The Loss Reserving Process, Reimagined

Estimating insurance loss reserves is a foundational function for determining an insurer’s financial stability. Yet the process is too often hampered by manual tasks and outdated technology, which hinder progress at nearly every turn. Delays in accessing actuarial data, reliance on cumbersome spreadsheets, and time-consuming reviews all contribute to a status quo that delivers “good enough” estimates,  at a time when “good enough” may soon be insufficient, if not outright risky.

Ever-narrowing deadlines and increasing reporting requirements from regulators around the world have placed mounting pressure on limited actuarial resources, cutting into the time actuaries have to study and interpret data. The result is a cycle of constant catch-up and temporary fixes that have become engrained in the loss reserving process, often preventing organic process improvement from taking place.

Moreover, these patchwork fixes may increase operational risk to the business, resulting from inconsistent or inaccurate analyses. At some point very soon, this make-do approach will become untenable, and modernization of the long-outdated analysis process will be necessary to support better decision-making and strengthen risk management.

Understand loss and claim trends earlier with actuarial insights

So, as we look to that future solution, what should a reengineered loss reserving process deliver?

For starters, a more efficient and reliable actuarial reserving solution can provide quicker insights into how expected loss costs are trending. It should also help identify adverse development earlier in the analysis process. By automatically estimating current insurance reserves using previous assumptions, the system enables users to evaluate how prior picks are performing. This allows the team to bring senior management up to speed as early in the analysis process as possible.

At the analyst level, efficiency gains will come from removing barriers to data access, automating repetitive tasks, and increasing confidence in the accuracy of results.  Revitalizing static reporting, streamlining project management, strengthening governance, and using a scalable platform that meets the organization’s growing needs will also play a key role.

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Empower senior actuaries

If purpose-built reserving software adds significant efficiency to the work of reserve analysts, it’s a power tool for senior actuaries responsible for project review. Specialized collections of exhibits and reports can show reviewers exactly the information they’re looking for, providing direct access to the diagnostics and information they need to quickly understand what is going on in a specific analysis.

Well-designed templates make it easy for reviewers to find exactly what they need, consistently from one analysis to the next, so they can focus on understanding the business instead of hunting for specific calculations.

Consolidate insurance data in a central repository

In the typical reserving process, actuaries often start from a time-deficit position, relying on IT or claims reserving functions to provide fundamental elements like triangulated data. This challenge continues throughout much of the insurance reserving process, as modifications to actuarial data are required and requests (or re-requests) sit in queues alongside a host of other IT demands from across the organization.

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These persistent delays point to the need for a central repository from which actuaries can directly access data at the granular level that meets their needs. This shift gives actuaries ownership of the data, reduces delays, and enables them to focus their expertise on the areas that provide the most value.

Automate low-value tasks in the loss reserving process

Today, far too many tasks remain manual, requiring actuaries to spend time adding diagonals to templates, relinking spreadsheets, adjusting reserving methods, and then checking and re-checking the work. Instead, automation should be an essential part of a process that systematically updates data and templates across all projects, from the creation of the data set and the generation of loss triangles, through initial selections, to dynamic reporting.

Eliminating as much of the perfunctory repetition as possible from the process frees up time for actuaries to drill down into loss triangles, examine potential outliers, and conduct ad hoc analyses, better aligning the loss reserving process with the demands of senior management and regulators.

Much of the manual intervention that goes into quality control can be replaced with a technology framework that instills reliability in the reserve analysis by guaranteeing the integrity of all reserving methods, exhibits, diagnostics, and calculations. This is no longer a place for most spreadsheet-based processes.

Leverage dynamic reporting to modernize the insurance reserving process

The static nature of most claim, loss, and reserve reporting needs to evolve into a more dynamic, engaging approach. Interactive information with graphics and dashboards should tell a loss reserving story that speaks to and supports the company’s business leaders. At the same time, actuarial reporting should also involve other internal stakeholders in ways that encourage them to look beyond top-level results and investigate the factors that drive those results.

If reengineered with an eye toward stronger governance, role-based permission protocols allow access to only the parts of the analysis relevant to each user. Systematic logging and journaling of activities help automatically address today’s sophisticated regulatory requirements. Ideally, such a solution should operate in the background, seamlessly replacing the cumbersome manual logs and limited controls that still dominate governance for many actuarial reserving teams today.

The constraints of precious IT resources that are forced to balance multiple priorities can and should be replaced by an actuarial platform with scalability and elasticity that more cost-effectively, and in many ways automatically, responds to the fluctuating demands of an insurance reserving process.

Implementing these enhancements appears to be a tall order, though perhaps not as tall as it looks. It will, however, require that actuaries seriously reconsider everything in their current workflow, starting with the right cloud platform on which to build a new vision of the loss reserving process. We will consider the individual components of the analysis process in more detail as part of a series of upcoming blogs.

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In many ways, insurance reserving departments are at a crossroads. They can continue to labor under a patchwork process — short on analysis, and barely meeting deadlines — or they can adopt an approach that reduces working hours, drives efficiency and reliability, and delivers insightful results. This choice will shape the department’s ability to manage risk, meet growing regulatory requirements, and support internal stakeholders. Ultimately, it may determine whether the actuarial reserving team is seen as a forward-looking participant in assessing and helping to ensure an insurer’s financial stability, or simply a reactive cost center.

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Want to learn more about best practices for enhancing your loss reserving process?