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Actuarial Modeling

“Set the Market” – A Conversion Case Study

We’re taking a short break from our series on Modern Actuarial System conversion topics to bring you a case study of a successful SLOPE client. Read on to see how Dwayne McGraw, FSA, MAAA, and Funeral Directors Life insurance (Texas, USA), modernized their pricing functions and streamlined their time frame by an incredible 95%.

A legacy of service

Funeral Directors Life is an insurance company headquartered in Texas, selling pre-need insurance policies across the country since 1981. It is licensed in 45 states, and has current assets over $1.4 billion. AM Best rates the company A- (Excellent).

Though the company has a nationwide footprint, the actuarial department has remained small. Historically, all pricing, valuation, and forecasting functions were completed by a single individual, the Chief Actuary. The former Chief Actuary had significant knowledge of the business, the actuarial software, and the ancillary processes developed to overcome the limitations therein.

This had served Funeral Directors Life reasonably well until a change of personnel. Dwayne McGraw, FSA, MAAA, took over as Executive Vice President and Chief Actuary in 2018, and began examining the existing processes and systems.

a picture of a smiling actuary
Dwayne McGraw, FSA, MAAA
image courtesy of Funeral Directors Life

[side note – this is a good time to point out that “Change of Personnel” is one of our “8 Signs you may need a new actuarial modeling system” – read it here.]

“Either you force it to work, or you pay a ton of money, or you just don’t do it.”

After the change in personnel, Funeral Directors Life encountered limits with the legacy actuarial system. The system was inflexible and unable to adapt to a dynamic business model and product portfolio. Specific customizations of the pre-need product were not available in the historical software. These included paying a commission based on the face amount instead of the premium and having the face amount automatically increase over time,

Historically, this forced Funeral Directors’ actuaries to work around limitations. They would write and edit code in a separate program to calculate factors that could be applied in a table back inside the model.

While this enabled the necessary calculations, it also added a significant amount of work-around to the process. It required additional calculation of values outside of the actuarial model in an Excel workbook. What’s more, these values needed to be converted into the appropriate format for entry into the system. All of this to “trick” the system into doing what it should have done in the first place.

Most of all, this convoluted series required actuaries to perform a skill many of them don’t have:

“I would be a terrible programmer,” McGraw said. “That’s why we [actuaries] don’t do it.”

Delays limited business success

With the amount of excess work involved, a typical pricing cycle could take up to two weeks. This forced Funeral Directors to only work on pricing when it was absolutely necessary – when the market demanded it – rather than strategically and proactively.

As a result, pricing was performed infrequently and inefficiently. Which limited the opportunity to influence the market and be leaders in their industry.

The incentives to seek out a modern actuarial system were fairly obvious.

In order to evaluate whether there could be a better way, Funeral Directors Life began to investigate their options to advance their business practice.

Their legacy system had an upgrade option that would require hundreds of thousands of dollars in fees. But even this proved to be unworkable. The interface did not appear to have any advanced features. And the newer version did not appear to offer any greater functionality or take advantage of modern technology.

McGraw points out significant deficiencies in all the options with their traditional system: “Either you force it to work, or you pay a ton of money [to upgrade], or you just don’t do it,” he said. Which is in no way an ideal situation.

On top of all that, it took the vendor months just to provide a quote for doing that work. By that time, McGraw had already moved on and was getting results.

A modern solution

Funeral Directors Life had seen demonstrations of SLOPE and was interested in the system’s ability to:

  • Handle unique product features (such as commissions paid on face amount, and increasing the face amount over time), and
  • Eliminate the need for additional coding and work-arounds outside of the model.

After seeing an example of SLOPE in action, McGraw was confident that the system could provide the solution they wanted and needed, in a much more user-friendly, cost-effective way.

Because of SLOPE’s flexible, user-defined formulas and relationships, models of the pre-need products could easily align commissions with the face amount. As well, that face amount could be defined in a flexible way to handle various increases for inflation, and even account for additional conditions as necessary.

And because SLOPE licenses come with support from dedicated account representatives, McGraw was able to get advice on how to best build the models to reflect the business and risk management functions. He no longer has to find work-arounds and manage external add-ons.

Going forward with a better outlook

Now, instead of 2 weeks for a pricing run, Funeral Directors Life can complete the same kind of work in only a few hours (4 hours on the most recent run). The time for pricing cycles has been reduced by about 95%.

This is a result of three major features of SLOPE:

  1. No proprietary data format: SLOPE’s “accept any data format” input means there is no need to massage data tables to get the right format.
  2. No-code variable editor:  adjusting formulas to drive product features based on table values allows multiple options to be investigated in a single run and compared against one another.
  3. Integrated reporting and visualization: Funeral Directors Life can create standardized pricing reports that users trust to adequately reflect the results of the model.

Now, McGraw can run pricing much more frequently and with strategic intent. He said, of the opportunity to be a leader in their industry, “We can set the market, rather than trying to follow it.”

We can set the market, rather than trying to follow it.

Dwayne McGraw, FSA, maaa; Executive Vice President and Chief Actuary, Funeral Directors Life

If you’re interested in seeing how adding a modern actuarial system could allow you to become a market leader, click here to set up a demonstration.