14 April 2021
A new report from LCP is urging insurance actuaries and boards to work more closely together to improve communication and break down technical barriers to create a ‘virtuous cycle’ that will help boost business decision making.
LCP define the virtuous cycle as one where actuaries deliver relevant insight to the board, equipping the board to better challenge all areas of the business. This will, in turn, help the actuarial function to deliver even better and more targeted insights.
LCP’s report looks at how general insurance boards across the market work with their actuaries. It contains analysis of interviews conducted with 25 leading general insurers to understand how they make key business decisions based on actuarial advice. The report highlights that communication is key to developing a more productive relationship. A quarter of actuaries surveyed rated their own reporting as 2 out of 5 for ease of understanding. Over half said that they would value more engagement with their boards.
Other key findings include:
- Boards would like actuaries to bring together the various strands of their work into a coherent whole.
- Many boards need a better understanding of actuarial pricing analyses.
- The report found that firms who had the strongest board understanding of actuarial work also had the greatest commitment to formal board training on actuarial matters.
- Most firms felt that they performed very well operationally through the COVID-19 pandemic although fewer firms have considered how the competitive landscape has changed.
- Firms are less confident in their approach to managing emerging and long-term risks than they are in managing one-off unexpected events.
- Many boards have some way to go in addressing diversity challenges. Some firms admitted there was a risk of bias in decision making due to the board being mostly made up of insurance experts.
Charl Cronje partner at LCP, commented:
“Our research brought home just how much insurers rely on timely and insightful actuarial advice. The future will never precisely mirror the assumptions – so, for the board to get value from actuarial advice, it needs to be understood, discussed and challenged.”
“To achieve a virtuous cycle, a firm’s culture needs to allow actuaries to give their views without fear of criticism, enabling the board to trust what they are hearing. In turn, actuaries need to draw the different strands of work they do together to present a coherent picture to boards, demonstrating how their insights can provide crucial business insight.”