April 2012

Spreadsheets—the Aging Friend of Actuaries

by Mark Grall


grall-mark(1).jpg Is the aging Excel spreadsheet an actuary’s best friend? It appears that the life and pension industry is meandering blindly into a world of endless spreadsheets and reporting. Actuaries appear to be afraid to move away from Excel and, at the very least, away from the 2003 version of Excel, despite those fears being largely unfounded. So why does this fear persist?

Are spreadsheets really the optimal way to add value to our industry? Surely, the reluctance to move away from older models can’t be based purely on the fact that bespoke spreadsheets make for astounding job security. After all, despite these recessionary times, it can’t be wise to snip the actuary who knows how the discombobulated array of figures actually works. Of course that’s not the reason, but there is no doubt that actuaries appear to feel bound into a monogamous relationship with Excel till death, or possibly critical illness, do them part.

It appears that the next generation of actuaries feels compelled to follow in the path of their professional elders. Surely, we should grasp newer technologies with both hands and try to use them to automate the drudgery of repetitive tasks. We can then focus on the more difficult challenges that the future holds. Excel is merely a calculation machine, which continuously needs reprogramming. Surely a pre-programmed engine with discrete transparent calculations would provide a better basis for automating and documenting actuarial formulae?

Well, the good news is that the future has already arrived. Configurable actuarial calculation engines already exist and provide many benefits not readily available to those who prefer the multitude of spreadsheets approach. However, there seems to be a reluctance to go down this route. Why and what changes would the actuarial body have to undergo if we were to move to using automated calculation engines as a standard?

First, this solution, once implemented would eliminate the need for large actuarial teams, which many consider a frightening prospect. Maintenance would require vastly less knowledge of bespoke spreadsheets and, we might even go as far as to say, could even be managed by a junior member of staff.

Is the industry fear based on the assumption that calculation engines would mean that actuaries would only be needed for new calculations and to overall manage the system? I’m sure that no one actually wants to spend his or her career in maintenance mode rather than tackling new areas. The correlation of the mortality of a spreadsheet and the author actuary is ever verging toward one.

Second, automated engines mean that actuaries would readily be able to understand their peer’s calculations. This would provide more transparency and surely improve our ailing market image. Greater automation would likely lead to more mobility within the actuarial industry. We should not be afraid of spreading knowledge across the industry by becoming a more mobile profession.

Third, there is an ever-present risk that these bespoke spreadsheets contain errors. It is not unknown for a spreadsheet, whose original author has moved on, to be left running with errors in it. Many life insurance companies have an entanglement of spreadsheets which frequently crash, as this product was never meant to be pushed to these limits. One saving grace is that ever expanding computing power has made it possible to sustain multiple instances of Excel operating simultaneously. However, this is merely a plug the gap solution at best.

Are actuaries destined to remain wed to spreadsheets and become the major barrier to the growing public desire to access all information on their assets via smartphones and tablets? When other industries are moving to working "anywhere, anytime" and are "always on, always connected," there is a danger that actuaries remain so far behind the curve that we hold back the entire life and pension industry. We don’t want to be seen as the Luddites of the 21st Century.

For actuaries to take their part in the mobile world, a move away from spreadsheets is mandatory. Calculations cannot remain as standalone expertise, but instead need to be integrated with Internet systems, mobile apps and potentially be put in the cloud.

The difficult part is to convince those more senior actuaries now running the departments that this is the optimal strategy.

One conclusion is clear; the spreadsheet as a long-term solution has exceeded its expected mortality and is now being kept alive by actuaries who are too emotionally attached to it to agree to switch off the life-support.

Mark Grall, BAFS, is a part qualified actuary working with Exaxe in Dublin, Ireland. He can be contacted at mark.grall@exaxe.com