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The Actuary The magazine of the Institute & Faculty of Actuaries

Insurance and IT

Coping with the rate of technological change has always been a problem for pensions and life managers, and now presents a challenge for actuaries too. With a myriad of vendors and packages capable of producing solutions, firms find themselves in a maze. Retaining competitive edge often has negative repercussions on organisations; costs for newly acquired systems and packages continue to soar and may only give minimum added value.
In the pension and life insurance business, technological systems need to cope with customer expectation of fast reaction to unexpected opportunities or threats in volatile markets. Financial instruments such as options are used in many areas of the insurance industry, such as portfolio insurance and product design; guaranteed equity products can be backed up by derivatives to support investment risk to the insurer. Products like these, even though they guard against highly unpredictable situations, are no replacement for planning.
One of the most significant issues today, affecting a dynamic and wide range of regulated investment alternatives, concerns managers who analyse and define strategies for future business requirements. It is no longer sufficient for actuarial consultants to simply prepare actuarial valuations and diagnoses. At the same time IT and business objectives must be kept in focus before advising on models, systems, and packages.
As catalysts of business change, managers promoting technology should regard how people in an establishment actually go about sharing and making use of information on a day-to-day basis. Market research for today’s more aware customer should focus genuinely on their needs, wants, views, and preferences.
A further, more persuasive reason for developing such a strategy is to avoid the potential waste of money from the widespread incompatibilities that exist in computing technology. Managers dealing with IT issues must ask the right questions! The right questions restrict the answers and can lead to the best technological option.

Old tried and tested packages are still employed in some organisations. For example, some use Lotus software for stock exchange portfolio analysis; others employ a single PC running on Scientific Workplace for mathematical investigations. System developers for these packages knew that machine time was a critical resource and so wrote ‘perfect’ programs. Their current usage is conclusive proof of the quality of these packages.
Today innovative actuarial packages exist, based on artificial intelligence streamlined by sight and psychology, to mirror how an actuary works on paper. These systems are secure and highly compatible with varying IT systems. They also require little technical assistance and need reduced software maintenance.
Non-identification of operational specifications required by the developer is one of the chief causes of unsatisfactory performance of systems developed for organisations. Packages delivered should be flexible enough to solve current requirements and also adapt to future needs.
Life managers should ask IT advisers to state all advantages in literal human terms. They should also be able to see through suggested and sophisticated technological solutions, ie security controls, speeding up an existing IT solution, cleaning up dormitory databases, or other state-of-the art technologies.

Guidelines for assessment offer a comprehensive means of weighing up and comparing systems or software packages. Before finally deciding on one IT system or package, managers should take time to distinguish between vendors and identify their various strengths and weaknesses. A considered look should be taken at customer profiles of an IT adviser in order to determine how well they implement suggested solutions.
The following questions can help in assessing IT advice given:
– Does this technology facilitate the sale of product services for volume insurance processing? Does it provide flexibility in adding data fields or implementing new business processes?
– How flexible is the package? Can managers attach access rights to insurance formulae? Can new or existing financial management systems be integrated with the new technology?
– Is the system fast, reliable, easy to use, and reasonably inexpensive? Are the principles of good modularity, understandable uniformity and documentation upheld? Are there adequate training and maintenance procedures that can be independently understood by the user?
– What is the change in security and workflow aimed at for this application? What is the difference in workload after introduction of this application?
– Are software and hardware technologies compatible?
– If a website is introduced for the company, how many people do I need to maintain this page?
– How many companies use the advised IT applications (ie customer profile). What do other independent advisers say?
At the end of the day, managers are accountable and must remain resilient in ensuring that both careers and the organisation are prevented from being used experimentally. Grand IT schemes that do not produce the results required by customers and users simply will not work.