Actuarial Transformation – The Future Actuary

What is an Actuarial Transformation?

Actuarial Transformation represents a fundamental change to the operating model of an actuarial team. An Actuarial Transformation involves increasing process and cost efficiency, improving and maximising the use of technology and data, transforming the culture of the team, and critically analysing the team structure.

A transformation involves the use of tools and frameworks enabling the Chief Actuary to become a catalyst for change and a strategic business leader, rather than as a manager of a function.

To illustrate some practical examples, an Actuarial Transformation can benefit the organisation through:

• faster financial close;
• headcount saving;
• transfer of resources to more value-adding activities;
• better analytical capability;
• stronger control environment and reduced operational risk;
• more efficient regulatory compliance;
• enhanced service to organisational customers (e.g. underwriting, finance, claims); and
• increasing Actuarial department footprint in organisational and strategy development and execution.

The Successful Chief Actuary

The requirements of the Chief Actuary’s stakeholders are changing.

Accuracy and technical correctness are no longer the sole objective. While technical correctness is important, stakeholders want business partners who can provide advice and insights rather than mere reporting.

A transformation can help the Chief Actuary and the actuarial function deliver a platform that provides greater value to the business in terms of insights and services at lower costs.

We view the four faces of a successful Chief Actuary as a Steward, Operator, Catalyst and Strategist.

In our view, a successful Chief Actuary needs to be a good ‘Steward’ and ‘Operator’ as a foundation but also have focus on the ‘Catalyst’ and ‘Strategist’ areas. The actuarial function of the future will be led by Chief Actuaries who drive change and participate in business strategy in their organisations. They will be

Catalysts and Strategists for change rather than recipients of it, constructively challenging the status quo.

Global Survey

To understand the nature of Actuarial management challenges and issues being faced by actuarial functions and the C-suite, Deloitte’s global actuarial team members conducted an ‘Actuarial 2020’ Survey covering Life, General and Health insurance and reinsurance companies across various countries.

The survey included a wide range of questions relating to the Actuarial function including:

• team size and structure;
• the level of efficiency and effectiveness of the Actuarial people, processes and systems including data warehousing;
• areas requiring the most improvement and/or change;
• drivers of change in the business in the past and expectations of future drivers of change; and
• alignment of the Actuarial team culture and strategy to the overall organisation.

The survey was addressed to the head of the Actuarial function such as the Chief Actuary and over 100 responses were received, covering Australia, Canada, Denmark, Hong Kong, South Africa, Sweden, UK and USA.

Actuarial Management Themes Emerging

Based on the survey responses, we identified seven key themes impacting the actuarial function:

1. current actuarial functions are at their full capacity but not using their full potential;
2. key drivers are bad data and technology;
3. operational and process efficiencies are not in their optimal state;
4. overcoming constrained resources to transform the nature of actuarial work;
5. aligning the actuarial function to the business and its strategy;
6. the need for actuaries to be catalysts for change; and
7. creating perceptions we want for the collective actuarial profession/function.

It is important to note that these themes are inter-connected and organisations addressing one issue need to be aware of the implications on the other aspects.

Increasingly, actuarial functions are primarily fulfilling a compliance or regulatory purpose which we term as ‘operational’ with declining levels of involvement in strategic and business roles. Almost every respondent of the survey indicated that over the last three to five years regulation has been the key driver of change in their business and expect this will continue for the next three to five years.

Less than 10% of respondents indicated product development, business development or expansion would be a driver of change. This is surprising in light of a separate CFO survey which indicated that CFOs are looking to grow their business in the current economic conditions and are seeking strategic input into these growth plans.

Across a number of survey responses, Chief Actuaries identified a number of barriers which are identified as preventing Actuarial functions from being a strong contributor. Smaller actuarial teams are more impacted by the external environment and management buy-in while for larger teams the key barriers were time and resource constraints. Almost all teams raised bad data and inefficient technology as a barrier for improvement or positive change.

There are tools and frameworks available to address the aforementioned seven themes identified separately and in combination.

Conclusions

Historically the actuarial function was an influencer of insurance company strategic direction. Currently, actuarial functions are often focussed on operational, rather than strategic outcomes. The actuarial sphere of high influence is in reserving and pricing which is protected through insurance regulations and historic involvement.

Our view is that actuarial functions are highly focussed on the operational aspects of running their function, but that transformation will be required to ensure future relevance and influence.

The challenge for the actuarial profession is to build on existing strong technical skills and knowledge of insurance products. Historically, the profession made significant contributions to the areas it was involved in through a mix of technical skills, product knowledge and training.

The business environment is changing however. The profession will need to change while keeping its reputation for high standards and technical excellence. The profession would benefit from introducing elements of commerciality and agility into the actuarial mindset.

To achieve this, the focus of actuarial advice and contribution must evolve. As a profession, the message to the actuaries’ stakeholders must evolve from the ‘what’ to the ‘so what’ then on to the ‘so what next’. We view this evolution as a continuum rather than a step change in the sense that individual actuaries, actuarial teams and the entire actuarial profession need to have a continued line of sight to our stakeholders’ continually changing needs.

An Actuarial Transformation can help organisations realise the full value potential of actuarial functions. It is key to identifying what changes are needed and how best to implement these changes in a manner that is consistent with the organisation’s needs and culture and consistent with the bespoke issues facing the actuarial function and its people, processes and systems.

Further information is available in the authors’ presentation and paper from the Financial Services Forum, May 2014 available on the Actuaries Institute website. We will also be publishing a ‘Point of View’ expanding on the seven key themes identified and how organisations can address these themes to create their Actuarial function of the future.

CPD: Actuaries Institute Members can claim two CPD points for every hour of reading articles on Actuaries Digital.