Digitize your insurance company and start with your heart Digitize your insurance company and start with your heart Digitize your insurance company and start with your heart

What is in the centre of every insurance company? Or should we say its heart, engine, or conscience? The answer is, of course, the actuarial reporting process. It is connected to all the other parts of the company, and imposes requirements on all of them. Although this process makes insurers digital companies at heart, the insurance industry is one of the segments with the lowest degree of innovative digitization. At the same time, the ever-evolving regulatory landscape and the focus on expense levels intensify the need for insurers to innovate.

So, if you are about to start your digital transformation, why not start in the centre of your company, and create your own digital reporting actuary? Digitizing any part of your firm without knowing the current and future actuarial requirements bears the risk of errors and higher levels of investment than necessary. Whereas a digital actuarial heart will increase your efficiency, reduce your costs, and make you future proof.

The role of actuaries and the requirements of their systems have changed significantly over time. In the past, processes with manual steps and spreadsheet calculations were often sufficient to comply with their internal and external reporting requirements.

The implementation of Solvency II coerced insurers to revise their systems and processes to be able to report on the solvency capital requirement and own funds. For many insurance companies it took several years to understand the full impact of the regulation on their businesses. It was challenging to determine how it would impact their figures and future profitability, and what the consequences of management actions to steer the company would be. This has ultimately led to a consolidation of the insurance market, in which actuarial systems and processes were regularly combined, instead of replaced.

Currently, the insurance industry faces the introduction of IFRS 17. This new accounting standard introduces additional challenges for the actuarial systems and processes, and how they should interact with other systems within the company (e.g. finance systems). Once again, significant changes are required in order to be in full control of all necessary input data, to be able to perform the new calculations, and to generate additional reports. 

To cope with these changes, many insurers upgraded their original systems and processes, that were initially not designed with today’s requirements in mind. This is an understandable decision, considering the time and effort necessary for a complete redesign. However, in practice we observe that because of this, for many insurers the actuarial reporting process has become hard to perform and control. Often several disjoint systems and a lot of manual efforts are involved in handling the data, performing all the calculations, and producing the required internal and external reports. Actuaries usually have to spend more time on connecting all the bits and pieces of the process, rather than focusing on understanding results and explaining movements therein. This usually makes the process prone to human error and less efficient than desired.

With the current processes, CFOs face uncertainties and sometimes unexpected movements in the biggest liability on their balance sheet. Under tremendous time pressure they have to assure they disclose the right reports with regard to their regulatory environment, the applicable accounting standards, and for their own management requirements. The dynamic environment that they work in constantly requires them to alter and shorten their processes, whilst expecting more from their output, and expecting it more often. Therefore, the current processes are at risk of becoming too slow and uncontrollable to timely produce all the necessary reports.

Today’s requirements call for a harmonized and controlled actuarial reporting process, that leverages on integration, optimization, and automation. A digital redesign of your process could:

-       connect your data sources more effectively and handle larger volumes of data more efficiently, with a data model designed for flexibility and scalability;

-       optimize your calculations and calculation times, with smart actuarial and programming techniques;

-       produce more insightful reports, by telling a story, rather than just showing numbers;

-       improve the control and auditability of your process, with extensive checks and balances;

-       reduce the overall process time, by automation of the workflow.

This could help you cope with current and future changes in (regulatory) requirements, and give you more time to analyse results, resulting in more insight in the risks your company will take and how to manage them. On top of that, it can help you to save on operational expenses and potentially to release prudency.

But if it were quite as simple, why haven’t all insurance companies transformed yet? The reason is that often the time pressure on the implementation of new standards and substantial investments in existing systems make it more natural to upgrade them, rather than to replace them for a more optimal environment. Apart from that, these existing systems need to function continuously to perform the reporting process, and who dares to replace its heart while it has to function around the clock?

In our view and experience, however, innovative digital actuarial platforms can be developed in parallel to the current systems. Portfolios and features can be added gradually over time, while the existing systems generate all the required reports. The old systems can be decommissioned as soon as the respective portfolios and features have been implemented and tested. Although the change may sound big, and thus probably expensive at first, these innovative systems can be more affordable than the current systems in the long run, saving on expensive license fees and profiting from the efficiency gain that they will bring you.

If you want to know more about these innovative solutions, please contact Egbert Kromme or Peter Bosschaart, or have a look at KPMG Integrated Insurance Platform: a user-friendly platform that digitizes the actuarial reporting process.

If you want more information about these new solutions, please have a look at KPMG’s Integrated Insurance Platform, an easy to use open source platform for data and assumption management and automated processing of all actuarial calculations with auditable controls and easy to validate.

For more information about how to embrace the digital transformation as an Insurer, please have a look at the whitepaper 'Connected Insurer'.