GR looks at why insurers are hampered by the fact they still rate their business using spreadsheets

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Spreadsheets. Such a simple word that covers what is quite possibly the largest storage format for the insurance industry. How much information is currently held on spreadsheets by the insurance industry? Sadly your guess is as good as ours.

Spreadsheets are used extensively in the insurance industry for actuarial modelling, financial reporting and operational processing. They can be easy to use and come ready-installed in most software packages. However, they come with a downside.

“Spreadsheets are still fairly widespread,” Nicholas Line, chief actuary at Markel, told GR. “One of the good points about them is that they’re simple - they’re transparent and they’re easy to manipulate. But those are also weaknesses. They can be too easy to change. You might have an issue with the version you’re using and the version being used in a different office or a different country. And you might end up with a copy of a copy of a copy, with mistakes or changes creeping in.

“Spreadsheets should also be well-documented – are things being checked as they’re inputted? Otherwise it can be harder to check what a spreadsheet is based on. The person who built a spreadsheet might be the only one who knows how it works exactly. What happens if they leave? What is someone adds something to it? The control of information is an issue. Rekeying (information) is another issue, especially when it comes to renewals – every time you type something in a mistake can be made.”

The solution, according to Line, is to move to a system where any information in a spreadsheet is locked down by its original owner. “You need version control. You need something that can’t be copied and which is owned by your IT department. You need something that can be locked down and ring-fenced. It should be a spreadsheet that’s in the middle of a program or database that’s effectively surrounded by armour – and you need the same model of that program in all your offices. You need data that can be trusted.”

Every insurer has probably heard by now of some spreadsheet mistake somewhere in its analysis or book of business. Surely it would make sense to move on from spreadsheets? However, an informal poll of insurance professionals by technical consultants Finsbury Solutions shows that no insurance companies expected to get rid of spreadsheets from their Solvency II reporting processes.

According to Finsbury: “One of the items that came up [at a recent industry event] was whether you can get all your data into a data warehouse and get rid of spreadsheets. An informal poll said it all.  The audience of maybe 100 insurance professionals were asked how many of them planned to completely get rid of spreadsheets in their Solvency II reporting. No one put their hand up.”

It could well be that spreadsheets will be around for a bit longer.