IIAS Roundtable Discusses the Use of Business Intelligence Tools to Address Lack of Critical Analysis

However, there are solutions to this problem, according to reports from the fourth Actuarial Transformation Roundtable, hosted by the Insurance and Actuarial Advisory Services (IAAS) practice of Ernst & Young LLP.

The roundtable focused on challenges related to financial reporting, planning, forecasting and risk management. Participants of the roundtable, including senior actuaries and IT executives from insurance organizations, discussed improving current methodologies through the use of technology—specifically, business intelligence (B.I.) tools.

Participants agreed that process inefficiencies, increasing business complexity, regulatory demands, and data volume are leaving little time for crucial analysis—and that, not surprisingly, is driving a growing trend towards automation. A survey conducted at the event revealed that 75 percent of actuarial participants spend 20 percent or less of their time on validation, reporting, analysis and explanation of results.

“Understanding and explaining results is fundamental for insurers, and it will be increasingly difficult to do so as companies get larger and the reporting requirements grow more complex,” said Steve Goren, leader of the Ernst & Young IAAS Actuarial Transformation practice. “The bar has been raised, and actuaries are beginning to recognize the potential role business intelligence can play in their future success.”

Highlights of the roundtable discussion include the following:

• Participants agreed that, since the passage of Sarbanes-Oxley, management expects more transparency and accuracy, but the industry is not meeting those expectations. They also agreed that reliable results and an explanation of key judgments are no longer enough; management seeks insight and recommendations to improve the business. However, current processes and systems do not offer the necessary support to achieve these objectives. As a result, the actuarial team is frequently unable to answer crucial management questions in a timely manner.
• Many agreed this is creating a crisis in confidence that could minimize the future role of actuaries. If the actuarial team cannot deliver on the needs of senior management, a domino effect will follow: senior management will have difficulty answering to the board and external constituencies, potentially creating a credibility spiral for the organization.
• Fifty-eight percent of participants said senior management in their companies was only “somewhat confident” or less that the results produced by actuarial are accurate and reliable. And more than 90 percent thought their senior management was “somewhat satisfied” or less with the analysis and explanation of a range of elements. including valuation and reporting, planning and forecasting, and risk management.

“We are seeing a growing demand for demystifying the actuarial black box,” said Mike Hughes, Life Health Practice Leader, Ernst & Young IAAS. “Gone are the days when management accepted the information received at face value. Despite an explosion of increasingly complex data and a shrinking timetable for delivering results, there is an expectation that the actuarial department will not only be able to offer timely and accurate numbers, but be able to anticipate and explain results and provide recommended management actions where appropriate.”

• The group discussed the complexity created by new product guarantees and options. Of greater concern were looming new requirements, such as the move towards fair value and principles-based reporting. Many questioned their ability to succeed in this new environment without overhauling current actuarial systems and processes.
• While the majority of participants admit to significant reliance on spreadsheets, they are examining alternatives. In fact, when asked about the development status of their actuarial organization’s B.I. environment, 55 percent said they are “implementing” and 36 percent say they are “planning.”

“We have witnessed an evolution since our first Actuarial Transformation roundtable in July of 2005,” Hughes said. “The actuarial community is now more open to change, recognizing success will hinge upon the ability to automate processes while maintaining needed flexibility.”

• The majority of participants rank their actuarial organization as “somewhat aware” or less of both B.I. concepts (67 percent) and tools (82 percent). Actuaries are seeking user-friendly tools that simplify analysis and provide automated and efficient standard reports. At the same time, these tools must also allow them to “drill down” as needed to quickly analyze results in order to answer queries from senior management.
• Participants agreed that with the right B.I. strategies and tools, companies will not only have more analysis time, but they also will be able to do more with this time.