Insuring your way forward
Changes in the insurance sector represent opportunity for the channel, suggests James Maudslay
The insurance industry has rarely enjoyed an entirely harmonious relationship with IT. Large-scale IT projects have failed to deliver, and many doubt the current round of market modernisation - even though progress is being made. However, market pressures combined with recent changes in the way IT is consumed may now help this relationship tremendously.
A growth in demand for capital models is forcing actuaries and their colleagues to re-evaluate how they operate those models. The demand is driven partly by the growing need for regulatory compliance, but also by a substantial increase in iterative modelling as finance teams and underwriters seek a more balanced view of potential capital risk.
In addition, it is no longer acceptable for models to take many hours to run. As competition in the industry intensifies, insurers are being pushed to make more reliable corporate management and underwriting decisions more quickly. As the data sets grow in complexity, the traditional approach of running a model on the actuary’s desktop - however powerful - is simply not good enough. There is a need for faster and more efficient platforms that allow models to run in minutes, not hours.
Application providers are moving towards SaaS, and the increasing maturity of IaaS means there is no need for expensive hardware to sit idle between model runs. Such a consumption model is not yet a reality in the insurance market, but we can assume that the model providers have “as-a-service” product development on their radar for the future.
This sounds like great news for the IT department responsible for maximising the performance of these models, as there would be no more annual requests to the board for an infrastructure upgrade to ensure the performance of the models at the heart of the underwriter’s business. However, a num-ber of concerns need to be addressed.
The move from networked desktops to IaaS raises questions about data security. Any hastily adopted approach risks at least attracting adverse attention from Solvency II provisions, which is not helpful. One option is to start by storing and managing non-competitive data externally as a proof of concept to the business. For an industry based on risk management, this seems an excellent approach.
Hosted platforms change the way data is loaded into such models as well as the way the technology platform is tested and developed in-house. But this should not present a barrier to adoption. As in any business transformation, testing the new approach alongside existing systems will help provider and underwriter alike improve performance, security and availability. It is also a chance for the internal team to focus on the performance of the models rather than hardware management, leaving the service provider to deliver IaaS under tightly governed SLAs.
Cloud goes beyond renting capacity on demand to reduce cost. Done properly, it offers insurance underwriters the ability to build a more agile business, and turn regulatory reporting into business as usual. Channel firms should move quickly to embrace this opportunity.
James Maudslay is an insurance consultant for Colt