IHA Consultants

Firm Cuts Insurers’ Modeling Time Nearly 95 Percent with High-Performance Solutions

IHA Consultants, a small IT consultancy, helps healthcare and property/casualty insurers by providing Web-based stochastic solutions for advanced actuarial modeling. The company’s Stochastic Actuarial Reserve and Trend Model solutions use Microsoft® high-performance computing (HPC) technologies to develop financial reporting and forecasting models that are not possible using nonstochastic methods. With the solutions, insurance actuaries can get results in considerably less time than with previous systems. These actuaries also experience greater accuracy and reduced risk, which lead to increased profitability.

 

Situation

Since 1997, IHA Consultants has worked to give healthcare and property/casualty insurers a competitive advantage by delivering advanced modeling solutions to meet their business needs for faster, more accurate financial reporting and forecasting. In the insurance industry, it’s critical to be able to produce and analyze meaningful information about past financial performance, risk levels, and projections of future performance.

By building our solutions on Microsoft HPC products … we’re giving our insurance customers familiar tools that they can use to be more competitive and do more in less time. Mark Zanecki President, IHA Consultants

Stochastic models are more informative than traditional models. These models make it possible for actuaries to spend the majority of their time analyzing results and the implications of companies’ financial status, rather than spending days just developing estimates from traditional financial and actuarial models. With stochastic models, actuaries can more carefully consider the future implications of decisions.

Automating, centralizing, and standardizing the actuarial modeling process adds significant value to insurers’ internal information flow by enhancing enterprise productivity, reducing enterprise risk, and enabling everyone to make better business decisions based on common, credible data. Actuarial productivity and the credibility of results are augmented through stochastic modeling, which allows actuaries to better account for variability in all risk factors that are inherent in insurance products. In the past, such capability was not commonly accessible due to the high costs of computing systems and personnel.

Solution

IHA Consultants set out to fill the market need for automated, stochastic modeling by building a set of stochastic actuarial solutions that are fast, flexible, easy to use, and accessible over the Web. “We wanted a system that would make it easy for everyone from company executives to staff actuaries to see the direct value of having financial information quickly available at their fingertips,” says Mark Zanecki, President of IHA Consultants and Member of the American Academy of Actuaries (MAAA).

Figure 1. IHA Consultants Stochastic Actuarial Reserve and Trend Model

The company chose to create its Stochastic Actuarial Reserve and Trend Model solutions using Microsoft® technologies because the solutions needed to fulfill dual missions: to be straightforward and intuitive to use, and to use server hardware both as a 64-bit parallel processing platform and to serve Microsoft Office programs. “For example, we definitely wanted to take advantage of Microsoft Office Excel® 2007 because it tends to be the tool of choice for insurers,” says Zanecki. “We built a customized, Excel-based application for the user interface, so the solutions look and feel familiar to users.”

IHA Consultants also wanted to build scalable solutions that could handle the increasingly complex models that actuaries require. The company ultimately decided to design the solutions for Microsoft high-performance computing (HPC) technologies. It initially used Windows® Compute Cluster Server 2003, but is in the process of upgrading to Windows HPC Server 2008. “We chose Microsoft high-performance computing products because jobs can be distributed across many server computers to process models and results more quickly, without limitations with regard to processor availability,” explains Zanecki.

To develop the solutions, IHA Consultants used the Microsoft Visual Studio® 2005 Professional Edition development system and Visual Studio 2005 Tools for the Microsoft Office System. Along the way, the company upgraded to Microsoft Visual Studio 2008 Professional Edition for the ability to more tightly integrate solutions with 64-bit Microsoft SQL Server® 2005 database software environments.
“We sped up our development process considerably, thanks to the tools’ integration and features such as IntelliSense®,” says Zanecki. “We were able to develop a working prototype in less than five months and bring our solutions to market about a year earlier than we’d otherwise have been able to do.”

In January 2008, the company released its Stochastic Actuarial Reserve and Trend Model solutions (see Figures 1 and 2) with two licensing models. Customers can acquire a solution and have it installed on-site, or they can use a Web browser to access a hosted solution that IHA Consultants manages and maintains.

Benefits

The IHA Consultants solutions provide an efficient way for insurers to obtain both an enterprise view and comprehensive line-of-business results from stochastically modeling their financial status and projections. Benefits include reduced risk through augmented risk pricing, reduced financial reporting time, and smooth integration of forecasting—all of which make it possible to run an agile business.

“Chief financial officers and chief information officers now can see tangible results and value for their software and hardware investments. By building our solutions on Microsoft HPC products, combined with Microsoft Office Excel, we’re giving our insurance customers familiar tools that they can use to be more competitive and do more in less time,” says Zanecki.

Figure 2. IHA Consultants Stochastic Actuarial Reserve and Trend Model

Greater Accuracy for Increased Profitability

Using the IHA Consultants solutions, insurers experience a reduction in risk—in terms of both pricing and financial reporting. These reductions lead to augmented financial modeling accuracy, which is crucial because any errors affect current reported profitability as well as future profitability.

“People using our solutions will reduce their reserve estimation error considerably,” says Zanecki. “The ability to be both truthful and transparent helps companies reduce their margin for deviation, which can release millions of dollars in reserves. Plus, they have time to test more models to ensure that their product pricing is just where it ought to be. Pricing affects sales, and these solutions help companies get their pricing right without guesswork.”

More Comprehensive Answers

With the HPC solutions, insurers can answer questions that were previously unanswerable. For instance, they can determine the variability of reserve ranges with associated probability, the implications for end-of-year results, their short-run and long-run risk-adjusted capital position, and whether or not the company could benefit from adjusting its stop-loss strategy.

“Being able to delve deep enough into data to figure out if, for example, a company’s premiums properly reflect its risk levels and target return on equity is critical to its financial health,” says Zanecki. “Our solutions take advantage of HPC to provide in-depth answers that weren’t previously available through traditional modeling.”

Ease of Use

With the IHA Consultants solutions, insurers don’t need specialized training in actuarial software to get financial projections based on stochastic modeling. “When actuaries log on through the Web application or open the application locally, they walk through six simple steps and can choose the number of simulations and models to use. Within less than 10 minutes, they have results,” says Zanecki. “Additionally, they have the flexibility to use any device with a Web browser or remote desktop capabilities, and they can cut and paste existing data into the application or enter new information on their own.”

Reduced Output Times by Nearly 95 Percent

With the Stochastic Actuarial Reserve and Trend Model solutions, actuaries can develop results in 10 minutes for jobs that would normally have taken up to three hours to complete. “Using HPC really makes it possible to compress the modeling timeline,” says Zanecki. “Actuaries then have time to compare analysis to pricing and forecast drivers, and to mine data for answers about the results.”

Increased Scalability

By using Microsoft HPC technology, IHA Consultants can offer solutions that can easily scale to meet growing modeling needs. “Using HPC is the best way for us to support insurers as they solve nonlinear optimization problems, which are the hardest to compute and require considerable processing power. With Windows HPC Server, we are able to provide a low-cost, scalable environment with breakthrough speed and technology capabilities,” says Zanecki. “And scaling the solutions to meet growing computing is a straightforward matter of adding servers.”
 
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For more information about IHA Consultants products and services, call (919) 260-3291 or visit the Web site at:
www.ihaconsultants.com