Articles - Transforming reserving the current challenges and the future

 We surveyed over 160 firms analysing gross reserves totalling around £1 trillion to find out!

  

 Are firms satisfied with their reserving processes?

 Only around half the market was moderately or extremely satisfied with their reserving process. The rest gave lower scores – suggesting that there is significant scope for improvement at a wide range of firms.

  

 Firms gave similar responses when asked about satisfaction with reserving data.

  

 By region, UK and APAC firms were typically less satisfied with their processes than either US or EMEA firms. The APAC region was also noticeably less satisfied with reserving data.

  

 What about use of AI?

 Only 8% of firms we surveyed were already using AI in their reserving process. The main areas of usage were automatic trend identification, claims classification, data cleansing and pattern setting.

  

 When it came to future development plans, our research suggested that there could be a split in the market. 53% either had reserving AI development in progress or planned for the future, whereas 47% had no plans. If this continues, there could be much more variation in reserving processes in the future than we see today.

  

 What areas would firms like to improve?

 Across the market, firms are mainly prioritising making the end-to-end process faster over delivering more insight. Accordingly, the top 3 improvement areas, each highlighted by over 50% of participants, were:

  

 1) Process efficiency / consistency: Minimising the time spent turning the handle on the process, updating spreadsheets or performing routine calculations – ensuring that actuaries spend time on more value-adding investigations and the most critical assumptions.

 2) Better automation: A desire to automate data flows and repeatable tasks, such as reconciliations and the production of standardised reports.

 3) Ability to spot trends faster: Tools that identify trends such as inflation or changes in reserving strength, or which can flag where assumptions rolled forward from the last review need an update!

  

 Although the main focus across the market was on improving speed and efficiency, firms also mentioned a range of measures to improve reserving quality. In particular:

  

 Data quality: 47% of firms saw improving data quality and reconciliations as a priority.

 More granular drill downs: 37% of firms flagged this as an improvement area.

  

 What are the blockers to effective transformation?

 The number one barrier to achieving a successful transformation that firms cited was insufficient resources. Often the challenge is that the team is at capacity delivering routine work and so there isn’t the time to plan and deliver a transformation project alongside it.

  

 Firms found it easier to secure the relevant resource for a transformation project if they started with the “why” and could present a clear articulation of what the end goal was.

  

 Other challenges include concerns about cost, anchoring to existing processes, and changes not being the reserving team’s decision (eg, because the approach is set at a group level).

  

 A blueprint for the future

 Our survey highlighted the gold standard across a range of focus areas, which combine to create a truly state-of-the-art reserving solution.

  

 Data: Drawn automatically from a single source, meaning there is one version of the truth across the organisation. Data integrity checks and reconciliations are performed automatically. Actuaries have access to all the information captured as part of the underwriting and claims process, allowing the team to slice and dice the data as needed to answer stakeholder questions.

 Process: The aim here is to deliver faster output, through automating repeatable elements of the process and ensuring those process elements are well integrated – preferably on the same system. The gold standard is to deliver first-cut results within 60 minutes of getting updated data.

 Analysis: AvsE should be integrated into the process and be a key driver of decision making, rather than an ad-hoc addition at the end. This should be supported by automated trend-detection, helping quickly flag the areas that assumptions need adjustment. Finally, uncertainty analysis should flow automatically, with the impact of alternative assumptions flagged at the point of decision making, rather than considered later.

  

 Is it just about the process?
 In addition to the “nuts and bolts” of the process, the wider team culture and approach to engaging with the business also needs to be strong in order for the overall reserving process to be effective.

  

 For example, a supportive culture is really important, both in terms of empowering people to speak up and challenge assumptions and to suggest improvements.

  

 In addition, strong feedback loops really matter, including regular 2-way communication between reserving and each of claims, pricing and the people setting strategy. “Self service” reporting via bespoke dashboards for different stakeholders can assist with streamlining communication.

  

 How to start your levelling up journey

  

 Kicking off a transformation project can be daunting, but in our experience it helps to:

 1) Start with the “why” and be clear what the overall objective of making changes is.
 2) Follow a clear levelling up path and deliver improvements incrementally over time, rather than changing everything at once.
 3) Encourage open communication and continuous feedback throughout the transformation project - review your progress, adapt your approach based on insights and encourage open discussion of the challenges.

  

 Overall, firms with more efficient reserving processes are more likely to be able to respond dynamically to emerging risks and challenges in the market, based on clear business insights from the reserving team. When did you last level-up your reserving process?!