In the first instalment of this series, Phil Stott shares his opinion on why actuaries must think strategically about technical processes to survive and thrive in a changing market.
I have spent most of my career (spanning over 30 years) providing technical advice to the Life Insurance industry in Australia and UK. Now the advantage (or disadvantage?) of this career path is that you tend to see everything that goes on from a technical actuarial perspective.
The last three decades have brought in many changes, both in terms of technical capability and regulatory requirements. But there is one change it has not brought, and this change is sorely needed: we need to start thinking more strategically about our technical processes.
We all know what strategic thinking is – our employers send us away on regular training days so that we can think strategically about our products, or our marketing strategies, or about how to become better people managers, and so on. Strategic thinking involves taking a pause in the humdrum activity of ‘doing’ things to think pro-actively about what we should be doing, why we should be doing it, and whether or not we are doing it the right way. This is all done in the hope that we will make quantum improvements in the way we do our jobs.
We are learning to think strategically about a lot of things…but when was the last time you were sent away to think strategically about the core activity of your actuarial team, the very technical processes that undergird everything you do?
Why we don’t
There are several reasons why we don’t tend to think strategically about our technical processes.
Firstly, it is generally only the actuarial teams themselves that care about technical processes. To the rest of the people in the organisations we work for, the actuarial processes are ‘the thing’ that ‘those actuaries’ do. They don’t understand what ‘the thing’ is, but they have confidence that we do, and they assume that we are doing it in the best possible way. And so there is no external pressure for us to think strategically about our work.
Secondly, I suspect that we sometimes suffer just a little from ‘expert’s smugness’ – we know our job, so why do we need to think about it? Many actuaries have an almost condescending attitude towards ‘strategy days’ in other areas of business activity, so how much more will we have the same attitude towards a call for ‘strategic thinking’ in our core area of strength? We don’t have time for that sort of airy-fairy stuff!
And thirdly, as a profession we are inherently conservative. We’ve never had to think ‘strategically’ before and the profession has survived, so why change what is working perfectly well? Why try to fix something that isn’t broken?
Why we need to
However, the truth is, we need to learn to think strategically, because the world in which we work has changed, and we need to change with it.
30 years ago, before the advent of the desktop computer, all calculations were either simple (i.e. something we could do ourselves using a calculator, or pen and paper), or they were delegated to a mainframe computer system controlled by an IT department. There was no other way of doing things! And so the IT department took all of the significant strategic worry away from us – they decided (with our input, of course!) what calculations needed to be performed, when, why, and how.
Some of the big calculations, of course, are still handled in the same way. When we buy expensive third-party software to perform (say) our regular valuations, we spend time deciding the best service provider and thereby justifying the expenditure. But increasingly, more and more of our day-to-day calculations are performed using user-controlled software such as Excel, Access, FoxPro and SAS. Many of these calculations are strategically very important, in that they go out to external parties (thereby generating profits or losses for the organisation), or are used to make or inform strategic decisions that our colleagues have to make. Things never happened this way when I first joined the profession 30 years ago.
Moreover, the world in which we work is changing very rapidly! Software is changing rapidly, regulatory requirements are changing, clients are changing their requirements…everywhere we turn, the bar is being raised on us. Workloads are increasing. Under such pressures, the natural inclination of the conservative mindset is to ask: “How did we do it last time?” But in a rapidly changing world, “The same as last time” is increasingly unlikely to be the optimal solution.
Why it matters
But does it really matter if we think strategically about our technical processes? What is wrong with the way we currently do things?
As I said at the start of this article, I have worked in a lot of technical teams in recent years, and that gives me a lot of perspective. In my experience, very few of my clients have done any serious strategic thinking about their core activities…and, by and large, they are all seriously inefficient in the way they go about things.
An idea whose time has come!
Over the next few articles in this series, I will explain these principles, and how you can apply them in your context, with your team. Before I do that, my next article will be a simple case study explaining what the nature of these significant savings are, why they are so large, and why we are not currently obtaining them.
Strategic thinking about technical processes is not esoteric gobbledygook, it is an absolute essential for the modern actuarial team. It is an idea whose time has surely come!
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