Actuaries have been slow to ditch traditional technologies like Excel but there is now an easier way to bring them into the 21st century, explains Neil Cantle, principal and consulting actuary at Milliman
Do you think insurers have got their Solvency II practises embedded into the workflow or do you still see issues cropping up?
I think people are still evolving their processes. It is probably fair to say that a lot of the early processes were “good enough” rather than “optimal” for most companies. As firms are learning more about their business viewed through a Solvency II lens, they are updating and improving things.
Cyber risk seems to be an ever growing theme in the market. How are insurers coping?
It is still relatively poorly understood, but firms are gradually improving their awareness of how their organisation might be exposed to cyber threats and are taking steps to improve defences. However, an important additional activity should be to improve their detection and response capabilities. No firm is impenetrable, so it is essential that you are able to find out quickly when an event takes place and act swiftly to limit the damage.
Are risk managers keeping pace with technology?
Almost certainly not. Most risk frameworks are designed to move at a pace which is rapidly becoming out-dated. As more things become automated and there is wider use of machines in decision-making, it becomes necessary to have much more agile and “in the moment” risk management.
In particular, the greater connectivity and automation being introduced significantly increases the possibility of unexpected outcomes. This, therefore, places greater emphasis on “detection and response” styles of risk management rather than “control and avoidance”. The latter is still important – it is just no longer sufficient.
Are actuaries finally moving away from Excel?
There is a lot to like about Excel, which is why people love it so much. However, actuaries are certainly using statistics packages like R in addition, as they enable better analysis of large datasets.
However, services like Milliman Mind now permit the best of both worlds, allowing users to move their beloved spreadsheets into a production environment in the cloud which converts them into executable programmes.
The code is more efficient, bringing computational speed benefits, and it is more controlled, helping to manage the model risk inherent in the use of spreadsheet tools. So, I think Excel will be around for a while yet.
Are you seeing more requests for software to deal with IFRS 17, and what kind of challenges are insurers finding themselves facing?
It is still relatively early days for a lot of firms. They mostly focussed on Solvency II implementation and embedding so are really only now getting back to look at IFRS 17 in any great detail. The granularity of computation is likely to be an eye-opener for many firms and it feels likely that many may need to revisit their modelling approaches.
But the biggest issue seems to be around the data management and storage. This certainly seems to be motivating an interest in cloud-based software solutions that can utilise data warehouses for the effective and seamless management of data, and then manipulate and present it in new and insightful ways.
What can insurers do to improve their chances of meeting the deadline?
Firms should be looking at opportunities for simplification. Having a multitude of systems and models that need updating and maintaining just creates an ongoing burden. Using this as an opportunity to remove complexity will add long-term benefits in addition to making it easier to hit the deadline.
We hear a lot about the potential of big data, blockchain and AI. Are these technologies any closer to making a difference for insurers?
We are starting to see applications of these technologies, but it is still relatively early days. The main challenge is to get people thinking about new ways of delivering customer propositions rather than trying to fit new technology into existing processes. Once people start to reimagine how things are done, then we will see faster uptake of these kinds of new technology.