As we welcome in a new year, we reflect on the trends that influenced our work in 2017 and consider how advances in technology and impending changes to rules and regulations will provide opportunities for actuaries in 2018.
Insurers are currently in a state of flux; the General Data Protection Regulations (GDPR) come into force in May 2018, Brexit contingency plans are being drawn up, and IFRS17 is looming large on the horizon. Alongside the regulatory changes, technology is providing opportunities for innovation and new products are hitting the market. We expect a number of themes to continue to evolve through 2018 as insurers prepare for the changes ahead.
1. Increase in demand for R-programming skills
As insurers strive to remain competitive, there is appetite for optimising processes to gain efficiencies and allow greater insight into data. R is a useful tool to help achieve these aims.
Last year, demand for our data science courses came from entire teams as well as individuals, reflecting an increase in the use of R in actuarial departments.
Insight has consulted on a variety of R-based projects and we have clients who are using R in different parts of their business, including reserving and pricing. We have also developed our own tools in R to help personal lines clients easily conduct pricing analyses with GLMs, along with newer machine learning techniques.
As we move through 2018, we expect R to be more widely used in capital modelling. R can be used to build entire capital models and while that is more likely for small insurers, larger insurers can make use of R for specific model components, or separate models for validation. Where Excel and proprietary software tools were once the only viable options, tools based on R are now entering the discussion.
2. IFRS17, Brexit and GDPR (the “big three”)
There is no doubt that the big three will change how insurers in the UK operate. Alongside changes to ensure that new rules are adhered to, these big-ticket items are acting as a catalyst for other changes. Insurers are scrutinising their businesses to identify opportunities to increase internal efficiencies as well as launch new commercial ventures.
As we discussed in a previous blog, the new IFRS17 accounting standard has brought plenty of issues for actuaries to consider. We expect the actuarial community to continue to debate some of the detail through 2018. There is likely to be a high demand for finance actuaries as firms start to recruit for IFRS17 implementation.
The consequences of Brexit are still uncertain but contingency plans are firmly underway. We anticipate changes to the legal entity structure of organisations which will create additional reporting requirements for capital modelling and reserving teams and bring travel opportunities for actuaries.
Firms are also gearing up for GDPR to come into force in May and this is presenting an opportunity to think about which data fields are collected and how the data is used. Many start-ups are using data in innovative ways to rate risk and there are ethical considerations as well as regulatory ones. Actuaries should be involved in discussions about data as it underpins many actuarial processes.
3. Better data management
The relevance of data to insurers will continue to increase, especially as it is recognised that there is room for improvement in how data is stored and manipulated. As insurers update their systems to cope with the changes that the big three are bringing, we would not be surprised to see a greater centralisation of data. Moving towards a single data repository overcomes many of the pitfalls of having disjointed data sources.
Actuarial processes using Excel without a back-end database have limitations in a data-centric business. SQL offers a less siloed solution and last year Insight helped clients use SQL to improve speed, access to data and functionality of both reserving and pricing processes. This year we expect that more insurers will follow suit and set up back-end SQL databases which are used to support and facilitate work.
Building actuarial processes in SQL requires detailed knowledge of the process in question. Actuaries are ideally suited to this and we expect that demand for data-management actuaries to be strong. As well as opportunities for actuaries in small firms to place themselves at the heart of a data-centric insurer, there may also be opportunities available for actuaries in large insurers, working alongside specialist data teams.
4.Increase in InsurTech investment
2017 was a record breaking year for InsurTech investment in the UK and an exciting one for Insight. While we continue to help start-ups develop pricing models and refine business plans, we now also have clients who have moved through the initial proof-of-concept stage to a point where ongoing actuarial support is required.
We expect to see further investment in the sector in 2018 not just by start-ups but also by incumbent insurers who wish to remain competitive. There is likely to be continued demand for actuaries to apply their technical expertise to new products.
Sound technical knowledge combined with creativity and innovation will allow actuaries to embrace the opportunities that change presents
There is a lot to look forward to in 2018. The themes in this blog are all interconnected and for all the pieces to fit nicely together, a holistic approach is required. To adapt to the changing environment, existing skills will need to be applied in new ways. Sound technical knowledge combined with creativity and innovation will allow actuaries to embrace the opportunities that change presents.
Gemma Gregson is a senior consultant at Insight Risk Consulting and Buu Truong is the Managing Director of Insight Risk Consulting.
This blog is based on our experience on the UK general insurance market. It is intended for general interest purposes only.
Please contact us if you would like to discuss how Insight can help you with any of the topics discussed in this blog, or indeed any other actuarial or data science venture.