Several shifts are underway that will result in significant changes in the way that insurance companies use actuarial resources. An increase in qualified actuarial resources, and a need to move company actuaries into more strategic activities will offer opportunities that have previously been unavailable. The exact timing and pace of this change is uncertain, but the economics are so compelling that I think it is not a question of if, but when, a new model will prevail.
First, over 10,000 people in India are currently sitting for the actuarial exams. As the result of the growth in the knowledge worker outsourcing industry, and the privatization of the Indian insurance industry, actuarial studies are now much more attractive to qualified students. Scarcity (read: price), will be reduced as a result of this increasing supply of expertise.
Second, companies increasingly need to apply their internal actuarial talent to more strategic activities such as sophisticated price modeling and risk management. Predictive modeling and multi-tier pricing require constant attention and monitoring. Existing regulation in Europe regarding Solvency II consumes increasing amounts of resource. Both of these activities are best performed in-house.
Leading companies will recognize that the traditional insurance product pricing process can be separated into separate activities, some of which can be outsourced. For example, the development of loss triangles and the updating of price indications are examples of discrete, measurable work that can be effectively performed remotely. Once these tasks are complete, internal actuaries can then review them and make final, proprietary pricing decisions. Moving the tactical work offshore lowers costs, and frees company resources to focus on higher value activities.
There are barriers to this transition. Tradition and inertia will slow adoption. It may take seven to 10 years, but the cost advantages and a need to redirect company talent will eventually result in a shift the norm to a multi-source, onshore/offshore actuarial model.
This blog has been reprinted with permission from Celent.
Mike Fitzgerald is a senior analyst in Celent's insurance practice, and can be reached at email@example.com.
Readers are encouraged to respond to Mike using the “Add Your Comments” box below.
The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.
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