent and accurate reflection of the company experience is essential for management to better assess and manage the company, it is sometimes a neglected function. Identifying reliable sources, assessing the credibility of assumptions, and determining the appropriate margins − and doing so in a timely manner − requires special skills, objectivity, and care.

With timely and insightful data analysis, companies can manage market competition and policyholder behavior through proactive business decisions, which will differentiate the management team from the competition, making regular review and assessment of assumption settings imperative for insurers.

Potential issues

  • Inconsistent data sources used by different functions
  • Too many manual processes between the source data and the end products
  • Outdated experience that does not reflect company emerging experience trends
  • No clear understanding of the impact of the assumptions used in the valuation or projection systems
  • Different assumptions for the same variable impacting the same population but among different lines of business
  • No benchmarking information or understanding regarding industry trends for comparison with company experience

How we can help

  • Establish consistent assumptions used by different business functions (e.g., pricing, valuation, risk management) for more reliable reporting
  • Develop consistent and standardized experience data collection processes
  • Help set assumptions that provide timely reflections of company experience
  • Develop a more credible assumption-setting process for increased reliance
  • Provide you with a better understanding of the financial impact of each assumption used to allow for more accurate business planning

Our services

  • Data source analysis
  • Data quality and collection process assessment
  • Assumption review and consistency assessment
  • Industry experience and assumption benchmarking
  • Assumption sensitivity analysis

Model development, testing, and implementation

Companies are replacing legacy valuation systems and older projection modeling platforms in an effort to reverse the trend of historic underinvestment in technology as well as to position themselves for a more dynamic and volatile marketplace. Faced with escalating business demands, a quickening pace of change in regulatory requirements, and increased competition, companies are demanding more sophisticated actuarial systems that integrate well with their IT infrastructure and allow them to address pending regulatory and reporting changes as well as respond to market opportunities, competitive threats, economic pressures, and stakeholder expectations. Choosing the right system and completing an efficient conversion are crucial.

Potential issues

  • No clear vision or guidance to achieve the desired future state
  • One-way information dumps from vendor system sales teams limit the adequate information gathering and comparison potential
  • Existing staff have limited hands-on system implementation experience
  • Ambiguous roles and responsibilities proliferate within the organization
  • Many potential process breakages impact the credibility and quality of the end products

How we can help

  • Reduce the need for manual intervention, increasing efficiency and minimizing conversion time
  • Reduce implementation costs
  • Define clear roles and responsibilities to eliminate redundancies and increase staff productivity
  • Establish a framework to delineate full ownership of the developed processes, systems, and models
  • Design a controlled and high-quality system environment to guard against efficiency loss
  • Develop processes to help ensure credible end products
  • Develop acceptance testing processes

Our services

  • Current- and future-state assessments
  • System evaluation and selection support
  • Control-focused modernization design support
  • System conversion planning
  • IT team coordination support
  • Project management support
  • Surge resource need support

Model effectiveness

Financial, risk, and regulatory capital measures are requiring increasingly complex calculations and insurers are realizing that ineffective model development or validation can have a number of adverse consequences, including mistakes in critical business decisions, underestimation of risks, and large financial misstatements.

In response, many insurers are evaluating techniques for assessing model effectiveness and incorporating these into the model design and monitoring phases, especially as they consider system upgrades and maintenance as well how to establish ongoing, effective monitoring and respond quickly to maintenance needs.

Potential issues

  • A long and manual modeling process that does not provide timely information for the management team
  • Outdated project- or time-specific “patches” in the existing modeling process
  • Periodic model corrections and errors
  • Constrained capability for insightful analysis because of current long modeling process time

How we can help

  • Enhance the credibility of the valuation and projection results for management and Board comfort
  • Offer timely and insightful information for reporting purposes and management decisions
  • Design up-to-date technology and models that can meet management and regulatory requirements

Our services

  • Model effectiveness strategy design and development
  • Independent model checking and validation
  • High-performance computation (HPC) option assessment
  • Benchmarking and efficiency analysis
  • Policy and procedure development for assumption reviews, documentation, and attribution analysis

Analytics and business intelligence

Transformation of actuarial systems will be central to companies’ finance and risk transformations as insurers have recognized that gaps in business intelligence synthesis can inhibit an actuary’s ability to provide timely, relevant, and reliable reports to management, limit the amount of data processed and the depth of analysis, and potentially increase stress on taxed IT departments as greater resources are required to generate results of declining quality and relevance to the business.

Ensuring that the actuarial infrastructure is comprehensive and consistent, and integrated with larger IT systems, to produce meaningful reporting is crucial to ultimate implementation success, and an assessment of actuarial systems and reporting procedures and services may not only mitigate the risk of limited business intelligence, but enhance reporting quality and data management.

Potential issues

  • Management is overwhelmed with the number of people developing reports, the number of reports, and/or the inconsistency of the information
  • Key questions about the business take too long to answer or go unanswered
  • Business opportunities are missed due to unavailability of data or technologies
  • Vendor selection for reporting tools is overly complex

How we can help

  • Enhance your ability to understand and make business decisions based on the information provided
  • Assist with vendor selection that satisfies business requirements and results in impactful information and relief for over-taxed IT departments
  • Offer validation of business requirements for the data project and necessary views
  • Improve the quality and consistency in the reporting information being produced to enhance confidence, especially for business intelligence that underlies strategy

Our services

  • Reports, analytics, and dashboard development assistance
  • Vendor selection support
  • Data assessments
  • Report coding and testing
  • Technology use and benefit realization assistance
  • Customer analysis and behavioral simulation

Model validation and governance

Actuarial models and processes are becoming more complex and for insurers whose data feeds are manual or who rely on spreadsheet processes, there is operational risk and the possibility of human error. Combined with an absence of strong governance of actuarial models and processes, management’s ability to judge the balance between risk and reward can be compromised. This, combined with corporate governance and regulatory requirements that require that actuarial models and processes be well controlled and independently validated, mean that insurers must focus on coordination between their risk, finance, compliance, and actuarial functions and validate and document their control procedures. Such validation requires the involvement of data, actuarial, regulatory, and control specialists to attest to the model’s integrity.

Potential issues

  • A lack of clarity in decision authority and sign-offs
  • Controls procedures are not well defined
  • Process owners struggle with data integrity and quality
  • Standards for version control and attribution testing are not applied
  • Product pricing does not follow guidelines
  • Audit findings and corrective actions are not closely tracked
  • Errors persist and lessons go unlearned

How we can help

  • Reduce operational risk
  • Offer visibility into regulatory compliance so you’re positioned to respond appropriately to governing entities
  • Improve transparency and understanding of results to help ensure risks are being adequately addressed and corrective actions are monitored
  • Establish clear lines of authority and responsibility from the level of process owners to senior leaders
  • Improve pricing and product implementations and launches
  • Improve documentation of assumptions, methodologies, and results to enhance your company’s ability to identify threats, weaknesses, and market opportunities

Our services

  • Governance reviews
  • Operational risk management benchmarking
  • Standards setting
  • Governance and oversight charter development
  • Pricing governance assistance
  • Actuarial processes and methods reviews
  • Policy and procedure development for assumption reviews, documentation, and attribution analysis

Actuarial talent, organizational design, and change management

Actuarial processes and systems are complex and intimidating subjects to understand, from the benefits they offer to the costly and disruptive risks they can present. An important task of any actuarial team, therefore, is to explain in understandable terms the role that certain actuarial processes and systems perform, their importance, and the associated risk. As companies struggle with resource needs and training for existing staff, ensuring that an actuarial team has the requisite knowledge, combined with appropriate systems and processes, to meet this task becomes critical to overall actuarial excellence, and understanding what constitutes a successful organization and how to develop one can be a challenge.

Insurers are addressing such concerns through clearly articulated standards and behavioral norms to set the tone for organizational excellence.

Potential issues

  • The operating model does not meet organizational needs
  • Actuaries are not proficient in required skills
  • Actuarial teams have difficulty communicating results
  • A lack of career paths leads to turnover
  • Lines of communication are compromised between decentralized functions
  • Cultural differences are creating communications and performance problems
  • The status quo trumps efforts to change

How we can help

  • Offer visibility into staff proficiency levels to align staff goals, learning, and development with company objectives as well as identify any additional resource needs
  • Improve interactions between functions to reduce cultural and organizational frictions
  • Restructure and change corporate culture through organizational design and leadership training
  • Develop actuarial leaders prepared to be agents of change, sharing an understanding of the company’s vision and able to drive strategy
  • Design techniques so business leaders identify actuaries as trusted advisors and partners in organizational excellence

Our services

  • Operational model build
  • Competency framework development
  • Resource location rationalization
  • Service level agreement/interactions model alignment
  • Retention assistance
  • Workshop development