Actuarial outsourcing trends in the insurance industry

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Deloitte Capital H Blog, February 10, 2022

By Tony Johnson, Maria Itteilag, and Ashlyn Johnson


As insurance industry leaders seek to transform the cost structures, capacity, and capabilities of their companies in response to business, regulatory, and technological challenges, the actuarial function is a natural focus for their attention. The actuarial function is a driver of growth and profitability of insurers, so maximizing its value generation is a tantalizing prospect. At the same time, the function is an expensive one, so a successful transformation can generate significant savings on the cost side by focusing the actuaries’ attention on value-creating activities as opposed to those better suited for other professionals and functions to own.

The promise of getting more for less from the actuarial function is tempered by challenges and risks inherent to transformation initiatives. According to Gartner, 70% of transformation initiatives in finance fail to deliver their expected benefits and our observations suggest that actuarial transformations are no exception.1

However, we also find savvy insurers who are bucking the odds of transformation failure. They are using outsourcing arrangements in the execution of actuarial transformations to bolster implementation success, and as an integral element in the design of a revamped actuarial function that can deliver greater value to insurers at a lower cost. Your company can potentially do the same.

The imperatives of actuarial transformation

Like any business transformation, successful actuarial transformation hinges on the ability to navigate two imperatives: the first imperative is design—the vision of what the function will become, and the second imperative is execution—the journey that must be undertaken to make the vision a reality. Transformation failures are usually rooted in the inability to meet one or both imperatives.

The involvement of actuaries in the design of the transformed function is necessary. After all, who knows the processes better than the people who use them every day? But necessary is not always sufficient. Actuaries are experts in their work, but you should not expect them to be familiar with the transformational potential of new technologies or new ways of structuring workflow and executing tasks. Without a fully informed view of the art of the possible, the new design of the function will not likely reach its full potential.

Moreover, executing functional transformations requires mustering the resources and skillsets needed to implement the transformation while conducting business as usual. In the actuarial function, this often entails using highly specialized and highly paid actuaries to design and implement the transformation. In some cases, the actuaries do not possess the skills needed for this work. In many more cases, they simply do not have the time. As insurance companies begin to transform, their actuaries become overloaded as they try to meet the ongoing dictates and priorities of daily business, as well as the dictates and priorities of the transformation efforts. Many transformations fail when people become overwhelmed while simultaneously performing the work of today and building the capabilities of tomorrow. Read the rest here.