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What’s getting in the way of innovation in insurance reserving?

March 28, 2023

The first of our five-part article series on reserving transformation.
Insurance Consulting and Technology
InsurTech|Insurer Solutions

Part 1: What’s getting in the way of innovation in insurance reserving?

In the first of a series of five articles on opportunities for reserving transformation in 2023, we look at what may be holding insurers back despite what we observe as growing recognition of the potential for improvements in reserving to add value.

In our experience, many insurers find themselves in a dilemma when it comes to their reserving process.

They recognise there is often considerable room for improvement, but they can’t see a reasonably pain-free way to make improvements without impeding the work taking place to meet their reporting and regulatory obligations.

The result. Many companies keep parking the problem and continue to apply sticking plasters to what they already have. Yet, in doing so, we believe they are missing out on a huge opportunity and a growing movement within the industry towards “we can do better”.

What are they typically missing out on? It’s not just cost and time savings. The key benefit is the potential to use reserving outputs to feed into and augment pricing, claims, exposure and capital management. And last but not least, it’s using the time of skilled, often expensive, people more effectively and more extensively in such value adding activity – often enhancing their job satisfaction in the process.

The primary barrier we see to achieving these gains is, in general, that the reserving process is too clunky and divorced from the rest of the business. It is typically far too onerous and consumes too much human time and effort to effectively manage the operational risks and control the output, let alone think about how and where reserving analysis could add value.

Three common ‘blockers’

So, what are some of the root causes of how reserving has arrived at its current state and the resultant outcomes? The three most common that we see are:

  1. 01

    The reserving process itself

    many companies’ reserving lacks resilience and scalability. An over-reliance on complicated Excel spreadsheets, for example, gives little flexibility or time to run variations of best estimates or incorporate new information. This, in turn, increases exposure to key person risk because of the way the process has developed out of necessity over time, potentially without documented controls or governance.

  2. 02

    Multiple versions of the truth

    many companies lack integration between systems and a ‘common version of the truth’. This not only wastes time but can put different parts of the business at strategic and operational odds with each other. Different departments of the same insurer, such as pricing and claims, will often carry out the same or similar analyses as those produced by the reserving team.

  3. 03

    Nasty surprises

    because many companies’ reserving is infrequent and highly aggregated, it can often be difficult to see adverse claims development coming their way quickly enough. Companies lack the correct technology and tools to monitor claims and assumption validity.

Experience at the coalface

When we talk to internal stakeholders in the market, we frequently see the influence of these blockers in the concerns and mindset surrounding reserving. It is for this reason that we see addressing them as the key way to unlock what we believe are the big opportunities that reserving can provide.

For the chief actuary or head of reserving, many are seeing overstretched teams and the effects of key person dependencies. Most of their concerns are focused on meeting deadlines and being able to adhere to professional standards in doing so. Rocking the ship may be seen as impractical or a headache they don’t have time for – even if there is recognition of longer-term benefits.

The chief technology officer, when or if brought into the reserving discussion, often sees a patchwork of technology ‘fixes’ that may give the impression of a lack of resilience and rigour. The need to convince them of a business case for the role of technology as an enabler for reserving and general business improvements must be made clearly and succinctly.

Earlier, we referenced how a single version of the truth can be useful in areas such as pricing, claims and portfolio management. Frequently, we hear from heads of those teams that they appreciate how such analysis would be useful to them and the overall business, but they don’t feel they can get insights when they need them and at the right granularity. Collaboration is not being helped by language siloes between departments and varying interpretations of factors such as what defines a large loss.

For the wider C-suite, the crux of the issue is to demonstrate how more frequent and cutting-edge insights could inform and drive decisions that enhance business value. Ultimately, solutions will involve some degree of investment and/or, perhaps, changes in roles, information flow and decision points, all of which may need buy-in from these senior sponsors.

Clearing the obstacles

Enough then of the challenges that insurers may face and have to overcome with regards to shortcomings in how reserving creates value for the business. What of potential solutions.

While much boils down to having a reserving system and process that allows for greater frequency and integration of analysis, our second article will look at how reserving best practice is developing, including the role of technology and automation.


Dan Joseph
Director, Insurance Consulting and Technology
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Holly Layton
UKI Reserving Transformation Lead
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Sam Bright
UKI Reserving Innovation Lead
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