In the first article in our series on reserving transformation opportunities in 2023 and beyond, we considered the business rationale and the factors that may be holding insurers back. Here, we move on to the characteristics of reserving processes that are likely to turn opportunity into reality.
Three words sum up the characteristics of future reserving processes that we believe can help many insurers unlock greater value from what tends, currently, to be a reporting and regulatory led activity: Integration, automation and governance.
Integration in the sense of connectiveness across systems and functions, to help reduce duplication of effort, create and share valuable insights and enable analytics to drive business performance. Automation, in the form of intelligent and targeted uses of technology to reduce the impact of recurring processes that are a drain on time, limit opportunities for analysis and introduce greater risk of errors when done manually. And governance, by way of system generated workflows and audit trails that also enhance the timeliness and granularity of management information, such as executive dashboards.
Done well, it will add up to a dynamic system approach; with the functionality to flex, as new technology emerges say, being a necessary feature.
The question then is how can insurers apply these characteristics in practice.
For all the potential for reserving to add value in the wider business, there is no avoiding the demands that reporting and regulatory timetables put on reserving teams. So, a good place to start for most insurers will be ways of improving the reporting cycle to reduce the time taken and streamline the review process.
Technology inevitably has an important role to play – from ‘ripping the band aid’ off a hodge-podge of Excel spreadsheets to introduce a more customised reserving software platform, such as ResQ, or alternatively, augmenting existing reserving methodologies with elements of machine learning, for example.
When insurers can better capture relevant data and minimise the time spent on what they must do from a reserving point of view, it frees the way to do more with reserving insights, such as perhaps identifying early signs of adverse claims development in a line or lines of business.
This is also where integration with other company systems and the single version of the truth discussed in our first article can really start to pay dividends in wider business decision making, particularly if companies are willing to experiment with new techniques that can add greater depth of insight.
Another aspect of what we see as best practice reserving is getting those insights to the people in the business who need them, when they need them. Therefore, regular tracking of certain metrics that can assist decision making across the business should be a strong part of the investment case.
Executive dashboards are a common starting point, initially monitoring and distributing metrics such as actual versus expected claims with tolerances built in. Over time, and as such business intelligence becomes more in demand and part of business as usual, it should become apparent where further opportunities lie to deliver value creating insights from reserving activity within your business.
From our privileged vantage point of working with multiple insurers, these are the directions we see forward-looking insurers taking with their reserving. While the destination in terms of capability and flexibility may be broadly similar in many cases, the journey to get there will be different for each company, albeit there are two fundamental approaches.
In our next article in the series, we look at the two approaches – shift and fix; and fix and shift.
