Driving life financial transformation: Where exactly should you start?

As we identified in the first article of our life modeling and technology series, for many life insurers, the models underlying their analytics and reporting have been around for a long time and have been adapted iteratively over the years to reflect statutory requirements and changing business needs. And while this may deliver the short-term changes needed in a timely fashion, it does so without taking into consideration the wider context or the long-term goals of the business.

In this insight, we will focus on how you can review your approach to technology and developing models, so your reporting process improvements are holistic and impactful, instead of piecemeal and therefore unlikely to futureproof your team’s reporting capabilities.

Planning for better quality actuarial reporting at volume

There are four high-level steps to ready your actuarial team for delivering high-quality reporting on-time and at volume long into the future:

1. 01

   Step 1: Visualize what the future should be like and document that vision.

   What do you need to deliver to whom and how quickly? What are your priorities? How stable are your needs — do people often ask for 'what-if' analyses? Where do you stand on the principle of cost/speed, precision and ease of maintenance? Answer these questions, by taking account of the wider business requirements that your team faces on top of compulsory reporting.

2. 02

   Step 2: Review what you have and how well it fits into the vision.

   Document what you have currently to deliver on your vision, including tooling and models, access to reporting , people, technology and annual budgets. You should also include the data and inputs you need and whether you prefer flexibility, parameterisation or rigidity? Also, think about the current culture in your team. Is it characterized, for example, by reactivity and a ‘just in time’ approach, which for example, could be symptomatic of deeper issues that signal barriers to futureproofing the quality of reporting outputs.

3. 03

   Step 3: Identify gaps — what’s missing that could help you achieve your vision?

   Can you buy, build or partner to fill the gaps? What capacity do you have for change — think about your IT budget, your people budget and the opportunity cost of taking them off other work, as well as your currency budget to buy in external help. What exactly do you need to access to energize your teams and protect the business from the risks should standards or capacity for reporting become compromised?

4. 04

   Step 4: Repeat the review process.

   Be pragmatic as you review your processes: is there something you can see isn’t good enough now you know the size of the challenge, including any technological tools? Are some elements sufficient today but need replacing for the future, meaning you can push to a second phase of change? Getting a realistic and nuanced view of how you can deliver long-term improvements to your reporting processes and capacity will help you better align with the finance leaders you will need to work with to deliver change.

Tech traps to avoid when changing actuarial processes

To ensure you deliver to the business’ reporting needs consistently, you need to adopt a rational stance on making changes that consider wider requirements and long-term goals. Before presenting you with options that help you achieve this with a refreshed approach to model development, let’s discount some approaches using technology that are less likely to deliver.

The following technological traps may provide short-term fixes but often prove symptomatic of chasing a specific goal too early in the change planning process:

• You self-build and design a new model. Self-build can be an enjoyable project for teams. Self-build is also achievable using open-source tools or commercial programming languages, rather than more expensive specialist actuarial software. There are also libraries within those tools to run your model as you need, even in the cloud. However, self-building modelers often overlook the non-functional business requirements that can hamper your ability to deliver high-quality reports on time at higher volumes into the long term. Specifically, your self-built model may not come with the capabilities around support, behavior under stress, accessibility to new team members, data-security and corporate governance, as well as the technological updates you will need to deliver accurate reporting at volume, consistently.
• You choose or maintain a solution driven solely by new technology. Newer technologies can deliver short-term gains but may fail to realize genuine value in the long term. For example, early versions of technology can prove risky, particularly if competitors enter the market with refined offerings soon after their first launch.
• You allow ‘tech attachment’ to block positive change. Team members may be unduly attached to a given technology, especially when they may have built it themselves. Such tech attachments can prevent you from evaluating these tools objectively and discarding them if they’re no longer the best means to an end or preventing improvements elsewhere. Some insurance organizations may also default to improving only the processes and technological tools their leaders best understand, rather than those giving the biggest business benefit, something we identified as a common trap in recent research with insurers.
• You allow people challenges to become tech challenges. Some technological choices impacting your reporting capabilities aren’t actually about technology. We’ve seen companies throw away good models purely because someone wanted to build their own. We’ve also seen companies destroy good models by failing to effectively direct the teams working on them. Replacing the technology without addressing underlying people issues is likely to mean your reporting challenges keep reoccurring.
• You’re not using automation to streamline reporting. If you’ve been using automation and end-user computing to shore up your processes, you may have found things like Excel and macro tools have helped you achieve quick wins, such as replicating human tasks, but without truly streamlining your processes. Some of your team members may have become attached to their tooling and the processes evolved to fit the capabilities of the tools. In other words, the cart may now be leading the horse. Even worse, if your developer has left, your tools may have become a black box your team is too scared to unpack. As a result, you have to homogenize your processes into the existing templates simply to continue operating. This makes reporting riskier, slower and more expensive.

So what next?

First of all, find a senior leader as a sponsor. Unless you have a sponsor for a major financial transformation project, you will be limited in your potential to make improvements and will instead need creative solutions. And it’s at times like these that the potential technology traps outlined above will be most tempting.

Second, prioritize based on business benefit. Only in this case, the primary benefit you’re focusing on is your budget, rather than a delivery timetable. Ask yourself the question of how you can invest to have headroom in next year’s budget to take on the important tasks. Can you save money on IT with a move to pay-per-use cloud computing? Can you streamline reporting to save on your contractor budget? Can you negotiate with your stakeholders to replace some of your regular detailed management information with interim approximate reports?

Success in the short term is to start a virtuous circle, where small investments result in larger savings, which in turn fund larger investments for even greater gains. And the key to success is taking that first step.

In the next article in our series of insights, we’ll be examining processes and governance, and outlining some of the strategies for overcoming resistance to change.

Further information on driving life financial transformation

To find out how we can support your actuarial team drive financial transformation, including modeling, automation and process improvements, please contact your WTW consultant or email Insurance Consulting and Technology or visit RiskAgility Financial Modeller (FM).

Author

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Mark Brown

Global Proposition Lead, Life Financial Modeling, Insurance Consulting and Technology

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