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The Actuary The magazine of the Institute & Faculty of Actuaries

Dream data

Imagine a world where your underwriting clients supplied you with accurate data. Yes, it sounds a tad far-fetched, but will you ever witness a time when clients provide you with accurately coded data that lends itself to aggregation, dissection, and statistical analysis without substantial gap-filling, interpolation, and guesswork?

Himalayan peaks
This would be a world without swathes of missing closings, statements, and loss reserves. Data without currency transpositions and wandering decimal points causing Himalayan peaks and valleys in the graphs. Information with accurate dates, not ones sampled from the imaginary timeframe of some Stephen Hawking. And the figures would be right. In this world, triangulations and progression statistics could be produced straight out of the box.
Right now, I doubt that many could lay claim to this without considerable effort being expended in data cleansing and not a little ‘alchemy’. But things are about to change for the better. Welcome to the London market revolution.
The market is, at last, embracing improvements in data communications technology. Light-years ahead of today’s technology and paperwork, that will ultimately be replaced, these new communication standards have the potential to deliver this vision of accuracy. This will be of great benefit to the actuarial community, as the increased quality and reliability of the data will allow actuaries to do a better job faster and with less effort.
We now have an arsenal of new business messaging standards to help the market communicate efficiently, increasing both accuracy and speed. These standards are managed and published by ACORD (Association for Co-operative Operations Research and Development, www.acord.com) and cover the placing process, claims, technical, and financial accounting.

A paperless market
Implementation of these standards is being overseen by the Market Reform Program Office (MRPO), part of the Market Reform Group (www.marketreform.co.uk) to define, deliver, and administrate reforms in the London insurance market. Among a raft of other reforms, the MRPO is developing and publishing the electronic validation rules for these messages to ensure that all participants send and receive valid data which, unsurprisingly, is essential in the push for a paperless (or even just a less paper) market.
Virtually everything that could be exchanged on paper, or get lost or mis-keyed, can now be transacted electronically either with the bureaux or in a new ‘peer-to-peer’ mode where brokers’ and underwriters’ systems can transact directly with each other.
The market, led by the G6 (five large Lloyd’s underwriting agencies and Brit Insurance), together with brokers Aon and Benfields, are now starting to implement the new RLC placing standard. RLC, or reinsurance/large commercial, covers all placing activities from quotation right through to endorsement. It will ensure that participants to a risk will have a complete audit trail of all placing activity and a common electronic core data record for all risks onto which every subsequent transaction can be placed. Referencing errors, with transactions orphaned or attached to the incorrect risk will become a thing of the past.

Speed and accuracy
Following hot on the heels of RLC placing comes accounting and settlement, or A&S for short. This does exactly what it says on the tin new messages to convey technical accounting data (like premium advices, treaty statements, and claims advices) and financial accounting data (the settlements) that will ensure greater speed and accuracy of transactions. This is where the data quality improvement will really score the most each advice, every transaction, and every reserve movement will be electronically coded and validated prior to transmission, and likewise validated and decoded prior to acceptance by the receiver. Each one automatically translated to and from the participant’s core systems with a minimum of human intervention to achieve virtual synchronisation of the market’s myriad of administration and accounting systems.
And, as closings are ‘de-linked’ from their settlements, meaning that the old bureaux-imposed calendar relationship between closing and settlement has gone, closings can be transacted as soon as they are known about, irrespective of any settlement implications that might occur downstream. Premium advices can then be issued as soon as the risk is signed-down, quarterly statements sent within the quarter, and claims settlements transacted on the date agreed so another piece of gap-filling bites the dust.
What this all means for actuaries is that the data offered for analysis by the client will be the best data available, unlike today’s ‘best guess’. Accurately coded data, up-to-date with the client’s supply chain, correctly appended to the right risks and claims this will at last be data that can be relied upon and used as a solid basis for statistical analysis.

Much work to be done
This revolution has started and during 2007 we will see many of these improvements becoming available. There is, however, still much work to be done to bring this revolution to a successful conclusion. Many of these reforms and messaging initiatives are optional: the market has no mandate to decree implementation and it is left entirely to each broker, underwriter, or service provider to transact business in this way. The actuarial community will be among the revolution’s many beneficiaries and it has a most valuable role to play in bringing it about by demanding more accuracy and reliability from its clients and urging them to adopt these new standards to ensure they achieve it.