Trends in Actuarial Outsourcing | Deloitte US has been saved
By Tony Johnson, Maria Itteilag, and Ashlyn Johnson
As insurance industry leaders seek to transform the cost structures, capacity, and capabilities of their companies in response to business, regulatory, and technological challenges, the actuarial function is a natural focus for their attention. The actuarial function is a driver of growth and profitability of insurers, so maximizing its value generation is a tantalizing prospect. At the same time, the function is an expensive one, so a successful transformation can generate significant savings on the cost side by focusing the actuaries’ attention on value-creating activities as opposed to those better suited for other professionals and functions to own.
The promise of getting more for less from the actuarial function is tempered by challenges and risks inherent to transformation initiatives. According to Gartner, 70% of transformation initiatives in finance fail to deliver their expected benefits and our observations suggest that actuarial transformations are no exception.1
However, we also find savvy insurers who are bucking the odds of transformation failure. They are using outsourcing arrangements in the execution of actuarial transformations to bolster implementation success, and as an integral element in the design of a revamped actuarial function that can deliver greater value to insurers at a lower cost. Your company can potentially do the same.
The imperatives of actuarial transformation
Like any business transformation, successful actuarial transformation hinges on the ability to navigate two imperatives: the first imperative is design—the vision of what the function will become, and the second imperative is execution—the journey that must be undertaken to make the vision a reality. Transformation failures are usually rooted in the inability to meet one or both imperatives.
The involvement of actuaries in the design of the transformed function is necessary. After all, who knows the processes better than the people who use them every day? But necessary is not always sufficient. Actuaries are experts in their work, but you should not expect them to be familiar with the transformational potential of new technologies or new ways of structuring workflow and executing tasks. Without a fully informed view of the art of the possible, the new design of the function will not likely reach its full potential.
Moreover, executing functional transformations requires mustering the resources and skillsets needed to implement the transformation while conducting business as usual. In the actuarial function, this often entails using highly specialized and highly paid actuaries to design and implement the transformation. In some cases, the actuaries do not possess the skills needed for this work. In many more cases, they simply do not have the time. As insurance companies begin to transform, their actuaries become overloaded as they try to meet the ongoing dictates and priorities of daily business, as well as the dictates and priorities of the transformation efforts. Many transformations fail when people become overwhelmed while simultaneously performing the work of today and building the capabilities of tomorrow.
Actuarial outsourcing in actuarial transformation design and execution
Various tasks and processes exist within actuarial functions that do not require the direct or exclusive participation of actuaries. Using actuarial outsourcing to execute and support these tasks and processes can enable insurers to potentially reduce costs, free and expand capacity, and gain access to capabilities in the most efficient and effective manner. Here are four applications in which your company can use them to deliver added value and lower costs:
- Identifying use cases for automating or eliminating manual activities. The automation and elimination of manual and other unnecessary tasks can free up critical actuarial resources for high-value work. We often find actuaries doing the data manipulation and aggregation needed to feed their analytics, even though that work should be owned by individuals who are experts in data transformations, outsourced to a third party, or automated using the capabilities of an outsourcing partner. Analytics themselves can be outsourced—eliminating the need to build models in-house and freeing up actuaries for activities that directly bolster growth and the bottom line.
- Accelerating the deployment of innovative solutions. The faster your company can implement innovative actuarial solutions and disseminate their output within the organization, the faster it can capture the competitive advantages and returns they promise. Management reporting and analytical dashboards are good examples. They can aggregate and communicate the insights derived from analytics, regulatory requirements, and other critical information to actuaries—saving the time needed to search out answers and accelerating the delivery of results.
- Supporting legacy applications during transformations. As the actuarial function transitions to new systems, outsourcing of the actuarial function can take on the role of running and winding down legacy systems. Closed blocks—discontinued products, which still have active policyholders—are a good example. Outsourcing the reserving process for closed blocks drives cost efficiencies and allows insurers to focus their valuable actuarial resources on products that they are looking to for growth.
- Leveraging proprietary accelerators, templates, solutions, and processes. The business of actuarial outsourcing providers is the development of leading-edge actuarial services. Your company can take advantage of this focus to update and streamline its actuarial function without diverting attention from using current skill sets and techniques to manage its core businesses. The use of advanced analytics driven by machine learning and predictive modeling techniques is a good example. By working with an outsourcing partner, your company can leverage nascent or emerging skill sets needed to enhance analysis needed for experienced studies and in-force management.
Operate to transform
With actuarial transformation rising on the priority list of insurers, your company should consider how it can use flexible staffing and other managed services to expand resource capacity, better match work, and skillsets, and optimize cost structures. The right actuarial outsourcing provider should assist you in the design and implementation of transformations, as well as serve as an integral component in the operation of a transformed actuarial function.
Outsourcing of the actuarial function offers innovative solutions, talent on demand, and the economical solutions and ongoing savings needed for cost reduction. This can help support your company in the quest to focus ever more intently on its business priorities, pursue the end-to-end process automation and optimization, and garner the highest return possible from its actuarial talent.
References:
1“Finance Transformation: A Guide to Success.” Gartner, 2020, www.gartner.com/en/finance/trends/successful-finance-transformations.
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