Software - Preparing for the Ascent?

 By John Winter, director of product management, and James Webb, director of product marketing, SunGard’s iWorks Risk Management Solutions

 Every generation gets to say that the world changes more rapidly than it has with any of its predecessors.The Victorians, for example, looked at the changes wrought by the railways and industrialisation, and were confident that they had achieved the pinnacle of success. These technologies made a wide range of goods and opportunities open to a much wider audience. 

 Similarly, in the last 10 years, the insurance industry has seen massive changes in access to information, much of which has until now been locked away in actuarial departments or in boardrooms,as well as the technologies that make this possible.

 The increasing perception and expectations of the availability of information has hugely intensified the pressure on the suppliers of much of that information, namely the actuaries and the risk management team. 

 To compound the issue, internal management and external stakeholders are quizzing actuaries for new types of risk information. “Standard” reports, and the processes that support their generation, may need overhauling.

 What drives this need for information? In a sense, it is almost self-fuelling – each report, each dashboard prompts its consumer to ask a slightly different question – to “drill down” or “drill through” to the underlying data. The driving force behind most new query development is the question, “what if....?”

 Anticipating the demand for more

 Increased public scrutiny over financial affairs, both from the press and the regulators, has certainly forced greatertransparency.This in turn has placed addedpressure on the risk teams to obtain new data and build new models.But it is the need for business to become more proactive that is really behind much of the need for rapid turnaround of new results, and their presentation in a new,dynamic dashboard style.

 So what can risk actuaries and risk managers do to overcome this pressure?

 An apparent trend in the industry is the closer collaboration between actuarial departments and their counterparts elsewhere in the business. Chief information and technology officers in particular share a common agenda with risk managers in supporting an efficient, profitable and competitive business with actionable business intelligence. Understanding and anticipating these developing needs together with other business functions can help actuarial departments keep one step ahead.

 Moreover, since demand for information is driven so strongly by changes in enabling technology, half the challenge is to embraceuseful innovations in risk analytics, including business intelligence, data management, and cloud computing.

 Business intelligence on display

 The tools which are now available for the IT professional and the end user are massively more powerful than in the past. Display technology has changed unrecognisably, with smartphones, tablets and the sophistication of display media such as Flash, Silverlight, and more recently HTML5 providing instant interactive data environments for news sources, financial services providers, and even leisure reading.

 Correspondingly, the expectations of the end user when presented with risk information have never been higher. The latesttools and newer versions of some established products provide much more powerful visualisation paradigms, and significantly assist with the multiplicity of display formats. Although standard tools like Excel provide a lot of functionality, other emerging technologies help span multiple information sources to form a “single view of the truth.”

 Business intelligence can also become a lot more proactive than the traditional reporting mechanisms that have been prevalent, with exception-based notifications and a range of alert mechanisms including short message service (SMS) or email.

 This is an area which still has great potential to develop, and should be the focus of any large development.It provides awindow into the actuarial process for the majority of the business, and if done properly, can significantly enhance the reputation of the modellers and the modelling process.

 Managing flexibility and unstructured data

 The vast range of, and growing appetite for, display options imply a need to flexibly slice and dice information at will. Having a separate presentation layer greatly increases agility and the odds of producing the right kind of intelligence at the right time; for example, when a chief risk officer needs to respond quickly on a pressing detail.

 Looking back into the data management processes that generate this information, much is being asked about the relevance of “big data.” Thesewords have been applied to a range of technological solutions, sometimes meaning just very large volumes within traditional relational databases, and sometimes a repositoryfor unstructured data with specialised query functions to provide access to it. The most exciting form is the latter, particularly when considered with the rise of business intelligence.

 Traditional database design process starts off with the question “what data do you need?” It then leads to the constructionof tables and relationships which embody the answer to that question, stripping out “unnecessary” data along the way. Of course, if the end consumer of the data suddenly changes his view, this can result in expensive rework. Big data, in the unstructured sense, allows for the possibility of radically changing the end-user query, since nothing is lost. In essence, the reporting data is no longer a representation of the original data, but rather, contains all of its complexity and can be examined in any number of different ways.

 This ability to deal with unstructured data becomes even more important when linked to the huge amount of data that is now held online on social websites, which could be used for experience analysis or product targeting. 

 Gaining speed withcloud computing

 The most obvious pressure point for the actuarial modelling process is in the sheer number of calculations and volume of data their models must process. The rise of high performance grid computing has seen large infrastructure investments to provide sufficient power for the models, and this is unlikely to reduce. The periodic nature of the actuarial modelling business means that a lot of this power goes unused in the quiet periods, and clearly a more “power-on-demand” model is needed. Cloud computing addresses this need with the ability to make huge numbers of virtual machines available within very short timescales, and close them down when they are no longer needed. This technology is clearly set to grow, with major players such as Google, Cisco and Microsoft investing heavily in the necessary infrastructure. Private cloud solutions are also gaining appeal, such as with SunGard’s managed hosted service around its iWorks Prophet applications.

 For actuaries, cloud computingoffers the possibility of using huge grids to provide results in a very short window, constrained only by the data transfer time (both to upload input data and to download results) and the cost of the cloud resources. Given the increased demand for model results, driven also by demands for more flexible and open stress tests at the business level on both sides of the balance sheet, and aided by the use of rich economic scenario data, this will form a key part of the future technology platform.

 While industry players still express some security concerns over the use of external resources, the cloud has already become the normal mechanism for personal information, and these concerns are unlikely to prevent widespread adoption.

 The competitive edge

 As the means of production become more widespread, so will industry access to fast and sophisticated risk intelligence. Insurers will need to up their game further for competitive advantage.

 This will further drive the need for more calculations and methods of data display. As insurance products grow in complexity, and businesses innovate to find new products to bring to market, the need for flexible, fast and clear information from the risk department grows exponentially.

 So are we reaching our own apex in the Information Age? Most likely there is a considerable way to go. Being equipped for a sustained and varied ascent will help.