Modernising actuarial performance poses a real challenge for leaders. A significant number of ambitious change projects do not achieve their goals, mainly due to both the known and unforeseen complexities involved.
As pointed out in a McKinsey report, as many as 70% of large-scale change programmes fall short of reaching their desired outcomes. Despite dedicating numerous years to modernisation efforts, a notable level of manual processing remains prevalent within actuarial functions.
A major contributing factor to this high failure rate is the tendency for those leading such projects to approach modernisation linearly. Actuaries, by virtue of their profession, often display analytical, logical and detail-orientated traits typically associated with left-brained individuals. This predisposition can sometimes lead to a very linear, and often mechanical approach to problem-solving. This results in the interdependencies and complexities inherent in transformation projects not being fully appreciated or navigated effectively.
This article considers the nuances of complex versus complicated problems. It highlights why modernising the actuarial function tends to be a complex task and examines the key strategies in three main areas for adopting more successful approaches.
Complex v Complicated Problems: Recognising the Difference
Understanding the difference between complicated and complex problems is key to shaping sustainable transformations within actuarial functions. Both concepts involve intricacies but fundamentally differ in their nature and predictability.
Complicated problems, although intricate, have foreseeable outcomes. They follow a consistent cause-and-effect relationship, making them predictable and, therefore, solvable through established techniques, procedures and algorithms. Designing an aircraft or executing a lunar landing mission are perfect examples of complicated problems. These tasks involve countless components and require highly specialised expertise, but the rules and steps remain constant, allowing for the precise prediction and control of outcomes.
On the other hand, complex problems exhibit non-linear, and often unpredictable relationships between their components. Due to the constant interaction of variables, the outcomes are not always obvious. For instance, managing a digital ecosystem or directing organisational changes are complex issues. Despite understanding individual components and their relationships, the outcomes often remain uncertain due to the inherent dynamism and adaptability of the system.
Unravelling the Complexities of Actuarial Transformation
There are several reasons why the modernisation of the actuarial function is indeed a complex problem. It involves a multitude of interacting components including data, technologies, people, processes and organisation-specific attributes. Each component can behave and evolve independently and is influenced by internal and external stimuli. For example, the adoption of a new actuarial system impacts actuarial processes, employees’ roles and tasks as well as an organisation’s operating model.
While the interplay among these factors can enable the performance of the actuarial function, it also creates a dynamic environment where issues do not have a single owner – no one actuarial team can drive change in isolation. Transformation impacts every level of the organisation, from actuarial students to senior executives. The breadth and depth of this change necessitates collective ownership and cooperation.
It is also important to realise that actuarial modernisation is path dependent. The current operations are heavily influenced by historical decisions and actions. For the actuarial function, this could be previous software and methodology choices, data strategies or training initiatives. These path-dependent factors very often cause constraints and add further layers of complexity and uncertainty to the transformation process.
What’s more, actuarial leaders are constantly confronted by emerging capabilities. As new technologies like cloud computing and machine learning are integrated, unexpected capabilities or challenges may emerge that were not initially apparent.
Despite the desire for modernisation, it’s essential to acknowledge that existing systems are functioning. While inefficient, they produce results that are beneficial to certain individuals or groups within the organisation. This often breeds resistance to change. People are naturally inclined to maintain the status quo, especially if it serves their interests in some way. Transformation, therefore, isn’t just about implementing new systems and processes but also about overcoming the inherent inertia of the old ones.
For modernisation to succeed, it is clear that there is no ‘silver bullet’. Instead, it’s an aggregation of several factors – past choices, current practices and future trends – all interwoven in a complex ecosystem. Addressing one factor in isolation is unlikely to yield the desired outcome. It’s the comprehensive overhaul of these interconnected aspects that drives meaningful transformation and modernisation.
Actuarial transformation isn’t a puzzle to be solved; it’s a landscape to be navigated.
Andries Beukes, Partner
Given the complexity of transformation, achieving a sustainable approach should leverage system thinking, adaptability and continuous learning.
System thinking promotes the understanding of the system as a whole rather than focusing on individual components. It helps in identifying underlying patterns and relationships among different enablers of the transformation project and encouraging more informed and holistic decision-making.
Fostering an adaptive and flexible environment is crucial. Given the unpredictable nature of complex problems, it’s critical to create a culture where teams can quickly respond to unforeseen changes or challenges. This may include encouraging experimentation, learning from failures or frequently updating strategies based on new insights.
Transformation is a journey, not a destination, and therefore requires continuous learning and improvement to ensure sustainability. It is necessary to establish mechanisms for ongoing feedback, learning and improvement. This could involve regular retrospective meetings and feedback loops.
Furthermore, achieving sustainable transformation necessitates a shift in the mindset of those responsible for implementing the changes. In order to pioneer an inclusive movement for modernisation, actuarial leaders should define a clear direction, make it impactful and leverage collective intelligence.
Establishing a clear direction is imperative to delineate the path for the transformation journey. This involves the setting of ambitious goals, alignment of objectives, creation of meaningful milestones and mobilisation of the necessary resources. By instituting a well-articulated direction, actuarial teams acquire the needed clarity and reason to confidently progress in their transformation endeavours.
The aspect of making it impactful is crucial to stimulate and engage those involved in the transformation process. By visualising a positive future scenario and linking it to the values important to individuals, actuarial teams can cultivate a sense of purpose and motivation. This emotional bond with the transformation objectives aids in cultivating commitment and resilience throughout the journey.
Lastly, the harnessing of collective intelligence is essential in comprehending the present state of the system and facilitating continuous learning. By integrating diverse viewpoints and experiences, actuarial teams can develop a mutual understanding of the complexities and challenges they confront. This cooperative approach assists in addressing imbalances in information, knowledge and participation, ensuring that all stakeholders are actively engaged and contributing to the transformation initiatives.
In conclusion, understanding the difference between complex and complicated problems allows for a more accurate classification and approach to actuarial modernisation. Transformation projects are complex and require a system-level approach, adaptability and a commitment to continuous learning to drive sustainable transformation.
MBE Consulting’s Actuarial Performance Management (APM™) Framework stands as a dynamic approach we employ to assist both actuarial leaders and insurers in modernising their actuarial functions and elevating overall performance. This framework has been meticulously crafted, drawing from years of hands-on experience and a diverse pool of research and theory encompassing fields such as systems thinking, Lean principles, change management and leadership development.
Within the comprehensive scope of the APM Framework is the APM Maturity Assessment, a powerful tool designed to offer a comprehensive evaluation of your actuarial operations across six key strategic areas. Upon completion of the assessment, you will gain access to nuanced insights and actionable recommendations aimed at enhancing operational efficiency and attaining unparalleled standards of actuarial excellence.
