By Tony Schweiss and Anderson Olson
Modernizing actuarial processes can accelerate analysis and improve risk insights, but lasting change depends on people, processes, and leaders who can unite actuarial and IT teams behind a shared vision.
Actuarial transformation is the modernization of actuarial work through advanced technology, cloud infrastructure, and automation—freeing actuaries from manual, repetitive modeling and enabling faster, more flexible risk analysis. Actuarial transformation may seem like a technological exercise: shifting day-to-day actuarial tasks from desktops and limited on-premises databases to the cloud, where tools like Python, SQL queries, Databricks, and Dataiku can wrestle diverse data sets containing hundreds of millions of rows into submission.
Among other benefits, actuarial transformation empowers an actuarial team to make more precise, efficient, and profitable risk analyses for existing products. Ideally, the team can also use the extra bandwidth to envision and quantify new product possibilities based on novel connections made possible through expansive data harvests and powerful analytics. This transformation benefits not just actuaries, but also underwriting, pricing, and product development teams that rely on timely insights to adapt to a rapidly changing market and regulatory landscape.
Yet despite actuarial transformation’s technological foundations, its success depends far less on technology than it does on old-school strategic thinking, clear communication, and effective change management by actuarial leaders and an insurer’s executive team.
Actuaries and IT pros are both focused on risk—just different sorts of risk.
Effective Leadership
Any IT project requires leadership. What makes actuarial transformation particularly challenging is the nature of the actuarial function and its overlap and—potential for conflict—with the IT team that helps makes it happen.
Actuaries and IT experts are both technically strong, but their proficiency is shaped by different functional goals and perceptions of risk. Actuaries want control over their tools, because their grasp of those tools’ strengths and weaknesses is critical to producing accurate risk models and reporting, which form the foundation of an insurance business.
The IT team, however, wants control over all of an insurer’s IT infrastructure for a host of reasons, not least to prevent security and maintenance headaches that can stem from systems that actuaries are perfectly capable of quietly developing on their own.
It takes deliberate leadership on three levels to resolve that conflict:
- Establish an executive champion. This is change management 101, but it bears repeating: You need to have the right executive sponsoring the project—and early. That person should be the one with the most at stake with actuarial transformation, and the one for whom its success will pay dividends. We’ve seen the chief financial officer or chief actuary playing this role. Whoever it is, they must be positioned to bridge business and technical priorities while maintaining enterprise alignment. The champion’s first job is to earn the buy-in from executive peers, stakeholders on the actuarial and IT teams, and any others whose support is essential for actuarial transformation to move forward smoothly.
- Sell the business case. Why is actuarial transformation strategically vital? What changes will it involve? How much time, effort, or money will it save? What revenue gains might it generate? How will it position the actuarial team and the company for future growth, acquisition, or business-line divestiture? These are all key messages the project sponsor must convey from the top of the organization down to the actuarial and IT staff who will be doing the work.
Among the most effective messages we’ve observed is to explain how recent market shifts—including more complex reinsurance strategies, climate-related exposure modeling, and growing demand for personalized pricing—are making the agility that transformation affords increasingly indispensable to competitive survival.
- Make clear what’s needed to achieve that business case. Actuarial transformation takes time, effort, and money. Which new systems will be implemented? What processes will be automated, and in what order? Who’s going to do the work, and when? Will outside resources be involved? Who’s paying for it all? When will it be done? How will we measure its success?
Answering these questions requires the champion’s involvement in rigorous preplanning, readiness assessments, and execution plans—followed by communicating the conclusions of that work to peers, stakeholders, and the teams involved.
We’re seeing carriers build transformation playbooks that span 12 to 24 months, with progressive milestones for deliverables such as migrating models to open-source tools, upskilling actuaries in Python, and integrating external data streams.
A Case Study in Actuarial Transformation
For decades, the core actuarial tool has been the spreadsheet. As a result, actuaries often spend significant time copying workbooks, managing data tabs, and plowing through other tedious, inefficient tasks.
Our client, a large national insurance provider, wanted to modernize how actuaries work and identify elements of the workflow that could be automated across the enterprise. The goal of this actuarial transformation effort was to free actuaries from tasks that can be automated, improving the team’s ability to provide strategic guidance to the enterprise. To get there, the insurer recognized that it needed both process and technology changes—hallmarks of effective actuarial transformation.
The first step was working with the project stakeholders to understand the vision and map the path forward, so we could develop a proof of concept demonstrating how a surprising amount of inefficient actuary work could, in fact, be automated.
We then worked with a team of actuarial developers to build automations, back-end applications, and user interfaces. The initial release of the application helped the firm’s actuaries efficiently evaluate liabilities and assess claims impacts. Future releases will help price products and support long-term financial planning for the business. The processes the project automated previously took a team of two actuarial modelers three days each to complete. Now they’re done in four to five hours. That level of efficiency lets the organization reallocate resources across business units more effectively as needed.
Note that, while technology transformation was central to the effort, the project’s success depended on people who valued shared communication and a common vision and purpose. The engagement required a strong working relationship between the business and IT; building bridges and collaborating around that vision was critical to the project’s success.
Show the Actuarial and IT Teams Some Love
The teams involved in that project needed particular attention, and that’s not unique to an actuarial transformation. Conveying just how vital actuarial transformation is to the business’s long-term success is just the start. Actuaries must comprehend the value of automating and codifying processes they’ve been through mental calculations and multiple data-massaging runs with their own combinations of algorithms. They must be convinced that the new solutions are powerful, time-saving, and as reliable—or more so—than their old standbys.
IT staff involved in developing the systems that enable actuarial transformation must be comfortable with the actuarial team’s processes and approaches and be able to explain the IT team’s needs to them. Not every developer has the right mix of IT skills, business knowledge, and communication abilities needed to do that. Ideally, the selected team members should be embedded within the actuarial function, where they can interact, collaborate, and build trust.
That trust will only deepen as deliverables accrue and the actuarial team sees the value of transformation take shape. That trust building goes both ways: Actuaries should respect the IT organization’s development best practices, including scope definition, documentation, version control, testing, and deployment, especially as they gain skills in Python and other tools that enable them to develop or customize their own cloud-based solutions.
Looking ahead, actuarial transformations will likely move beyond infrastructure upgrades. Expect to see machine learning integrated into reserving and pricing, democratized dashboards providing real-time risk monitoring, and cross-functional modeling platforms used across actuarial, underwriting, and finance functions.
These advances, however, will only succeed if people and processes are prioritized as much as the technologies involved.
Many insurers are working on actuarial transformation, but few are getting it right. That takes an understanding that the biggest barriers to success lie in people and incentives, not technology. A motivated, engaged champion who communicates well and smooths the structural friction between actuarial and IT teams is essential to fully realizing the benefits of true actuarial transformation.
Tony Schweiss is managing partner, and Anderson Olson is a managing consultant at The Gunter Group, a management consultancy based in Portland, Ore.