Pursuing Better Together: The Actuarial Evolution
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Pursuing Better Together: The Actuarial Evolution

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Steven Loyens, Chief Actuary at Arch Insurance International, discusses the importance of a collaborative and integrated actuarial function, as businesses continue to navigate an increasingly data rich environment.

The role of the actuary — once viewed as a back-office function — has evolved considerably over recent years. Actuaries are now increasingly being integrated into underwriting and other decision-making processes, taking on a more central and strategic role as the industry evolves.

A catalyst for this strategic shift was the implementation of Solvency II, which overhauled the Individual Capital Assessment regime where capital models were simply a means of calculating regulatory capital. With Solvency II, capital analysis is a central component of the business decision-making process, with actuarial input a core ingredient.

Embedding the actuarial function deeper

It is important to recognise the unique position that the actuary holds within the organisation, operating at the intersection between data modelling and the underwriting frontline. Their role in many ways is that of a data science intermediary, supporting the development of risk and capital insights and translating that information into analysis to support quicker and more informed decision making.

Data itself does not automatically create value. It is how you combine and optimize that data into insight. Data must be converted into a digestible and accessible format that is available to the underwriter at the point of decision making to enable a better solution or outcome. This is where data generates tangible value and where the actuary plays a critical role.

In constant communication

In order for the actuary to help realise the full potential of data, there must be continual interaction across the organisation. That means liaising with senior management and the claims and underwriting teams to ensure that the data is delivering the insights they require. It is vital that these functions work together to test assumptions, review data credibility and completeness, sense check model output, factor in model limitations and run scenario tests.

Communication and pragmatism are core skills of the modern actuary. Although data is becoming more available, we are not yet at a point where pure data analysis supersedes experience. This is especially the case when data is limited, such as for extreme, infrequent events or emerging risks. When theory meets real life, science needs to be applied using common sense.

Increasingly, brokers are growing to appreciate the value of the actuarial perspective. At Arch, for example, our actuaries are often present in meetings between underwriters and our broking partners, helping analyse client data, provide projections and enhance the understanding of overall exposure. This willingness to share actuarial insights and go the extra mile to respond to the needs of the insured makes a powerful statement to brokers.

Another factor which calls for a more embedded actuarial function is the ever-growing challenge of risk uncertainty. The speed of risk evolution and increasing demand for solutions for emerging risks brings the actuarial skillset more into play. When data points are limited, actuarial judgement and insights can support and augment the underwriting decision-making process.

This is especially important with uncertain and volatile risks. Given the increasing reliance on modelling, actuaries need to be able to explain a model and its limitation in order to correctly interpret its outcomes. Understanding the source and limitations of the data and subsequent assumptions is crucial.

Fulfilling the actuarial potential

Continuous investment in the actuarial skill set is critical if actuaries are to provide the best possible support. As the technology that underpins the data process becomes increasingly sophisticated, it is imperative that the technical skills of the team evolve in tandem to ensure companies maximise the potential of an increasingly data rich environment.

It is also important to consider how the structure of the organisation supports that data connectivity. At Arch, the Chief Actuary reports directly into the CEO, rather than the CFO as is historically the case. This embeds the actuarial perspective in the wider decision-making process and gives the function a “seat at the table” for steering the overall corporate strategy.

At Arch, we also have a Chief Data Office as part of the actuarial function. This is a natural fit given that, as a company, we are intensive data users with the actuarial function positioned in the centre of that data stream.

Effectively integrating the actuarial function into all aspects of the business opens up huge potential. The actuary has a unique position at the heart of key decision-making metrics, including capital, reserving, pricing, data science, management information and risk management. These metrics enable a company to better prepare for the long-term and also be more responsive to immediate developments – whether in exploring emerging opportunities or in assessing the impact of inflation across business lines and layers.

As the value and scope of data continues to grow, and the technology to harness and optimise data becomes more advanced, the role that actuaries play in working with underwriters to provide more informed solutions will become ever more critical.