Risk Modelling in Insurance: Empowering the world
Risk management is an increasingly complex challenge for insurers, especially if they operate on an international scale. “It’s challenging enough to comply with regulations in a single geographical location,” says Peter Haslebacher, Head of Global Insurance Strategic Alliance at FIS. “But that challenge is multiplied for insurers that operate in multiple countries, because they need to comply with a range of local and regional regulations in a very short window of time. A company that is headquartered in a European Union country currently will need to comply with Solvency II, but if it also operates in Asia, for example, it may need to comply with regulations such as Risk-Based Capital in Thailand and IFRS 4 in Korea. At the same time, the business needs to comply with internal parameters and guidelines related to risk profiles and product ranges. One of our clients has 18 different entities that need to ensure compliance not only on a local and regional basis, but also in a consolidated and aggregated form for the group.”
Ensuring that the capacity is available to model risk scenarios when they are needed is key to complying with those regulations, says Haslebacher. “It requires a lot of computing power to make sure you can model all these different risk scenarios. Insurance companies are producing terabytes of data and they need the capability to extract the relevant information that can help them drive the business, assess risk and react quickly to market changes by getting new products out to the market. The more agile an organization can be, and the faster it can react, the more potential revenues and business it can generate. Due to the high volatility of capital markets, management is increasingly asking for more analyses in ever shorter periods of time – another reason for more efficiency and flexibility in data processing.”
Insurance businesses are increasingly looking at hosted environments as a means to achieve those goals. “It’s almost impossible for insurance companies to manage all the applications they’re using in their business processes in-house,” says Haslebacher. “As a result, we are now seeing a drive from insurance companies to move their applications into hosted application managed environments. On top of that, insurers need to cope with large fluctuations in the capacity they need – and that’s where the cloud’s elasticity is delivering key benefits, not only in the risk space. Cloud computing offers the capability to move capacity up and down as it is required for the business. From an operational perspective, it is much more economical because you only pay for and operate the peak capacity for the period when you need it. Hardware refresh and data storage is all delivered on a consumption-as-you-use model.”
Insurers around the world are using the FIS Prophet risk management platform to work efficiently and effectively with the capacity they need, when they need it. “Prophet is designed with all the features needed to meet internal and external requirements, such as data security and data controls, and this is all available in an outsourced environment, including the Microsoft Azure cloud,” explains Haslebacher.
By combining automation with capacity on demand, and ensuring the right parameters are in place, insurance organizations can use Prophet to streamline the task of meeting their risk and regulation responsibilities. “Regulatory compliance is a complex matter that involves many internal elements, operational risk and other issues,” says Haslebacher. “A software solution cannot ensure regulatory compliance – that is the responsibility of the organization – but it can take a lot of pain out of the process. By enabling automation and elastic capacity, Prophet and Microsoft Azure are helping insurance companies to comply with regulations in a timely manner.”
Prophet enables significant productivity gains for insurers by empowering highly-skilled staff to focus on high-value activities. “Over the past four to five years we’ve seen a shift in the industry from handling all the work in-house to outsourcing it using solutions like Prophet,” says Haslebacher. “By automating and outsourcing production of the numbers, insurers are freeing up human capacity to focus on analytical and planning activities. This increases the productivity of an actuary several-fold because they can use their time to analyse those numbers and make meaningful decisions.”
The combination of Prophet and Microsoft Azure also allows insurance companies to run their entire policy portfolio against their financial assumption models, which eliminates some of the estimation activities they had to do before. “In the past, some insurance businesses had to extrapolate samples to determine total liability,” says Haslebacher. “But with Prophet and Microsoft Azure they can run millions of policies in a very short period of time and get an accurate number on their liability exposure. This delivers a higher level of accuracy and more meaningful information, supporting staff to make the right decisions at different levels within the business.”
Find out more by downloading Microsoft’s Perspectives on Insurance Risk Modelling
