Based on Ernst & Young's experience in dealing with actuarial departments for major life insurance companies, it was not a huge surprise the professional services organization found significant data quality issues in its report "From the Actuarial Transformation Roundtable," according to Steve Goren, a senior manager in the actuarial advisory service group for Ernst & Young. "There are few or no strong controls in place over data quality and data management processes," he says. Mike Hughes, a partner with Ernst & Young, believes the fundamental message derived from the insurers taking part in the roundtable is the business processes are struggling from a lack of effective data management strategies for the actuarial departments. "Insurers don't have the right sort of database management systems and actuarial data warehouses in place to deal with some of the business needs," he says.
One of the challenges companies face–and a reason they struggle with managing data–is the source data they need for the different actuarial processes resides in multiple legacy administration systems, commission systems, reinsurance systems, and accounting systems. Many of those different source systems, Hughes asserts, have data quality issues that need to be addressed. "If you don't have a good data management system in place and the right tools and infrastructure, getting data from point A to point B can be a real business challenge," he says.
Data governance can't be limited to a line of business, points out Goren. It needs active participation with each of the lines of business as well as the system owners–whether IT or the businesses. "Data is consumed from a number of different systems, and the systems are used for different purposes, so it needs to be an integrated approach to manage the data across all the different data providers and consumers," he says. "It can't be just an IT solution or a single line of business solution. It can, however, begin within a line of business in getting the data quality issues identified and then pass those issues up to the source systems that provide the data."
A partnership is needed between actuarial and IT, Hughes suggests, because the actuarial resources understand what's needed in their business processes. The IT resources understand the data that resides in the different source systems and are responsible for maintaining the source systems as well as some of the specialized data and data structures that need to be maintained for actuarial.
The information actuaries provide to the business lines is necessary for corporate financial reporting, contends Goren. "The need to get that data correct is critical to a corporation's ability to produce valid, accurate financial reports," he says. "There are definitely costs associated with correcting data and putting in this type of a program, but the costs to a corporation not to do it are far greater."
There is value to be had in terms of providing better analytics and better insight, maintains Hughes. "It's critical for companies to get a better handle on quantifying and managing the risks they are taking," he says. "If they don't do some of the foundational work that is needed with data, they are not going to be in a good position to address the risk issues and the emerging fair value reporting issues companies face."
Data volumes are growing significantly, explains Goren, and insurers are spending a tremendous amount of time trying to address how to deal with them. "Data management strategies and integration are going to be critical to the actuarial department's ability to provide accurate and timely reports," he says.
Business demands continue to increase in terms of modeling, valuation, and decision support, Hughes indicates. "Being able to make sense of the results requires good business intelligence capabilities, but you never are going to be able to deliver on the business needs in those areas for reporting, forecasting, decision support, and risk management unless you've dealt with some of the foundational issues with data management on the front end," he says.
Insurance companies are recognizing the need for more effective data management processes, but Goren believes carriers struggle with how to make that happen. "Historically there's been a fairly significant disconnect between actuarial departments and their counterparts in the IT department," he says. "Much more effective alignment between line of business actuarial and IT is really critical to improving the data management processes they recognize have to happen."
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