Managed services: a game changer for the Actuarial function

The insurance industry today is facing numerous challenges owing to its dynamic regulatory environment, market volatility, shift in customer demographics and technological innovations. Further, the COVID-19 pandemic increased uncertainty, with flexible work arrangements and cost pressures on insurance companies forcing them to re-think their strategy, product design and operating model.

While the pandemic brought in crisis, it also challenged some of our notions and created opportunities for the industry. One such area has been the operating model for actuarial services. It taught us that a centralized staffing model is not crucial to carrying out a successful process. Originally thought as a very complex and nuanced workflow, it is becoming clearer now that several actuarial tasks can be automated or outsourced and still be managed effectively. As the role of an actuary evolves, many of the industry leaders have moved towards having a holistic view of the actuarial function focusing on what it does, how it delivers, where the work is done and how it is governed. 

There is an opportunity for transformative change in how actuaries add value to their companies by adopting a managed services model.

A managed services operating model delivers core services through a third party. This allows companies to realign focus on immediate strategic priorities, improve operations and increase capacity. By designing a robust outsourcing strategy, with appropriate governance and oversight, and the right balance of onshore and offshore activities, actuarial teams can build sustainable operating models and continue to provide seamless execution.

Designing a successful operating model will involve assessing the following three areas:  

·      Evaluating location strategies

Traditionally, actuarial teams of insurance companies were centralized in a single location. Increasing demand for resources, shortage of talent and the cost of talent across countries have forced companies to evaluate their location strategies and expand their footprint, including the use of offshore or nearshore locations, such as India or Poland, which provide access to world class talent pool at scale and at lower cost.

·      Aligning the right talent

Actuarial work is often perceived as complex and specialised. However, some aspects of the work are routine and do not truly require an actuary to carry out the task (e.g., data cleansing or data validation) and can be easily done by a different skillset. In some cases, we see actuarial teams spending as much as 40% of time in data wrangling and report production activity. Decoupling the process helps understand the nuances to better align the right level of skills to the task.

·      Embracing new technologies

Adopting end to end automation or emerging technologies is key to building a sustainable actuarial function fit for the future. The web of excel spreadsheets has to become a thing of the past. Automation not only will bring efficiencies to legacy actuarial processes, it also reduces operational risk and creates a better control framework across workflows. Automation can both enable and be delivered through outsourcing – giving insurers access to alternative skillsets and expertise.

Insurers can choose from various operating models to start their outsourcing journey. By pulling the transformational levers of location strategy, skill-set realignment and process re-engineering, insurers can generate cost savings and create long term value for all stakeholders.

Outsourcing operating models:

In addition to efficiency and savings, there are other benefits in moving to an onshore-offshore delivery model, including:

·      Continuous delivery model taking advantage of time zone differences

·      Onshore teams’ ability to focus on more value adding tasks and strategic initiatives

·      Reduction of upfront investment in new technology

·      Increased speed to market by moving to a variable vs fixed resourcing cost model, with the number of resources ramping up or down based on demand

Actuarial professionals have a critical role in delivering sustainable growth for their business: a strategic shift in the operating model will enable this. Actuarial leaders have the opportunity to enhance their teams with complementary skill sets, invest in upskilling their current employees and shaping their careers.

Future posts in this series will outline the steps actuarial leaders and other executives can take to enact this strategic shift, from setting the vision, to redesigning the operating model and to executing the transformation plan. In the meantime, we would love to hear your thoughts about the prospects for actuarial transformation and your company’s plans.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY or its member firms.