Managing priorities a key barrier to streamlining and enhancing reserving
Insurers view managing competing priorities as the greatest barrier to change, with 75 percent agreeing that this is preventing them from enhancing their reserving process to ensure it is fit for purpose and that it saves time. This is according to a new report from financial, actuarial and business consultants LCP, titled The Future of Reserving.
The report also highlights other barriers to change, including data availability (61 percent), cost (47 percent), software (44 percent), anchoring to traditional techniques (33 percent) and business engagement (31 percent).
Two thirds of insurers (61 percent) cited a lack of data availability as the second key barrier to change. The reasons for this include a requirement to improve data quality, a lack of detailed historical data being available and challenges around managing legacy data systems. In order to address these challenges, firms stated that they are improving data systems and implementing stricter controls around data capture and quality.
Many firms described their ideal reserving process as having significant automation, while retaining human oversight of key judgments. This “best of both worlds” blend of automation and human oversight enables the reserving teams to maximise the time spent on analysis that adds value.
The report also found that over two thirds (69 percent) of firms earmarked earlier identification of trends as a top priority if they are to ensure that all critical decisions are based on the most up-to-date information. Significantly, 50 percent of those surveyed felt that they could live without quicker results. Although real-time reporting is increasingly the norm across wider financial services, the research shows there is less pressure within insurance for a faster end-to-end reserving process.
Tom Durkin, head of insurance consulting at LCP, said: “Our market review concluded that firms are ready to significantly improve benefits to the business from their reserving. It is encouraging that areas for improvement focus on specific developments which will help firms to move towards their ideal process.
“Our report comes at a time that reserving is high on firms’ agendas. This follows the Prudential Regulation Authority (PRA) publishing its 2020 priorities for general insurers in its Dear CEO letter last month, which raised a number of concerns around firms’ reserving processes. The PRA has made clear that it expects these issues to be examined at board level.”
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