The loss reserve reporting process often leaves little time to consider more engaging ways to communicate the valuable information uncovered.
Computers revolutionized the loss reserving process some 40 years ago, moving a cumbersome paper-based process to more efficient spreadsheets. And while the process has been refined over the years, it has largely remained frozen in time since then. The same, however, cannot be said for the risks and markets in which insurers operate.
Over the years, evolving regulatory and market forces have raised the bar on the level of sophistication expected in insurers’ analyses, but the actuarial software and technical resources available to meet these expectations have not always kept pace. The result is a process that is under stress. Mired by repetition, lower-value manual tasks, and time-consuming reviews, loss reserving is overdue for a change.
Each reporting period, far too much of actuaries’ time is spent performing routine tasks like adding or deleting diagonals from loss triangles, dragging and dropping formulas, relinking a complicated web of spreadsheets, and then checking that all the templates are up to date, in sync, and consistent.
With hundreds of diagnostics feeding through dozens of data triangles, an incremental change even to just one or two projects makes updates much riskier in the next period. With barely enough time to complete the essential regulatory and financial requirements, actuaries are often forced to sidestep deep dives that could clarify underlying trends that “might not seem quite right,” and of rushing through estimates that are “good enough.”
All these manual operations result in a misuse of valuable resources on admittedly important but repetitive tasks, discouraging change and innovative analysis that can shed light onto an insurer’s risks—all because of the substantial time required to update the labyrinth of diagnostics that might be affected by just one change.
Modern tech for loss reserving
Automation tools can free actuaries from the monotonous drag-and-drop routines involved in updating a morass of spreadsheets. Most, if not all, repetitive tasks that reserving actuaries perform each period can and should be replaced by automated processes. Automation should allow actuaries to effectively list repetitive tasks into a script, select the projects on which the script needs to run, click a button, and then move on to other productive analysis while the script runs.
If process automation is combined with the use of templates throughout the reserve analysis, automatically passing changes made in the general templates through to other projects and spreadsheets, the efficiency benefits are multiplied. By reducing human intervention in tasks that flow through tens of thousands of calculations, with potentially serious downstream effects, automated processes reduce the possibility of human error and greatly scale up efficiencies in updating reserving templates.
On the front end of the reserving workflow, automation capabilities are well suited to handling the time-consuming job of generating loss triangles that are adjusted, reconciled, and readily available for analysis.
Loading data for a new period and making an initial selection of basic reserving assumptions, such as a prioris, initial selections, and other prerequisites, should also be automated. This can give actuaries a head start on their analyses, providing a first pass at their results and an initial actual-to-expected analysis without any manual updating.
On the backend, automation should make it simple to retrieve data from each reserving segment and provide the ability to feed downstream reporting systems, technical reports, or interactive dashboards. This upgrade eliminates the need to ensure all spreadsheets are “live” and that all links are updated. Outputs are automatically updated on-demand with the most recent data across all segments.
It’s no mystery: the more person-hours we can save from rudimentary tasks, the more hours actuaries can devote to better understanding their insurers’ risks and providing useful intelligence. Automation of the reserving process can undoubtedly drive substantial gains in accuracy, efficiency, and reliability and, perhaps more importantly, elevate the visibility of the reserving actuaries as productive business advisors.
This article was originally published on April 19, 2022.