- IFRS 17
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- IFRS 17
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Articles and Insights
14th November 2017
Have you heard the one about the man who met a genie?
“I’ll grant you one wish,” the genie says. “What will it be?”
“I wish I could live forever,” the overjoyed man replies.
“Your wish is my command!” cries the genie and, with a puff of smoke, the man finds himself married to an actuary.
“Does this mean I’m going to live forever?” he asks the genie.
“Not exactly,” says the genie as he disappears back into his lamp, “but your remaining time on earth will seem like forever.”
Jokes about the tedium of actuaries have become solidified in actuarial lore. We, the actuaries in question, even seem to believe this ourselves, and have resigned ourselves to assuming the persona of the bumbling, socially awkward nerd, who favours tweaking spreadsheets over human conversation and sunlight.
But we don’t need to accept this status quo. Actuaries can be creative! If you have ever opened a valuation spreadsheet, you will have seen manipulations of data that you never dreamed possible. To solve sticky problems, we have come up with numerical gymnastics that would make an acrobat dizzy. Often, these solutions can be described as genius and, most definitely, creative. This proves that we do have the capacity to think of unique and original ideas. So how do we allow ourselves to be creative outside of our very narrow comfort zone and demonstrate the value we can add to the organisation as a whole, the wider industry and (even) society?
Creativity is vital to the survival and growth of any industry, and every profession. Furthermore, the opportunity to exercise creativity is what generates job satisfaction at a personal level. So, to stay relevant in an evolving market and continue to attract the best talent, we need to counter this concept of the uncreative actuary, not only to change the impression we make on the outside world, but also for the sake of our own self-image.
Fear of Failure > Hunger for Success
Actuaries at senior levels already make valuable contributions to strategy and business development, but why aren’t more of us thinking about how to contribute to strategy on an operational level? Most of our time is spent not in the boardroom, but in the detail. We should have a mindset of continuous improvement, constantly thinking of ways in which we can make our operations more efficient to support business needs and to differentiate ourselves from competitors. Why aren’t we even taking advantage of the quick wins? Why do we allow our creative muscles to atrophy?
Perhaps the answer is that we are scared of getting it wrong, or, in actuarial parlance, we are risk averse. And we know that getting it wrong can come with a heavy price. But focusing on this limited downside risk often results in actuaries overlooking the unlimited upside potential and value new ideas can create for all stakeholders, within and even beyond the traditional actuarial space. Herein lies the conundrum. To generate value we need to innovate; we need to create better solutions that incorporate the new technologies and ways of thinking that weren’t available before. But inherent in any form of genuine creativity is a measure of risk. Even actuaries at board level balk at the idea of unnecessary risk, an attitude which filters down to actuarial teams. No-one wants to be the first to try something new; no-one wants to stand out from the crowd, even if such inaction inhibits shareholder value. And so, it appears to me that insurance remains an industry where not differentiating oneself from competitors in any meaningful way is seen as a good thing.
IFRS 17: An Opportunity For Creativity
If we, as actuaries, are not as creative as we could be, we need to think of what we can do to encourage creativity and innovation in our day to day jobs, as well as in bigger projects. A number of firms attempted large scale transformation projects under the banner of Solvency II. For many, preparation probably didn’t go as smoothly as it could have gone, but IFRS 17 is looming large, and it presents us with another opportunity to rejig our systems and processes in a way that adds value beyond regulatory compliance.
Let’s approach IFRS 17 from a holistic viewpoint, and encourage all strata of actuarial resources to use creative thinking to design responsive, adaptable solutions – to last not just until we’ve cleared this regulatory hurdle, but for a lifetime.
Opening the Portals of Discovery
The suggestion that artificial Intelligence and robotics will steal our jobs and destroy the profession may sound a little dramatic, but we do need to acknowledge that, sooner or later, we are going to be forced to consider the insurance industry and the services we, as actuaries, provide under entirely different terms. It will be the creatives, the early adopters, the ones willing to embrace the changes and use them to redefine the industry in a way that benefits everybody, who will survive.
To foster creativity within individuals we need strong leadership to set an example, we need incentives that reward lateral thinking. We need to spark a childlike curiosity in issues that affect not only our day-to-day lives, but also our shareholders, our customers and our profession. We need the space to experiment and a more tolerant attitude when the experiments go wrong.
The way for individual actuaries and actuarial businesses alike to differentiate themselves is by adding creativity to technical competence. No, the words “creative” and “innovative” are not generally associated with the actuarial profession. But as the profile of the typical actuary changes, we should also think about updating our outlook and our image. Only when we give ourselves permission to nurture our creativity will we become associated with the beneficial and original solutions to industry problems which will make the profession flourish.
7th July 2017
The Kano model was developed in the 80s by Professor Noriaki Kano. It is based on the concept of customer quality and provides a simple ranking scheme which distinguishes between essential and differentiating attributes. It is a technique that helps businesses understand varying levels of value that customers place on different features of its product and services.
We map how customer needs are fulfilled based on eight dimensions:
That way we can define:
Customer Requirements (or potential needs) for new products and services are categorized and plotted on the Kano graph as follows:
Example of dissatisfiers in a typical project: engaging fewer experts in the project than agreed, which results in a longer time to deliver.
By definition, for those clients where a written contractual obligation is agreed, ‘satisfiers’ are what is expected.
Example of satisfiers in a typical project: delivering according to the timeline and the outcome that was signed in the agreement.
Example of delighters in a typical project: providing additional consulting services above what was agreed.
Food for thoughts: when the delighters become the new satisfiers.
28th June 2017
Practical lessons for successful actuarial transformation projects
Education on Lean principles and process improvement tends to rely on case studies from industries far removed from what actuaries can relate to. Sure, it’s impressive that changing the flow of an assembly line increased production in a factory, but how do we translate these kinds of examples into something a valuation actuary can apply?
In the final instalment of my transformation failures series, I’m going to spare you the analogies and boil down years of involvement in a variety of transformation projects into some practical lessons my team and I have learnt from those that worked well.
Create incentives for buy-in
Leaders need to accept that introducing a transformation project will affect their teams’ KPIs. Employees have little incentive to complete tasks which do not directly contribute to their performance reviews. Including transformation-related objectives in performance discussions and hiring external resources to ensure that Business As Usual (BAU) work doesn’t fall behind is one way of obtaining employee buy-in.
You can’t measure what you don’t manage
Benchmarking actuarial processes may not be as obvious as counting the number of widgets produced per hour, but it has to be done somehow in order to measure the outcome of any project.
As highly-skilled professionals, actuaries enjoy a level of trust which has traditionally exempted them from having to complete detailed time sheets and record performance metrics. And if uprooting this tradition is not the answer, it may be worth investigating software solutions which can assist in performing such measurements automatically.
Outsource where it matters
Typically in transformation projects, contractors are brought in to help with the project work, leaving permanent employees to fulfil their BAU tasks. This approach results in contractors who are enthusiastic and knowledgeable about the new process and permanent staff, for whom the process was designed, with little know-how of, and even less interest in, sustaining it.
Middle management might look at using contractors to assist with BAU work. Even if doing so releases enough capacity for just one person in their team to focus on transformation, it goes a long way to guarantee internal buy-in and retention of expertise after the contractors have left.Optimise your existing tools
We know that the arsenal of an actuary confronted with a new problem comprises first principles and a blank Excel spreadsheet. As time passes and complexity increases, these become cumbersome and sluggish solutions. In these situations, a transformation project does not have to be a huge end-to-end overhaul. Start small, look at the tools and software that you have.
Too often, teams will embark on significant projects or buy expensive technology when the systems they already had in place could have done the job just fine. They should rather invest in thorough training on what they already have; it often comes as a surprise just how much the application they’ve been using for years can actually do.
Throughout this series, I have shared my thoughts, based on years of experience at all points of the “project spectrum”, on why transformation projects are so often doomed to failure in actuarial teams. If nothing else, I hope that it has generated some ideas and discussion at this critical time. To gain the most value from IFRS 17, we need to start adapting our systems and processes now to make sure they are sound and running efficiently by 2021. And we’ll need some well thought-out transformation projects, backed by strong leadership and plenty of buy-in, to get there.
If you would like to discuss any of the ideas shared in this series, or find out how MBE can assist with your upcoming actuarial transformation projects from start to finish, please contact me. I am backed by a highly-skilled and experienced team of actuaries, IT specialists and process consultants, who are passionate about adding value to our clients’ businesses.
Read the full series on Transformation in Actuarial Teams on our website, starting with The Need For Transformation in Actuarial Teams.
22nd June 2017
Why do transformation projects fail…and what can actuaries do to make them succeed?
Corporate transformation projects are notoriously likely to fail (a fact to which many studies attest), but are there factors present in actuarial teams specifically, that can make or break actuarial transformation projects? In my previous post I looked at the importance of investing in IT relationships and infrastructure. Sticking with that theme in this week’s post, I take a step back to explore why actuaries are sometimes reluctant to embrace new technology – even if it promises to help them to be better at their jobs.
Using technology to drive progress in actuarial teams
Many professions seem to revel in the introduction of new technology to their professions. They realise that every time a tool is enhanced, it enables them to be better at their jobs – whether it be in the operating theatre, on a construction site or in a tech sandbox. Why is the financial sector so different? Over many years of being involved in transformation projects, I have observed that actuaries, specifically actuaries in back office and client service teams, are often reluctant to embrace new tools and techniques, preferring instead to stick to the old systems they know and trust – however inefficient and unsustainable they might be. Why is this the case?
Risk aversion is drilled into actuaries from the start of their education. The stereotypical actuary is risk averse by nature, and thus drawn to a profession which methodically provides for all contingencies. Strict regulation governing the insurance industry – and the responsibility of protecting policyholders’ assets – ensures that actuaries do not take any unnecessary risks in the workplace either. This extends to the use of the technology they use to do their jobs. Transformation projects may involve the introduction of new systems which promise to streamline computing requirements and automate manual processes. They may also propose the development of bespoke solutions to best meet a company’s specific needs (as is commonplace in the banking industry). Such claims and ideas are often met with mistrust, and actuarial teams are unwilling to invest in these solutions. Technology is expensive and in these cases the perceived benefits do not warrant the cost involved. Sometimes it only takes one success story to have a cascading effect throughout the industry, but nobody wants to be the first to take the plunge.
In defence of actuaries though, they may be unwilling to spend the money simply because they don’t have it. Those who hold the purse strings, senior management, tend to see the actuarial back office purely as a reporting function, not really adding much value to the business. They may therefore be less willing to invest budget into these teams, due to the low perceived returns. This makes it difficult for the affected actuaries to add value, as their systems do not allow them to do so, and they find themselves in a Catch-22 situation: unable to add value because of clunky systems, and unable to invest in new systems because they aren’t perceived to be adding value.
Whoever the decision-makers may be, the fact is that at some point, it becomes risky not to invest in new technology. A lot of older software is not designed to cope with the volumes and complexities of today’s insurance business, and processes characterised by manual adjustments and physical handovers are disasters just waiting to happen. Fear of being made redundant by computers may partly explain this desire to hold onto the past, but, as the profile of the ‘typical actuary’ evolves, a new, forward-thinking generation of actuaries can use technology to propel the profession to greater heights, instead of diminishing it to what amounts to little more than human debuggers.
At MBE we are passionate about harnessing the power of technology to add value to our clients’ businesses. We offer bespoke or off the shelf solutions, depending on each client’s need. We also believe in helping clients make the most of the tools they already have. To discuss how MBE can optimise your IT infrastructure, please contact me, or our Director of IT Solutions, Christo Muller.
Watch out for the next piece in our series of transformation articles focusing on Practical Lessons for Successful Projects.
14th June 2017
Why do transformation projects fail…and what can actuaries do to make them succeed?
Corporate transformation projects are notoriously likely to fail (a fact to which many studies attest), but are there factors present in actuarial teams specifically, that can make or break actuarial transformation projects? In my previous post I looked at the challenges of obtaining buy-in from actuarial teams, specifically ahead of IFRS 17 implementation. But even if the teams are on board, there are other relationships that need to be managed to ensure successful transformation projects. In this week’s post, I talk about the complicated relationship between actuaries and a stakeholder that acts as the gatekeeper to any technological development: the IT team.
It's complicated: mending the relationship between actuaries and IT for successful transformation
Qualifying as an actuary requires running a gauntlet of some of the toughest exams in the world. The education system covers everything from commutation functions to communication faux pas, but fails to prepare students for practical life office work in a crucial way: there is a glaring neglect of IT training.
Any actuarial student starting work will be thrown into the world of coding, runs, databases and shared drive disk space. But it’s accepted that the IT knowledge required to operate often complex and resource-intensive models is something that can be picked up “on the job”. And the distant, often strained, relationship between actuarial and IT departments leads to actuaries working relatively autonomously with limited IT support; bolting on tactical solutions – which may not be the most efficient or sustainable approach – as they see fit.
This might have worked in the past, when regulatory and reporting requirements in the industry were more stable and simpler and did not require as much specialised software, data management and reporting capabilities or computing power. The last decade, however, has seen a surge of complex products and new reporting standards and regulatory requirements. The attitude of actuaries towards formal project management, i.e. seeing transformation projects as administrative burdens and obstacles to timely completion of their projects, which was formed years ago, still prevails today. Actuaries feel that they can solve problems faster and more efficiently without IT support. But years of bad habits and lack of investment in actuarial IT infrastructure and relationships have resulted in a build-up of teetering solutions that are difficult to support and prone to deficiencies and errors.
It seems that actuarial transformation projects, of which the upgrade of IT systems and relationships is almost always a large part, is likely to fail until more investment is made into the relationship between actuaries and IT, or until actuaries formally become IT specialists themselves.
If you have ideas about, or experience in IT relationship management, or would like to talk about systems and IT options for an upcoming transformation project, please get in touch with me at firstname.lastname@example.org, or visit our website at www.mbe-intl.com. We have a team of highly-skilled actuaries and IT specialists who understand transformation and the challenges faced by actuarial teams.
Watch out for the next piece in our series of transformation articles focusing on Actuaries and their Interaction with Technology.
6th June 2017
Why do transformation projects fail…and what can actuaries do to make them succeed?
Corporate transformation projects are notoriously likely to fail (a fact to which many studies attest), but are there factors present in actuarial teams specifically that can make or break actuarial transformation projects? In my previous post I looked at the necessity of strong actuarial leadership to the success of transformation projects. Once the leaders are on board, what can they do to get buy-in from their teams? Read my thoughts on that elusive element of project management below.
IFRS 17 requires buy-in to be a catalyst for sustainable change
Leadership in actuarial transformation projects is crucial to their success, but why do these projects struggle to get the buy-in from leaders and team members alike? As we prepare for IFRS 17, how do we obtain the actuarial buy-in required to make any transformation project a success?
One reason is that actuaries are trained to be autonomous problem-solvers. Non-standard policy to be valued? We’ll just whip up a manual adjustment in a spreadsheet. New regulation coming in? Let’s squeeze the margins built into our monthly process to make sure we report on time. IT taking too long to upgrade the liability model? We’ll just learn to code the new product ourselves and bolt it onto what we have. This can-do attitude – and the trust placed in actuarial teams – may mean that they are not always aware of the inefficiencies and risks present in their processes and hence don’t see the reason for transformation. In these cases, is it necessary and effective to manufacture a crisis to obtain buy-in? In other words, perhaps we need to induce a feeling of panic for actuaries to admit that they cannot do it all and hence become receptive to change.
Lack of buy-in may also be explained by the need of actuaries to see a clear transition plan, including the projected long term benefits, in a measurable, tangible format. Actuarial resources are almost always under pressure, rushing from one deadline to the next. If they are going to sacrifice precious time (of their own and of their teams) to make these changes, they need to have, from the early stages of a project, a very good idea of what they are working towards. But articulating a solid outcome is not always easy to do.
Actuaries know better than anyone that it is difficult to make predictions based on limited data. For a start, we need to know basic metrics of our current state to measure the success of any transformation project. But, in my experience, very few companies measure the simple KPIs that could be used to baseline the efficiency of operations. How many runs failed during the previous production? What are the reasons for the failure? How many hours does each step of the process take? Can we even list the various steps in our process? How many different sources do we use for the same data? If we don’t know where we are starting from, visualising a better state becomes challenging. Many actuaries sweep their inefficient processes under the carpet of “expert judgement”. But teams need to start formalising their processes – however inefficient they may be – to give themselves the chance to see the potential benefits of change.
Another obstacle to buy-in from actuaries is the ever-present desire to reconcile to the nearest penny. Current modelled numbers are taken as gospel and any deviation, no matter how efficient the new systems or processes are, will be met with suspicion. This mistrust comes from a good place – the desire for accuracy – but loyalty to what’s known and comfortable may impede teams from seeing the flaws of their current models and processes. To paraphrase George Box, one of the things we know for sure is that all models are wrong. Some of them, however, may still be useful. This happens when timely and transparent data becomes easily accessible to the wider organisation.
Strong leadership, coupled with buy-in from the teams, will result in change being embraced as business as usual long after the process consultants have left the building.
Whenever changes are made, they are always easier to digest in small steps. Read the thoughts of Vibeke Fennell, Director of Operational Excellence at MBE, on this topic in the Raconteur Business Transformation Report. Or to talk to me about buy-in in transformation projects, contact me via e-mail or the MBE website.
Watch out for the next piece in our series of transformation articles focusing on The Relationship Between Actuaries and IT.
30th May 2017
Why do transformation projects fail…and what can actuaries do to make them succeed?
Corporate transformation projects are notoriously likely to fail (a fact to which many studies attest), but are there factors present in actuarial teams specifically that can make or break actuarial transformation projects? In my previous post I looked at why, especially in light of IFRS 17 requirements, we need transformation projects in actuarial teams, and shouldn’t give up on them. The articles to be released over the next few weeks will examine a few commonly identified reasons for the failure of these projects and what we can do to address these issues.
In many cases, actuaries in leadership positions do not take enough ownership of transformation projects. Even if they have had a hand in approving and providing budget for a project, I’ve seen time and again that actuarial leaders will step back once the project has commenced and expect the process consultants or project managers to make it a success. This will not work because, even at entry level, actuarial team members are inducted into a culture which, justifiably or not, respects actuarial authority to the exclusion of others.
Actuaries in leadership positions need to be visionary and proactive in order to inspire those who respect them. This kind of contagious enthusiasm can only be evoked when leaders themselves drive the project and make it their own. Grudgingly cooperating with nagging consultants is not enough. To achieve sustainable improvements and buy-in from everyone involved, actuarial leaders need to visibly, passionately and genuinely believe in transformation projects – and create the time and space for their teams to do the same.
If you are an actuarial leader interested in the benefits of transformation projects, please get in touch with me at email@example.com. We have a team of highly-skilled actuaries who have specialised in transformation and understand the challenges faced by actuarial teams.
Watch out for the next piece in our series of transformation articles focusing on Leadership buy-in.
23rd May 2017
It’s been an eventful week for the actuarial community – the finalised IFRS 17 Insurance Contracts regulations came out on Thursday, and Friday marked the first Solvency II deadline observed by the majority of UK insurers.
Consensus seems to be that the Solvency II deadline presented some challenges. There are things we could have done differently, processes that need some refinement for next time. But now we need to look ahead to the next challenge.
IFRS 17 presents a new opportunity for transformation; a chance to save ourselves a lot of problems in 2021 and beyond. But before we launch ourselves into a new batch of large scale process improvement projects, I thought it would be good to explore some reasons transformation projects often fail in actuarial teams – and what we can do to give them the best chance of succeeding...
Over the last ten years, however, cracks have appeared in this previously solid union. In the past, actuaries not only developed the technical backbone of the insurance industry, they also provided strategic insights at management and board levels. Recently, however, actuaries have taken on a more compliance-focused role, diminishing their visibility at and value to higher levels of the organisation.
The new generation of actuaries has spent so much time turning handles and churning numbers, that it is not equipped to contribute to strategic and commercial goals of insurance companies. This is not optimal for the companies – which are paying expensive resources to do work that they are over- (or, in my opinion, often under-) qualified for – nor for the actuaries themselves, who are not given a chance to develop their hard-earned skills nor reach their full potential.
This phenomenon alone gives rise to the need for transformation projects in actuarial teams, but there is another relationship at play, the stunted development of which has resulted in untold frustration and inefficiency: actuaries and IT.
The world of actuarial and data technology, the present state of which is the result of years of significant underinvestment, is one of the few clunky relics still resisting the global technology boom of the current age. Also, actuaries are extremely resourceful in building their own ad hoc solutions where technology fails them. It is unclear whether there is a causal relationship between these two factors and, if so, which came first. But the combination has resulted, I believe, in a generation of under-utilised, over-protective actuaries who are too busy guarding their inefficient models and unwieldy data to gain the experience required to meet the strategic needs of organisations.
Transformation is needed, both at the level of individual companies, but also in the actuarial culture. Yet we see, time and again, a reluctance from actuarial teams towards transformation projects. And, given the high rate of ultimate failure of these projects, perhaps this reluctance is justified. But that doesn’t mean we should give up on the idea. In fact, we should strive to understand why these projects go wrong and how we can change our approach to ensure that they free up actuarial resources in a way which allows them to add strategic value as only actuaries can.
In the coming weeks, I will be releasing a series of concise articles exploring thoughts on why transformation projects fail in actuarial teams. I hope that these articles will be thought-provoking and even inspire future transformation projects that use the lessons learnt from past failures. Let’s equip actuaries to fully utilise their unique skillsets and help them transform themselves into business partners and leaders who communicate strategy and insight to their stakeholders by using efficient models, data processes and technology.
My next piece will look at the power of actuarial leadership – a make or break factor in actuarial transformation projects. If you have any thoughts on this topic, please e-mail me at firstname.lastname@example.org.
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Solvency II Materiality: Size Doesn't Matter
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Materiality is about more than just market value. Insurers need to start paying more attention to capital requirements than market value when it comes to setting materiality thresholds… because risky dynamite often comes in seemingly insignificant packages…
(A summarised version of this piece was published in the October edition of The Actuary online magazine here)
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GORILLAS THAT WE MISSED and other process improvement pitfalls – Part I
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Read more at profesionaladvisor.com and in the PRA Consultation Paper.