Actuarial transformation: from number crunchers to business advisors

Despite being a fundamentally digital sector, the insurance industry has seen limited innovative progress in recent years. Investments in innovation often remain focused on front-end operations and customer experience, leaving back-end processes often unattended. For insurance firms to retain their competitive edge, a digital overhaul of finance and actuarial procedures is crucial.

The actuarial function is a core component of the finance function at insurance companies. The current actuarial process, frequently hindered by inefficiencies and inaccuracies brought on by manual operations, tends to result in inconsistent business insights, fluctuating financial results, and a loss of control over the financial reporting process. The intricacy of existing models intensifies these situations, emphasizing the pressing need for transparent governance and auditable trails, efficient and uniform calculations, and seamless coordination between the Finance, Actuarial, and IT departments. Nonetheless, it is precisely those situations that also provide new opportunities for insurance companies to improve, bringing about a more reliable and efficient operation, and set themselves apart from the competition. 

The actuarial function not only allows insurers to properly assess and price policy risk, but also plays a key role in helping insurance organizations manage their own enterprise risks and opportunities, and optimize capital. In addition, leaders are looking at their actuaries to expand their support into evolving areas such as quantifying ESG risk, financial planning and analysis enhancements, Artificial Intelligence (AI) integration, and identifying new market opportunities. Insurers want their actuaries to deliver better insights, across a broader range of topics that are, more than ever before, aligned with the business.

Thus, the move towards actuarial transformation is not merely a necessity – it represents a golden opportunity to redefine actuarial roles within a rapidly transforming business landscape. Digitization of several processes, together with reducing manual touch points, allows actuaries to dedicate more of their time to analyse results, pushing them towards the realm of strategic business advisory. We assert that transforming actuarial processes leads to talent retention, a decrease in key person risk, effective discipline integration, a higher level of control and a vibrant culture of quality.

This transformation can result in substantial time and cost savings, brought about by streamlined finance functions. Such a process supports a shift towards informed decision-making, bolstered by improved controls and strategic planning for product development and capital management. Moreover, it lays the groundwork for harmonized efforts and enduring organizational growth.

We see two compelling and very different drivers of this transformative journey. On the one hand, there is an increasing focus on risk management and compliance with emerging regulations, necessitating a robust control environment. On the other hand, the relentless pursuit of cost efficiency and modernization calls for an overhaul in how actuarial functions operate. This includes embracing new technologies, nurturing talent, and reimagining the finance user experience to stay competitive.

Numerous procedures and systems were designed and implemented long ago. Updated rules and regulations have forced insurers to modify these procedures and systems, but time constraints have often not allowed for a robust and scalable redesign – leading to quick fixes instead. In some ways, these quick fixes have left the actuarial function more vulnerable, error-prone, and inefficient. Now that Solvency II and IFRS 17 are in effect, insurers must strategize how to work with data more efficiently, reduce processing time, improve control, and enhance interdepartmental collaboration and dependencies. They must establish a clear vision of their actuarial transformation, addressing human resources, processes, data, and technology. We recommend setting achievable goals and celebrating early successes to invigorate and incentivize continued innovation among employees.

To materialize the vision of actuarial transformation, defining an integrated Finance Target Operating Model (TOM) aligned with strategic objectives and technological advancements is essential. This model extends beyond new processes to an organizational culture where actuaries metamorphose into strategic business advisors alongside their counterparts from the business control domain. This transformation enables them, by freeing-up the time and means, to exploit data and insights effectively, supporting management and propelling business growth.

The journey to this transformation is intricate and multifaceted. It requires managing data, selecting the right tools, and deciding between an in-house model that aligns with company values or seeking a balanced approach to co-sourcing and outsourcing to optimize costs. It demands a clear roadmap based on a strong vision, establishing urgency, linking outcomes to strategic objectives, and creating a change coalition. It also involves crafting a credible plan, setting quantifiable targets, and communicating effectively to overcome resistance and celebrate successes.

Actuarial transformation goes beyond updating processes and technologies; it is a cultural change where actuaries evolve from mere number crunchers to strategic business advisors, working side by side with the rest of the finance function. By welcoming this change, organizations can navigate the complexities of a modern financial landscape with more precision and efficiency. This transformation is not just overcoming challenges – it is seizing opportunities to redefine the actuarial profession for future generations.

The journey to this transformation will vary for each insurance company. It doesn’t need to be a 'big bang' transition – each insurer can begin with elements that provide the most value under specific circumstances, enabling early and ongoing benefits. Do not try to aim for the perfect outcome or wait for the perfect plan, but instead identify potential points of improvement for the organization and select the quick wins to adopt a change process of continuous improvement. Our vision on when to start actuarial transformation is that the time to act is now.