Risking it all over a spreadsheet?


Since the introduction of Apple’s first computer based spreadsheet program, VisiCalc, in 1979, the power and flexibility of computerized spreadsheets have made them incredibly popular across all industries, to a point where they are used in the majority of workplaces around the world.

In life insurance however, spreadsheets are relied upon for much more than just storing information or completing simple calculations. Their power and flexibility make them useful tools for a wide range of predictive modelling, and in more recent years, running optimization algorithms.

If your actuarial team uses (or is thinking about using) in-house solutions for things like pricing, pricing optimization, or elasticity analysis, it’s worth thinking again.

Much like the human condition, the qualities which make spreadsheets so adaptable and useful across many sectors, also fuel their biggest weakness. The issue with spreadsheets, and really any inhouse solution for mathematical modelling is mostly related to their flexibility.

Lack of governance

Spreadsheets as a financial tool were not designed with collaboration in mind, so while they can be customized and designed to be shared among multiple users, this does open them up to more mistakes - and makes those mistakes more difficult to trace and correct. Research estimates around 90% of all spreadsheets with more than 150 rows, contain errors, and this includes anything from a computational or input error, to a deliberate fraudulent error. Because commonly used spreadsheet programs such as Excel lack an auditing trail, whether an error is unintentional or otherwise can be difficult to detect.

This risk is significant considering how seemingly minor errors can have major consequences - and one doesn’t have to search very hard to find screeds of examples of the significant financial impact a simple spreadsheet mistake can have. In 2011 Mouchel chief executive Richard Cuthbert resigned, as the company revealed a £4.3m spreadsheet error made by an outside firm of actuaries.

In a small team, cell protection can be a good option for spreadsheets which are developed by one person for others to use. But if being used for peer collaboration, locking off areas then only serves to inconvenience the other users. To really unlock the potential power of your actuarial team, enabling effective collaboration is essential to help get them engaged with other areas of the business.

Lack of scalability

When actuaries follow best practice as part of their processes to avoid the traps, and ensure calculations are correct, the time invested is significant. On top of this, rebuilding models or adjusting inputs regularly within a spreadsheet is incredibly time intensive.

Spreadsheets are powerful, but most are managed in house, on local servers. There is no alternative to the scalable processing power of the cloud for running large data sets, or extensive models.

Spreadsheets can absolutely be an incredibly useful tool for a sole finance role in a small business - but for any large company, business looking to grow, or insurer wanting to get more value out of pricing more often, there is a greater need for scalability, and for a tool designed for more longevity than a spreadsheet can easily provide.

Moving from spreadsheets to using a purpose-built, cloud-based software solution can save significant time for actuaries and pricing teams, as risk aversion and auditing is ingrained within its features - meaning those manual checks and peer reviews are no longer necessary. This software can be completely collaborative without the risk - users are accountable for their actions and changes, there is a single version of truth where the numbers can be trusted, and the data and tools can be accessed from anywhere with an internet connection.