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Insurance carriers must ensure ‘mutual understanding’ between IT and actuarial staff: report


February 11, 2014   by Canadian Underwriter


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Insurance companies who are modernizing their actuarial systems need to draw up service level agreements between their information technology and actuarial departments, suggests a new report from PwC.

PwC released its Top Insurance Industry Issues in 2014 report, which includes a section on actuarial modernization. In that section, PwC lists ten success factors, one of which is “clearly defining” expectations and service level agreements between IT and actuarial. 

“There is often miscommunication between the actuarial and IT functions. Actuarial often believes IT does not understand its needs and lacks the flexibility to perform all desired analyses,” PwC states in the report. “In turn, IT often believes actuarial lacks discipline and control.”

There needs to be a “mutual understanding,” between IT and actuarial, of the objectives of a modernization program, as well as clear roles and responsibilities, according to the report.

“As financial reporting and regulatory requirements change, and as insurance company ERM and rating agency assessment tools continue to evolve, insurers will need to manage their business in accordance with a variety of additional metrics,” PwC stated. Those metrics could include own risk and solvency assessments as well as output from catastrophe models.

“These metrics likely will be different from what exists today, and management will need sufficient analysis and insight to use them strategically.”

One success factor in modernizing actuarial systems is to “secure organization-wide commitment” to the project, according to the report.

“Senior management’s commitment to an actuarial modernization program is vital considering its costs, complexity and organizational impact,” PwC advises. “Program sponsors need to spend sufficient time up front to ensure that senior management understands the strategic vision behind and potential implications of change, and buys into it them.”

Elsewhere in the report, PwC noted there is an “unprecedented investment by insurance carriers” in transforming their policy administration systems.

“The convergence of aging legacy platforms, complex market demands, and a more mature vendor landscape has ushered in a unique period in which it is possible for insurance carriers to change their policy administration systems with less risk than ever before,” according to the report.

But “only a few” policy administration transformation projects “deliver transformative capabilities to the business,” PwC noted, adding that after surveying the industry, PwC found that only 30% of policy administration projects “meet the traditional definition of success in terms of time, budget, and scope,” while only 10% “realize their full business benefits.”

PwC also offers advice to carriers on creating a “data science office,” suggesting some key competencies and skills of a data scientist.

For one, a data scientists should have expertise in statistical techniques — such as regression analysis, cluster analysis and optimization, PwC advises. Other competencies should include a background in a variety of computer programming languages, including Java, Python, C++ or C#. Data scientists should also be able to “turn statistical and computational analysis into user-friendly graphs, charts, and animation,” PwC advises.