www.pwc.com
Integration of actuarialfunctions
Southeastern Actuaries ConferenceCharlotte NC
Presentation
16 November 2017
PwC | Integration of actuarial functions
Overview
1
Integration of actuarial functions
Trends in centralization and decentralization 2
How to make meaningful changes while covering off BAU 6
Alignment with Finance, Risk and IT – Why is everyone talking about it? 9
PwC | Integration of actuarial functions
An integrated operating model focuses on people,process and technology
2
Characteristics
• Lower total cost of finance
• Well-defined roles andresponsibilities
• Standardized processes• Common platforms and
tools• Rationalized controls,
often leveragingautomation
• Conformed datadefinitions
• Utilization of sharedservice and alternativesourcing models
• Automated, “forward-looking” analytics
Characteristics
• Higher total cost• Overlapping roles
& responsibilities• Fragmented processes
with multiple hand-offs• Disparate systems and
applications• Multiple sources of data
for reportingand analysis
• Higher numberof controls
• Typically more manualprocesses Fragmented StandardizedEffectiveness
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Technology &Data
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Process Standardization & Servicing Strategy
People
Technology& Data
Process
s,
TargetOperating
Model
Trends in centralization and decentralization
PwC | Integration of actuarial functions
Centralized vs. decentralized actuarial functions
3
No single ‘leading practice’ actuarial organizational structure exists. When making a decision between a centralized anddecentralized organizational structure recognize the need to balance a focus on consistency, control and efficiencyagainst the desire for flexibility and business insights.
In ForceManagement
Region 1(Regions 2,3…)or BU 1- CFO
Pricing Actuaries
Valuation
ActuarialModeling
ALM
ExperienceStudies
Group ActuarialControls
Emerging IssuesValuation
Chief Actuary
ReinsuranceExperienceStudies
ALMModelingActuaries
Centralized actuarial function Decentralized actuarial function
Pros
• More efficient and consistent alignment of technology and datasupporting valuation and modeling.
• Enhanced control over standard methodologies andpolicies/procedures.
• Actuaries can focus more on analysis work than on production.
• In cases when LOBs and/or legal entities are aligned, having thisstructure makes it easier to develop actuarial talent. Actuarial staffwithin each region will accumulate product and legal entity expertise.
• Alignment with the business may allow for more in-depth businessinsights to be factored into analysis.
Cons
• Needs of regional business units may not be balanced properly toprovide for the needs of BU leaders (e.g., people to run models forfinancial plan).
• Separating valuation models from BU actuaries may cause staff toview learning opportunities as limited.
• Key dependencies on individuals can result when many tasksare spread among limited staff. This exposes enterprise tosuccession risks.
• Can result in increased expenses as legacy systems and other lessefficient technology must be maintained across multiple sites.
• Potential redundancy of tasks between Corporate and BU.
Centralized
Decentralized
Indicates area for decentralized/central structure
Key
Trends in centralization and decentralization
PwC | Integration of actuarial functions
Centralized vs. decentralized actuarial functions
4
Certain actuarial organizational components exist that can function as part of a leading practice centralized actuarialorganization or a leading practice decentralized actuarial organization.
In ForceManagement
Region 1(Regions 2,3…)or BU 1- CFO
Pricing Actuaries
Valuation
ActuarialModeling
ALM
ExperienceStudies
Group ActuarialControls
Emerging IssuesValuation
Chief Actuary
ReinsuranceExperienceStudies
ALMModelingActuaries
Centralized actuarial function Decentralized actuarial function
Valuation
• Staff benefits from increased training and normalized processes.
• Workload balancing potential (peak periods, vacations).
• Data can be accessed more efficiently.
• May be better able to respond when multiple, legacy systems createfragmented work streams.
• Staff may benefit from having the chance to rotate between pricingand valuation roles when they are co-located.
• BU leaders may be reluctant to relinquish staff to a centralized team ifthere are concerns about being able to respond to requests (e.g., howcan I do experience studies for pricing if I give up my team?).
ActuarialModelling &ALM
• Possibility to create a “center of excellence” model architecture.
• Workload balancing potential (peak periods, vacations).
• Often able to attract high performing staff as they are attracted toworking with fellow experts.
• In-depth training can be tough to do, but well trained staff can makethis work as small teams can be cohesive.
• The expense of moving staff to a central location may create inertia tomaintaining a decentralized model.
ExperienceStudies
• Staff can benefit from exposure to doing experience studies acrossmore lines of business (i.e., more LOBs located in one place).
• Legacy admin systems may cause work to be fragmented. Co-locatingexperience studies can provide more sets of hands for complex work.
• Repetition provides deeper expertise; however, it can also lead toboredom if staff are not challenged.
Centralized
Decentralized
Indicates area for decentralized/central structure
Key
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3
4
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2
3
4
Trends in centralization and decentralization
PwC | Integration of actuarial functions
Centralized Teams
Decentralized Teams
How to improve team performance under both models
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Making a transition between models requires planning, leader engagement and a strong bias for action to overcome inertia.
Ways to configure teams
Traditional
• Pick a date and push the teams together
Non-traditional
• Center of Excellence – single team that drivesmethodologies and governance across a givenprocess
• Shared Service Center – multi-function teams
Transitioning to a new model
• Change management – the case for change
• Coordination with business unit teams
• Careful selection of leaders – 100 day plans
• Problem solving
• Training – keeping your options open
• Thinking longer term
Getting the most from your teams
• Activity analysis to identify bottlenecks,opportunities
• Staying uncomfortable with pain points
• Leveraging what other teams are learning
• Cross-training and balancing workload across BU
• Rationalizing controls and maintaining focus on“no regrets” processes
Transitioning to a new model
• Change management – the case for change
• Coordination with the corporate teams
• Careful selection of leaders – 100 day plans
• Problem solving
• Training – keeping your options open
• Thinking longer term
Trends in centralization and decentralization
PwC | Integration of actuarial functions
Operating model changes while keeping your day job
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Comedian Mad Chad Taylor – yes, he tells jokes whilejuggling chainsaws!
Reality check: some activities need change butaren’t candidates for actuarial modernization…
What can leaders and teams do when resources arelimited and needs are great?
• Time studies, activity analysis
• Identification of pain points
• Process improvement – employing the rigor of systemsdevelopment lifecycle:
• Structured solutioning – LEAN, Six Sigma, TQM, etc.
• No matter how small the team or how challenged theprocess… gap current processes against best practice –pursue better practice with a ruthless attention toefficiency
Requirements Design Develop Test Deploy
How to make meaningful changes while covering off BAU
PwC | Integration of actuarial functions
Governance is your friend – believe it!
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Whether it is fully formed or evolving, governanceshould be consulted and followed in order to…
• Executing what matters most,
• Understanding and optimizing handoffs,
• Identifying required reviews, and
• Ensuring proper signoffs are completed
In short, leverage existing governance to help you do the workonce and do it right!
When gaps exist in governance, close them as a key step inprocess improvement. It will be worth the effort in the longrun!
How to make meaningful changes while covering off BAU
PwC | Integration of actuarial functions
Enabling strong governance and its relationship toactuarial work
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• Tone from the top
• Roles and responsibilities
• Change Management
• Training and skills
• Incentives and rewards
• Organizational alignment
• Data czar
• Model steward
• Analytics steward
• Modeling standard
• Model acceptance
• Assumptions review
• Balance sheet sign offs
• SoX/MAR controlsintegration
• Tiered sign offs
• Service Level Agreements
• Vendor management
People Process Technology
• Target architecture
• Automated controls
• Data conformance
• Business intelligence tools
• Leverage automation
• Separating productionfrom sandbox
• Lock out functionality
• Monitoring dashboards
How to make meaningful changes while covering off BAU
PwC | Integration of actuarial functions
Strategic and operational alignment is the wave of thefuture
9
Alignment with Finance, Risk and IT – Why is everyone talking about it?
Finance, Actuarial and Risk organizations are aligning their operating models inorder to respond to disruptive technologies, increased stakeholder demands and ahost of regulatory and accounting changes.
Finance, Actuarial and Riskmust evolve from…..
Data & transactionprocessing
•Minimal involvement
•Problem finding
•Post-hoc critique
•Confrontational
•Technical compliance withexternal rules
•Data collection
•Organizational hierarchy driven
•Technology constrained
•Manually intensive & cumbersome
•Policy view
•Redundant
•Risk and scenario based analysis
•Strategic/market issues
•Problem solving
•Embedded
•Accountability
•Cost/benefit sensitive
•Relevant to business
•Information rich
•Integrated
•Automated & streamlined
•Customer view
•Predictive
Decision support….Requires role transformation
Business controlRequires new processes
ReportingRequires new process & thinking
Data & transaction processingRequires better and faster
integration
…..To
Leadingorganizationshave 40%more FTEs inbusiness insightroles thanmedianperformers
88% oforganizationsare working toenforce orexecute theircorporate leveldata strategyacross finance
PwC | Integration of actuarial functions
Participation in IT projects creates a virtuous cycledelivering enablers that transform key processes
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Alignment with Finance, Risk and IT – Why is everyone talking about it?
Outer circle – Actuarial contributions to IT projectsInner circle – Key components of IT projects
When larger projects are funded, technologyenablers need to be delivered by IT.
• In order for IT projects to deliver on theirpotential, Actuarial needs to be a full partnerin these projects.
o Early engagement in developing businessrequirements is the best way to drive thechange you need
o In force feeds, requirements for self-service data, data quality remediation,reports and analytics all need to be welldocumented and thoroughly tested
o Legacy processes should be promptlyretired and SLAs put in place
• These projects can be at risk of under-delivering if IT and Actuarial are notworking together and are not wellcoordinated across the SDLC
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Thank you!
My contact information:
Gregory M. Smith, FSA, MAAAPwC |Director, Actuarial ServicesMobile: 860-604-0846Email: [email protected]