the exponential actuarytm...pixelating the opportunity set is important, which requires breaking the...

Copyright © 2019 Deloitte Development LLC. All rights reserved.1

August, 2019

THE EXPONENTIAL ACTUARYTM

Emerging technologies and their impact on Actuarial practice


Today’s Agenda

Exponential ActuaryTM Overview

The Need for Change

The “Art of the Possible”

Building the Exponential Actuary

Future skillsets needed to be successful

Technology, Tools, and Getting Started

Exponential Technologies, including RPA, Natural Language Generation, Natural Language Processing

Establishing an Exponential Actuary team and mindset

Key Takeaways

Unprecedented change and opportunity

Why and how the workforce is changing

Future of Work


Future of Work


Unprecedented change and opportunity

7Disruptors

Technology is everywhere

6.0 billion+smartphones in the world by 20201

AI, Cognitive Computing, Robotics

$500,000 in 2008$22,000 today5

Tsunami of data

9x more in last 2 years2

Major enabler of machine learning

Jobs vulnerable to automation

35% UK 47% US

77% China6

Diversity and generational change

Millennials 50%3

25% global pop in Africa by 2050 5

Longevity Dividend– 50 year careers4

Explosion in contingent work

US Contingent workers 40% by 20207

Change in nature of a career

2.5 – 5 years: Half-life of skills4.5 years: Average tenure in a job8

1 https://www.cnbc.com/2017/01/17/6-billion-smartphones-will-be-in-circulation-in-2020-ihs-report.html2 https://www-01.ibm.com/software/data/bigdata/what-is-big-data.html3 Annual Global Millennial Study, https://www2.Deloitte.com/uk/en/pages/about-Deloitte-uk/articles/millennial-survey.html 4 https://www.newscientist.com/article/mg23130810-800-the-100year-life-how-should-we-fund-our-lengthening-lives/5 https://www2.deloitte.com/content/dam/Deloitte/il/Documents/human-capital/Thriving_in_times_of_digita_disruption.pdf


The two-part value equation

Productivity

Perform current duties faster, cheaper, and with less errors

Focus judgement and analysis on high risk issues

Enable workforce to focus on more strategic initiatives

Performance

Drive management action by moving from “Why” to explaining “So What”

Drive shareholder value through forward looking analysis to identify and manage risk

Expand role of the professional to drive business value

Exam

ple:

A

ctu

ary Automation of pricing models and analysis reduces time required and increases reporting frequency

More frequent reporting and capacity to analyze and recommend opportunity leads to real time insights

Identify expense drivers to redesign products to minimize costs

Capacity for Insight

Address “what if” questions live through interactive dashboards

Strategize solutions to drive better outcomes

Innovate strategies to empower new business models


The Exponential ActuaryTM


The need for change

CHIEF ACTUARY CHRISTINE

• Desires to serve business in a more proactive strategic capacity –insights vs production

• Wants to implement new technologies but believes they are too nascent and unproven

• Wants to position herself as a catalyst for change and an industry pioneer

• Struggles to know where to start, but wants to lead and share knowledge with team and senior management

• Need to consolidate or improve data capability, actuarial systems, and processes

• Respond to concerns around quality – e.g., observed errors, lack of consistency

• Cost reduction and related strategies to improve efficiency

• Keeping pace with evolving regulatory change such as implementing PBR and Targeted Improvements

HOW CAN I ENABLE MY TEAM TO BETTER RESPOND TO OUR STRATEGIC OBJECTIVES? HOW CAN WE PROVIDE MORE STRATEGIC INSIGHTS?

DEMANDS DESIRES

PAIN POINTS & CAPABILITY GAPS

SPANNING:PEOPLE, PROCESS, TECHNOLOGY,

AND GOVERNANCE


The need for change – emerging regulationsVolume of regulatory changes will create more work VM-20

EffectiveIFRS Effective

LDTIEffective

Emerging Change Magnitude of Impact Timeline

IFRS 17

Principles Based Reserving (PBR) for Life (VM-20)

US Tax Reform

IAIS ComFrame (Including International Capital Standard 2.0)

Solvency II

FASB Long Duration Targeted Improvements (LDTI)

1/1/211/1/20

Solvency II Applicable

VM-20 Introduced

ComFrame Introduced

IFRS 17 Introduced

Tax Reform Effective

LDTI ASU

IssuanceSolvency

II Reviews

1/1/2016 1/1/17 3/1/175/18/17

12/31/178/15/18

12/31/18

Introduction Effective Date

August 15, 2018 January 1, 2022

Introduction

New Methodology Effective

Applicable

ASU Issuance

ComFrame Introduction

Effective Date

Effects Complete

ComFrame Adoption

EIOPA Reviews

Effective: All Entities

December 31, 2027

January 1, 2020

November 30, 2019

December 31, 2018

January 1, 2021

January 1, 2017

December 31, 2017

March 1, 2017

January 1, 2016

May 18, 2017

Transition Date

Comparative Period

January 1, 2020

July 27, 2019

IAIS Global Seminar

May 1, 2016

Public Disclosure

LDTITransition

ComFrame Adoption

11/30/19

IFRS Comparative

1/1/221/1/19

*Timelines are not drawn to scale

NAIC QIS II

Statement of Position (SOP) 03-1

Financial Accounting Standards (FAS) 157

ASU 2010-26

December 31, 2009

July 7, 2003

September 1, 2008

December 15, 2003

November 15, 2007

December 15, 2011

September 1, 2006

October 10, 2010Effective

Approved Effective

Finalized

EffectiveIssued

EffectiveFASB Approved

VACARVM Effective

FAS 157 EffectiveASU2010-26

EffectiveSOP 03-1 Effective

11/15/2007

12/15/201112/15/2003 12/31/2009

Commissioners’ Annuity Reserving Valuation Method for VAs (VACARVM)

QIS II Begins

February 22, 2017

Recommendations Presented

December 1, 2017

QIS II Begins

2/22/17

12/1/17

QIS II Results

2019-2021


The opportunity for Actuarial function to provide deep business insight is negated by overwhelming Operational and Stewardship Activities they perform today.

The need for change – Pain points in current actuarial processes

200+ spreadsheets linked together to calculate, capture, and allocate investment income

1500 hours spent annually drafting 500 actuarial reports after analysis has been completed

90 people involved in a 6 month process of updating regulatory AAT memos

10,000 unique tools and spreadsheets required for monthly actuarial reporting processes

1,000 model output files manually copied and aggregated to refresh Actuarial results

Life Insurance company doesn't know how many 90+ year olds they insure

300 plus Actuarial models all need to be maintained, updated, and launched manually and reconciled

Company produces 700 product filings every year

Decentralized business model has inconsistencies and redundancy in roles, tools, and approach

Users wake up at 2:00 a.m. to confirm models have successfully completed and to kick-off next job

Representative Actuarial Pain Points


The nature of the Actuarial Professions is being disrupted by technological and talent/operating innovation. This will shift human work towards higher cognitive and value-added activities.

Future state of Actuarial functions

TimeAllocation

Higher

LowerNow10%

Future

45% 45%

Automation Spreading Across Spectrum of Actuarial Activities

Ideation / Hypothesizing

Application and Decision Making

Computation and Distillation

Level of Cognitive Engagement


Companies agree that actuarial processes will look very different as they leverage emerging technologies.

A look at the not-too-distant future…D

ay 1

5:00 AM

6:00 AM

7:00 AM

8:00 AM

8:10 AM

8:15 AM

An automated robot completes running of actuarial models, reserves/DAC, and claim liabilities. Output is sent to its analytics engine

The data from the modeling engine or tools is staged on a Tableau or BI server and dashboards are refreshed

The natural language generator adds in narratives to the dashboard

The Chief Actuary has access to the updated reports and narratives as soon as he/she arrives in the office

The Chief Actuary interacts with the chatbot in natural language to drill down into splits by channel/product

The Chief Actuary further drills down into variance analyses for products/services with dropping margins

Imagine a world where… Actuarys can now spend their days driving business analysis and providing the intuition to …

• Identify management actions

• Uncover drivers of risk

• Develop pricing strategies

• Forecast financial results

• Increase capacity for growth

9:00 AM


Building The Exponential Actuary™The actuary of the future will use a combination of core skill sets, including domain knowledge, and a diverse array of technologies to add increased value.

Inputs Outcomes

Actuarial and/or Data Science Expertise

Highly trained professionals with industry expertise and extensive training

Integrated use of RC&A technologies, including machine learning and predictive analytics, natural language generation and processing, and robotic process automation

Exponential Technologies

Flexible and adaptable workforce, with a focus on open talent networks, organizational redesign, and reimagining learning and development

Organization & Workforce Change

Improved Productivity, Accuracy, and Reliability

Leveraging automation technologies reduces the risk of error and eliminates costly re-work, allowing more time for analysis

Actuaries will be the heart of finance organizations and generate more strategic analysis to drive key company decisions

Increased Value-Add Contributions

As actuaries move away from repetitive process-oriented work and develop new skills, morale and job fulfillment rise

Stronger Morale & Employee Retention


Future skillsets needed to be successful

Cross Collaboration

Data Science

Communication

Marketing / Branding

Leadership


Technology and tools


Many companies attempt to start by developing an “opportunity log” of existing processes that can be automated, but this gives an incomplete picture of the value that Exponential technologies, process redesign, and workforce changes can bring.

Identifying, evaluating, and executing on the opportunity

Evaluating Your Company’s Exponential

Potential

• Pixelating the opportunity set is important, which requires breaking the spectrum of work and entire end-to-end process into bite sized chunks

• Don’t just focus on your company’s current workload - identify processes that are not being performed today, due to resource limitations, skill deficiencies, or technology constraints

• Consider implications for Actuary operating and talent models, such as the change in how we source talent and design organizations – encompassing an array of resources, both internally and externally

• Actuaries need to continue to meet professional and accountability standards and how these are met will evolve as processes change

• Learning and development programs will need to change as these technologies and approaches are embedded throughout your organization

KEY CONSIDERATIONS


Exponential ActuaryTM solutionsOur approach coupled with a suite of solutions addresses all aspects of the actuarial profession and is unlike anything being offered in the market.

Ideation / Hypothesizing

Application and Decision MakingComputation and Distillation

Prepare Data Analyze Validate & Report

Data Wrangling• Experience studies• Valuation data preparation

Enterprise Content Management (ECM)• Linked multi-document creation

(e.g., actuarial memorandum)• Workflow managementRobotics Process Automation (RPA)

• Experience studies• Valuation kick-off and

calculation

• Experience study data gather

• Repetitive, manual analyses

Natural Language Processing (NLP)• Capture unstructured and metadata• Digitize and standardize contract terms• Data X-Ray

Natural Language Generation (NLG)

• Rate filing document writing• Quote document writing• Experience study or financial reporting analysis outcome summaries

Experience Investigation• Source of earnings analysis• Sales force analysis• Claims management analysis

DATA X-RAY


Opening email and attachments

Logging into web/ enterprise applications

Moving files and folders

Copying and pasting

Filling in formsReading and writing to databases

Scraping data from the web

Making calculations

Connecting to system APIs

Extracting structured data from documentsCollecting social media statistics

Following “if/then” decisions/rules

RPA is… RPA is not…

Computer-coded software

Programs that replace humans performing repetitive rules-based tasks

Cross-functional and cross-application macros

Walking, talking auto-bots

Physically existing machines processing paper

Artificial intelligence or voice recognition and reply software

RPA is delivered through software that can be configured to undertake rules-based (deterministic) tasks; it is not actual robots in a production line.

What is robotic process automation (RPA)?

What it can do


Natural Language Processing reads and Natural Language Generation writes.Natural language processing vs. Natural language generation

Natural Language Processing Natural Language Generation

• Ingests unstructured data (emails, tweets)

• Output designed for machine consumption

• Cognitive capacity lies in ability to disambiguate variations in speech

• Driven by machine learning

• Ingests structured data (spreadsheets)

• Output designed for human consumption

• Cognitive capacity lies in ability to imitate natural variability in human speech

• Driven by rulesets

Linguistic corpusOntology

Structured DataStructured Key Info

Varied Natural Language

Structured Data

Machine Learning Engine

Unstructured Text

Deloitte. Document Review Platform

Deloitte Consulting | Exponential ProfessionalCopyright © 2018 Deloitte Development LLC. All rights reserved.19

What is Enterprise Content Management?Processes and technology used to manage information – from capture to disposition – for the purpose of creating documents and content for various stakeholders’ needs

Data Actuarial Memo

Analyze data to determine static vs dynamic content and reusability

Static Content is updated by Super User on infrequent basis

Dynamic Content is entered by User using UI

Reusability of Content• Ability to utilize system templates to structure unstructured

data• Ability to automate the production of documents using a “single

source of the truth” concept

• Ability to change information in one part of tool and have changes cascade to all other documents that utilize same data set

Blacklining• Ability to blackline changes between

two versions of a document

• Ability to reconcile data across documents

Shared Content and Editing Ability to allow multiple users in a

document at once

Allow users to annotate and provide comments when reviewing document

Ability to show progress /status of various sections of document

Connectivity to External Applications

• Integration APIs for other systems to consume

• Ability to import structured dataseamlessly

Governance and Control• Ability to manage documents and version control• Allow the user to utilize workflow tools to manage, draft,

review and approve document

• Robust audit trail using access rights and permissions

• Record retention capabilities for storage and retrieval of documents

ECM Process

Functionality & Benefits


Use case: Premium Rate Filings


Each year, actuarial, compliance, and product personnel spend countless hours performing the rate filing process – deploying expensive knowledge workers on repetitive administrative tasks.

Challenge: Inefficient Premium Rate Filing Processes

Time consuming due to manual

nature and number of state and product

variations

Disparate Processes

Filing creation is comprised of

multiple, manual processes that

produce redundant information

Higher Error Rate

Lack of controls and automated solutions leading to higher potential

for errors

Underutilized Resources

Processes performed by

several highly-paid,

overqualified actuaries

Limited ability to quickly respond to

management feedback that

cascades through multiple documents

Time Consuming

Inefficient File Structure

Limited ability to track, analyze,

and act on industry product and filing

trends

Limited Access


Automation Enabled Future: Technology SolutionsThe product filing process will be enhanced using natural language processing, robotics process automation, natural language generation, and enterprise content management

Technology used to read and ingest text from large quantities of documents to extract key elements of text, analyze text, and identify trends across documentsExample: Analyze every regulator objection for a given product for trends

Robotic Process Automation

NaturalLanguage Generation

Technology delivered through computer-coded software that can be configured to undertake a variety of rule-based (deterministic) tasksExample: Gather data and summarize data from an admin system

Technology used to automate analysis and the generation of text summarizing analysis, trends, and insights through rules based logicExample: Write each section of an actuarial memorandum

Technology used to create and manage large documents by dynamically linking to memo inputs from various sources and updating in real-time as the inputs changeExample: Dynamically populate all elements of a rate manual

NaturalLanguageProcessing

EnterpriseContent Management


FactsData InformationActuarial

Memo

GenerateInferAnalyze

Analyzes data to extract a set of

facts

Draws inferences to determine what is most interesting &

important

Utilizes NLG to write language relevant to

the intended audience

1 2 3

NLGNLP

Automation Enabled Future: Four-Prong Portfolio SolutionThe product filing process will be enhanced using natural language processing, robotics process automation, natural language generation and enterprise content management to monitor requirements, perform analysis and accelerate the creation of required documentation.

Universe of Filings

Ingest universe of rate filings

1

Machine Learning

Machine learning analyzes patterns,

State specific requirements & key drivers for approval

2

Ontology

3

Production of database

containing data-driven insights

about State specific

requirements

RPA

Gather census information and/or initial analysis from source systems

Sample Tasks

Perform initial and/or final analysis on source data

Prepare .JSON file for consumption by NLG engine

Perform batch processing to generate memos for all states

Rate Increase AnalysisMarket Analysis Document Generation

ECM

Manual Memo

Assess

DynamicReusable

Analyze memo(s) to identify sections

which are dynamic versus boilerplate /

reusable

Create Containers

Create “containers” to store tables & link to documents across the

enterprise

Enhanced Workflow

Enhanced and consistent

documentation from a single source of truth


In the current state, the majority of the steps involved in preparing and submitting a premium rate filing are manual and time consuming. The implementation of one or more automation tools can greatly reduce manual effort and automate a majority of the steps required to prepare and submit a rate filing.

Premium Rate Filing Process: Current and Future State

Current State Automation-Enabled Future State

Gather data and perform

initial analysis

Determine magnitude of rate change

Create new premium rate

tables

Review drafted memos

Draft cover letter and other required forms

Submit rate filing

Gather state specific

requirements

Gather inputs for actuarial

memorandum

Draft actuarial memorandum

2 3

4 5 6

7 8 9

1

Gather data and perform initial analysis, determine magnitude of rate change, create new premium rate

tables

Review drafted memos

Submit rate filing

Gather state specific

requirements

Gather inputs for actuarial

memorandum

Draft actuarial memorandum

2 3 4

5 76

1

Draft cover letter and other required forms

Key Manual RPA NLGNLP ECM


Automation Enabled Future: The Impact to Your OrganizationFor an illustrative carrier with ten products filed in 40 states, the potential time savings are significant. Once realized, additional benefit accrues from optimizing newly available time on strategic priorities

Premium Rate FilingsCovering 40 states and 10 products

02400

5

ActuariesResponsible for premium rate filings

Hours Per actuary per filing to complete the end-to-end process

Annual HoursPer premium rate filing cycle4,000

Current State

1.5400

3.01,800

Automation Enabled Future State


Automating the filing process drives efficiency, lower costs, and reduced risks.

Benefits: Automation-Enabled Future State

Significantreduction in

manual effort and time spent on the

analysis and production of filings

Integrated Processes

A streamlined, automated, and integrated filing

process

Lower Error Rate

Well-defined, controlled, and

auditableprocesses to create

filings

Optimal Use of Resources

Redeploy highly-paid, overqualified

actuarial resources to

perform analysis and tackle languishing strategic initiatives

Increased ability to quickly respond to

managementfeedback

Increased Efficiency

Efficient File Structure

Increased ability to standardize,

synthesize, and transform rate filing metadatainto insights and

competitive analysis

Increased Access


Actuarial case studiesThe following Actuarial Processes have been enhanced through automation technologies.

Metric Amount

Prior Execution Time 2,400 minutes

Prior Execution Frequency Annually

RPA Execution Time 90 minutes

RPA Execution Frequency Quarterly

Reduced execution time allows for more frequent process execution, trend monitoring, and rate filings.

Eliminated almost all manual copy-paste work, which will reduce the risk of errors and improve controls.

Improved the organization and standardization of Excel files throughout.

Premium Rate Increase Process

Actuarial Content Management –Cash Flow Testing Memoranda

Health Underwriting Quote Testing Automation

Process Overview Benefits / Enhancements Key Metrics

The RPA Process automates the collection, manipulation, and use of data for calculating lapse rates, projected premium, and projected claims that are used to select the rate increase for each Block.

The ACM solution reduces the time required to produce regulatory documents through standardized tools and templates, streamlined content management, and efficient workflows.

Reduction of time spent on memo generation, allowing actuaries to spend more time performing analysis.

Improved governance, control, and audit trail of documentation

Increased consistency and accuracy of information across the organization.

Metric AmountCurrent FTEs (Hours Equivalent) 20 FTEs

Future FTEs (Hours Equivalent) 15 FTEs

Estimated Savings 25%

The Health Rate Testing Bot automates the entry of thousands of test cases into a company-specific underwriting user interface, stores rate quote results, and compares them to independent values.

Allows for continuous testing of the system, for product and rider combinations that were rarely tested.

Increases accuracy of underwriting quotes, leading to fewer quote errors, more accurate pricing, and increased customer satisfaction.

Metric Amount

Prior Execution Time N/APrior Execution Frequency N/ARPA Execution Time ContinuousRPA Execution Frequency 24/7/365


Getting Started


Join an immersive experience (e.g., Actuarial and FinanceTM Lab) to explore the

“art of the possible” and determine a future state vision, goals, and benefits

Immerse Yourself in Innovation

Use an agile, iterative piloting approach to move from strategy to prototyping as

quickly as possible – “fail fast” and achieve rapid results

Prove it Works (Quickly)

Evolve your Actuarial organization by collaborating with other business functions,

BPO providers, and digital vendors

Build Your Ecosystem

THINK BIG

Disconnect from the core business and set up a digital leadership team to assess

disruptive opportunities within the organization

Scaling the Edges

START SMALL ACT FAST

ESTABLISH AN EXPONENTIAL ACTUARYTM LEADERSHIP TEAMIdentify a visionary program leader and assemble a team to accelerate your digital goals. Determine a governance model and understand

policies that might need to be adapted to execute successful change management and ensure the solution is absorbed into the business fabric

Prioritize your desired tactics and pick just one or two to get started in order to

establish proof of concept

Pick One or Two Plays

Seek opportunities to share digital experiences with other functions –

knowledge share

Market Your Own Success

How to get started


Key takeaways

Disruption will impact Actuaries and other white-collar professionals, in addition to those blue collar professions that we typically associate with disruption (e.g. Uber/Taxis)

Actuaries need to continue to meet professional and accountability standards and how these are met will evolve as processes change

Pixelating the opportunity set is important, which requires breaking the spectrum of work and entire end-to-end process into bite sized chunks

Examples of change/disruption are manifold and include technology enablers such as robotics and cognitive automation

There are significant implications for actuarial operating and talent models, such as the change in how we source talent and design organizations – encompassing an array of resources, both internally and externally

The outlook for the future is bright and will enable actuaries with the right skillsets to add more value to organizations through more strategic activities

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