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Finding a way to update your modelling practices that speeds them up while promoting a greater degree of flexibility sounds like it is impossible, but new solutions offer a new way.

From the military to medicine, we are often told that rapid response units save lives. They quickly react to difficult situations, prioritise what needs to be done and tackle only the essentials, effecting a swift resolution. Insurance might lack some of the drama of Jack Reacher or Grey’s Anatomy but a rapid response can save time and money and sharpen a competitive edge.

This is particularly the case with actuarial modelling. A closed model, maintained by an experienced vendor, can improve accuracy and efficiency and reduce runtimes, as well as allowing a greater degree of oversight, all things that any business would identify as being desirable. But it would mean that the modelling team would be unable to react quickly to changing demands, surrendering critical competitive advantage to the company’s rivals. The rapid response unit would be grounded.

Unlike the scenario where a closed model was abandoned, new data could be entered into an open model as it became available, and the models themselves could be developed and adapted to reflect the nuances of new products. And if this sounds like a watertight argument for building your own tools, bear in mind that although new products could be developed and brought to market more quickly, the runtime of the model could be greatly increased by the changes, also reducing competitive advantage.

Hybrid solutions

If you’re guessing that the answer here is a hybrid solution which combines the best of both worlds, an open model and a vendor-managed system, then you would be correct. In fact, there are solutions available which do just this and draw on the latest available technology. Making sure that your system is, like this, one which creates the optimal balance between speed and efficiency depends on several criteria:

  • Hybrid characteristics - A complete modelling solution combines the strongest aspects of vendor systems and open models. It reduces runtimes while promoting flexibility and agility, restoring competitive advantage and also making the operation of the model much more transparent.
  • Governance - One of the advantages of the vendor-system is that it allows a greater level of governance over the model, with decisions being made about what might be a productive input and also to make sure that best practice is observed. This should be a defining feature of the new system.
  • Sharing - Best practice can be broadcast across various, relevant teams using multi-user tools, for both development and production, inside a secure and managed environment that generates clear audit trails. This promotes accuracy and efficiency.

And there is a final criterion which might not be at the top of the shopping list when it comes to features, but which can help reduce disruption to the business and maintain continuity.

  • Migration - The solution should use industry standard data formats and coding languages in its custom calculations to reduce migration time. Most of the migration should ideally be completed using internal resources and the provider should offer training and advisory support to enable the teams to take advantage of any new features of the product.

These four criteria are not exhaustive, but they make an important outline to evaluate any solutions which promise to change the way modelling is conducted. While they may lack the excitement of men in fatigues abseiling down a building or speeding doctors in white coats, they still have the potential to transform the way that one of the most important parts of your business works and help position you to identify and leverage future opportunities.

Eddy Trivedi is the Regional Product Leader for Life Financial Modelling in the US with particular expertise in applying software solutions to complex business problems.