LDTI – A Chance to Reimagine the Traditional Life Insurance Business?

March 08, 2019

Life insurance was reportedly sold for the first time in the 1760s. But today, blocks of traditional life business can still be managed in much the same way as that initial group of policies. Could the long duration targeted improvements (LDTI) to U.S. GAAP inspire insurers to bring their processes up to date and understand their business like never before?

With many insurers having issued their first whole life policies more than 100 years ago, the systems in place for analyzing business performance are often understandably dated. Firms may use factors for calculating reserves, and give experience on older blocks enough attention to satisfy cash flow testing or loss recognition requirements – but nothing more.

As newer generations of products have come on the market, insurers have typically made incremental changes to older products – and, in turn, the systems and models used to manage the business. Until now, it has never been a top priority to stop and revisit the effectiveness of ageing life insurance models – or, indeed, the business decisions they are enabling.

Under LDTI, the need to calculate benefit reserves for traditional life policies is set to change all that for good. Gone will be the days of selling business and letting negative experience gradually take effect as a block of business ages. Any changes to the underlying experience will now have an immediate impact on GAAP financials.

As a result, companies will need to understand experience at a level of detail they’ve never needed before. And top insurers see this as an opportunity to step back and think about the analytical tools available to them for managing life business. Specifically, they need these tools to deliver:

  1. Granularity for understanding both inputs and outputs. There may be millions of records with dozens of potential attributes to drill down into, making traditional databases poorly equipped for storing and analyzing this data. Instead, you should use modern database technology, like distributed databases, to feed the information into dashboards and data mining tools – and provide the proper level of insights.
  2. Integration with the overall solution suite. With so many data points to look at, having all your information and tools within a single platform is key. Imagine you could link up the assumptions used with the policy level attributes and output data, then feed them into a data warehouse that’s configured to link all these data sources. It used to be an aspirational dream; now it’s absolute must-have.

By being able to meet these key requirements and more, FIS’ Prophet stands out above all of our competitors. Not only do we offer the only true single platform, incorporating end-to-end data management and workflow management and governance, but we are also the only vendor with out-of-the-box capabilities for handling all of the LDTI calculation requirements.

Actuaries have a lot on their plates right now, so it will be tempting to do the bare minimum to achieve compliance with LDTI. But with Prophet’s state-of-the-art technology, you have a readymade solution for going beyond regulatory reporting demands, reimagining your business – and leading the management of life insurance into the modern age.

About the Author
Sean Hayward
Sean Hayward

Capture opportunities with embedded finance
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