Technology: Head in the clouds, but feet firmly planted

Wherever information is found in a modern underwriting firm, there will usually be an actuarial team on site to provide analysis services to business users.
 
Thanks to the data-crunching that is essential to their roles, actuaries require high-specification PCs. However, when the board needs to decide whether to underwrite a new line of business or not, the last thing they want to hear is that the model doesn't run fast enough or has fallen over because the bank of computers in use don't provide a stable platform.
 
Quick and reliable
The business needs quick and reliable access to management information that allows it to deliver risk-adjusted return on capital to its shareholders. Equally, if a capital model takes three or even six hours to run, then the actuary needs to be free to carry on with the rest of their job while the model runs, rather than being affected by reduced processing power.
 
In the past six months, we have conducted cloud-computing trials for both capital and catastrophe modelling. For example, by working together with actuaries from a number of different underwriters, we have been able to design and build platforms that provide the stability to complete the huge number-crunching exercises required for capital modelling. A stable platform that can be scaled as required provides confidence that information can be delivered to the business within a requested timescale.
 
The issue of speed is also vital for capital modelling. When the opportunity arises to underwrite a new line of business, data needs to be made available to understand the amount of capital required and whether changes to the existing quantity or make-up is required. Waiting a weekend for a model to run before the decision is made leaves the business open to its competitors gaining first-mover advantage.
 
One business we worked with had a specific requirement to reduce the model runtime to a maximum of three hours. Working together, we set up a trial to see whether the application could perform successfully within this timespan. Once the environment was up and running, the first phase proved that it was much more stable than the previous approach of networked PCs. The next proved that it would meet the business objective of running the programme in under three hours - repeatedly.
 
The team is now able to run the models twice in a single day, allowing the business to make decisions more quickly and respond to market opportunities. Given that the three hours includes data transport across the internet, we have worked out that if we connect the office and cloud using a dedicated link, we can reduce the running time to just over an hour and a half.
 
As the complexity of datasets grows, processing power needs to expand, which could mean throwing more high-specification servers at the problem every nine to 12 months. This can be avoided with a cloud platform, which, as well as guaranteeing confidence that data can be provided as and when the business requires it, also provides infrastructure that meets the continuously growing processing requirements of capital modelling without the upfront investment.
 
A cloud platform offers a financial model based purely on consumption, a pay-as-you-go approach that works for models that need to be run on a monthly or ad-hoc basis. Solvency II will almost certainly require capital models to be run more regularly and internal business planning may dictate a monthly requirement or an ad-hoc service throughout the year. Whichever way you look at this, regular periods of non-use occur - and paying for a dedicated, high-spec environment 365 days of the year doesn't stack up.
 
Scalability
These models can be run to make business-critical decisions while being used at the same time to evolve business processes to address Solvency II requirements. In an environment where insurers are increasingly analysing high-exposure risks, they need a platform that gives them the ability to be agile in their decision-making. Stability, scalability and pay-as-you-go are all really important elements of why cloud services can support businesses.  

From our perspective, cloud services are not a new technology. They present a different way of consuming IT services that is more in line with the flexibility that businesses need today to address their challenges. It changes the role of technology within the business, making it an enabler for the broker to get to market faster or improve its internal processes to be more effective. As the insurance sector continues to grapple with the increased capital and reporting demands of Solvency II, these trials prove that adopting cloud computing platforms significantly reduces the challenges of running capital models.?