What Does the Video Game Industry of the 1990s and Actuarial Software Industry Today Have in Common?

By the early 1990s, as computers became powerful enough to run 3D graphics in real time, the future of video game development business was quite clear. As technology progressed, the allure of better graphics would allow developers to introduce visually enhanced versions of their games, ensuring a business model that thrived on graphical improvements for years to come.

However, a significant roadblock emerged: Profitability. While 3D graphics promised enhanced gameplay, they also demanded more development time and expertise. The increasing costs were hard to offset, as consumers weren't ready to pay two or three times more for their games. Producing top-tier, big-budget video games from scratch became prohibitively expensive, necessitating exorbitant sales just to break even.

To aid developers, several software packages emerged, offering foundational 3D graphics capabilities to save time and the cost of developing them from scratch. These tools permitted specific customization options but kept the underlying code and structure locked away. It worked well for “standard” games with people and buildings, but it didn’t work well for something unique, like a game about dolphins whose movement and environment are totally different.

Interestingly, the early 3D graphics software market is quite similar in business model to today’s actuarial software market. Companies purchase licenses for software that offers a restricted range of customization. While vendors sometimes offer additional, specialized support, this model can still be limiting, slow, and pricey. It is certainly better than writing such software from scratch, but there is room for improvement as the further history of video game development demonstrates.

Recognizing the constraints of early 3D graphic tools, pioneering companies like Epic Games and Id Software provided a groundbreaking solution: Granting source code access and terming their products "engines." This innovation addressed critical challenges:

• Clients could customize without constraints.
• They weren't solely reliant on the vendor's resources. They could leverage their own teams, hire the vendor, or even engage a third party.
• Direct code access facilitated smarter customization, enhancing the final product's performance.

What would this approach mean for actuarial software and the actuarial profession?

The benefits of actuarial modeling engines can be summarized as improved cost efficiency of modeling operations and an overall increase in the value of the actuarial skill set. Here are some key advantages:

• Standardized Actuarial Skillset: Actuaries would rely on a common programming language and tools that apply across various aspects of actuarial work and related fields, such as data science. Many younger actuaries have already learned these skills in college and through actuarial exams since 2018. This eliminates the need to learn proprietary scripting languages and software-specific interfaces, reducing training time and making actuarial expertise more valuable in a broader market.
• Faster Model Development: Direct access to the underlying code allows actuaries to address challenges related to modeling optionality and computational performance more efficiently, leading to faster model iteration and innovation. Additionally, modern code editing and maintenance tools—developed for the broader programming community—far surpass those offered by actuarial software vendors. These tools benefit from a significantly larger user base, greater development budgets, and decades of continuous refinement driven by customer feedback.
• A More Competitive Consulting Market: Firms would no longer be limited to the original software vendor for major modifications, fostering a more dynamic and cost-effective actuarial consulting industry.
• Optimized Cloud Computing Costs: Actuaries could choose their preferred cloud vendor and tailor software calculations to meet specific needs, reducing unnecessary computation costs.
• Faster Adoption of Emerging Technologies: New technologies typically integrate with widely used programming languages before becoming available in proprietary software. Actuarial engines would enable actuaries to leverage innovations much sooner.
• Protection of Intellectual Property: Companies developing unique modeling methods could keep their innovations in-house, reducing reliance on vendors or external consultants to implement proprietary techniques.

In conclusion, as the actuarial software industry navigates the growing complexity of products and regulations while striving for cost efficiency, it can draw valuable lessons from the evolution of the video game industry. Embracing source-available actuarial platforms could pave the way for a more flexible, cost-effective, and innovation-driven ecosystem.