Actuary 3.0 - What Is It and How Do You Get There?

Actuary 3.0 is the future of how actuaries will design, test, and use complex actuarial models. It’s the solution to the long-debated love-hate relationship between actuaries and Excel. Actuaries have grown dependent on the flexibility of Excel for creating complicated business logic. As these models have to encompass thousands, if not millions, of cells and formulas, actuaries have used Excel beyond what it was designed to do. Actuary 3.0 is the evolution of actuarial technology that solves both the limitations of Excel and the challenges with enterprise cloud-based programming solutions.

Actuary 1.0 – The Beginning

Excel was launched in 1985 and actuaries quickly adopted it as their software tool of choice, relying on its flexibility to create complex business logic and models. The actuarial profession evolved with limited reliance on programming skills as actuaries were self-sufficient in creating complex business logic and models in Excel.  

According to the Casualty Actuarial Society’s First Annual Technology Survey, over 94% of actuaries reported that they use Excel daily.  Actuaries have found creative solutions, such as VBA, to circumvent Excel’s limitations. However, as the models became more complex, the limitations became more acute.

• Limited processing power - Local installation of Excel limits scalability and makes it difficult to run and control complex models quickly.
• Lack of version control and governance - Multiple versions of the same spreadsheet model are often in use at the same time.
• Limited automation to replicate formulas reliably - A survey found 86% of spreadsheets contain significant errors. 
• Difficulty meeting regulatory requirements - Regulations are constantly evolving, with the current wave of change led by accounting standards IFRS 17 and US GAAP LDTI. Excel lacks tracking of calculations for auditability.
• Security risk: VBA macros are a target for malware and ransomware.

Ultimately, these limitations led to too many mistakes and inadequate processing time to be sustainable, which led to Actuary 2.0.

Actuary 2.0 – The Debate

As the number of errors in Excel-based actuarial models increased, there was a growing anxiety about finding a better solution. Shared models lacking version control easily led to one person overwriting formulas that impacted other parts of the model. Additionally, new, more stringent regulations fueled a heated debate about whether Excel was the right tool.

Many insurance companies pushed to adopt a single, enterprise-grade actuarial software to replace Excel and encompass the entire actuarial process. While this solution had significant potential, the reality has been far more complex and difficult to implement. Some aspects of the actuarial process have moved to cloud-based, enterprise platforms, but other components remained in Excel as the vision of a “single platform” was unreachable for most insurers. 

Limitations of enterprise-wide actuarial systems included:

• Limited customization - Relative to Excel, actuaries felt limited in their ability to create models and business logic for their specific needs.
• Limited support for certain data types and extreme events - Excel-based models for pre-processing irregular data or modeling rare and catastrophic events were still needed.
• Lack of transparency - Without understanding exactly how the model was built, actuaries often found it difficult to interpret the results and make informed decisions. This was especially true for closed systems, where actuaries had to rely on the software vendor to code new functionality.
• Slow cycle time for new model creation -The cycle of actuaries creating prototypes in Excel for IT to code into actuarial software became frustrating and tedious for actuaries who preferred to do it themselves in Excel. 

Ultimately, the reality for insurance companies sunk in. They simply didn’t have the right staff with the right specialized skill sets to make this financial transformation work.  A single, enterprise-wide solution for the entire actuarial process was as unfeasible as relying entirely on Excel alone to produce scalable, controlled results.

The industry needed a better and different solution.

Actuary 3.0 – The Solution

Coherent believes that neither Excel on its own, nor a forced system that eliminates Excel entirely is feasible long-term. Excel’s staying power, despite repeated attempts to shift to enterprise-wide solutions, is directly related to its unmatched ability to quickly create complex business logic. 

To achieve complete actuarial financial transformation, actuaries must use Excel for its intended purpose while automating other pieces of the process to bring much-needed scale, control, and governance.

Actuary 3.0 requires a modern, “best-in-class,” component-based solution. A solution that enables Excel to do what it does best – defining business logic – and brings in other components to complement what Excel does not do well – automation, control, and scale.  In other words, leverage Excel to create and deploy models on the cloud with seamless connectivity to the broader IT infrastructure.

How Do You Get to Actuary 3.0?

Solutions like Coherent Spark harness the flexibility of Excel and the power of enterprise-grade, cloud computing. It solves the challenges inherent in relying on Excel only, actuarial systems only, and the manual workarounds designed to connect the two.

Actuarial models can be converted to cloud-based workflows in minutes without specialized programming skills. Coherent Spark is an Actuary 3.0 technology that is:

• Scalable and Controllable - Powerful cloud infrastructure enables a 99% reduction in run time and 80% faster testing directly in the Spark platform.  All while still creating business logic in Excel.
• Easily Integrated - Spreadsheets become automated workflows with optional integration into existing systems without outside developers or in-house specialized coding skills. A no-code solution for Actuary 3.0.
• Accurate and Trackable - Logging, tracking, and observability features eliminate human error while creating a full audit history and auto-generated documentation.

Actuary 3.0 is Easier Than You May Think

Actuary 3.0 provides the insurance industry with the solution they have been seeking. Coherent Spark provides a “best of both worlds solution” harnessing the flexibility of Excel and the power of enterprise-grade, cloud computing. If your organization is stuck at Actuary 1.0 or 2.0, check out how Coherent Spark can quickly launch your actuarial models to Actuary 3.0.

To learn more, download our whitepaper, Actuary 3.0 – The Actuary, the Spreadsheet, and the Future below, or explore our free sandbox and convert your first spreadsheet today.