New York – It’s understood that the actuarial department has vast computing needs and a heavy reliance on actuarial modeling, valuation and supporting technology. But stochastic modeling requirements for financial reporting, pricing and risk management are causing a growing desire to benefit from the move toward high performance computing. This, coupled with the need to pull actuarial executives out of the data preparation and calculation mire so they can focus on financial analysis and business decision support, is creating a significant push toward greater actuarial/IT alignment. These were but some of the insights that came from a recent Actuarial Transformation Roundtable, released by the Insurance and Actuarial Advisory Services (IAAS) practice of Ernst & Young LLP yesterday. The group, which brought together senior actuaries and IT professionals, focused on ways to better align the two departments in order to meet the heightened business/management demands created by competition as well as increasingly complex products, extensive Sarbanes-Oxley (SOX) compliance requirements, the shift from rules-based to principles-based valuation and the growing volume of data in general that must be integrated and managed.
The resultant report discusses the people, process and technology issues surrounding critical financial modeling, valuation and risk measurement initiatives It was agreed that
To date, says the report, there have been numerous challenges to effective teaming between the actuarial and IT departments - including difficulties with communication, competing priorities and a blurring of the boundaries around the role each department should take on actuarial valuation, modeling and risk measurement processes. Actuarial participants stressed the tension that exists around the flexibility required to make changes quickly and the need to maximize the advantages of more structured IT development and change management approaches.
The group agreed IT professionals often have a limited knowledge of the actuarial function and the learning curve required to understand the actuarial needs is significant. However, from a career perspective the participants suggested there could be negative implications if an IT executive becomes pigeonholed in an actuarial technology role.
Organizational structure was discussed as an important part of creating an effective way for the actuarial and IT teams to work together. While there was no clear consensus as to the optimal approach, both actuarial and IT executives alike agreed that establishing an appropriate "bridge" between the two functional areas was essential. Strong communication, and setting out expectations and performance goals were listed as a move in the right direction.
One suggestion, which received positive feedback from the group, was creating a "model steward" position with the role of introducing standards for model coding and ensuring the use of a common language through the management of models, assumptions, testing and validation. New roles such as model stewards and others will allow the two groups to work together more effectively by managing and mitigating the impact of the struggles around model control, inter-departmental politics, difference in preferred tools and the language barrier created by technical terminology.
"There needs to be a balance between pure IT knowledge and finance/actuarial knowledge for an integration to be successful," says Steve Goren of Ernst & Young's IAAS practice. "In an ideal world, the actuarial department would like to work with IT people who have a strong understanding of their business objectives and an interest in actuarial science. Conversely, IT exe utives would like to see the actuarial department be more open to learning how the proper use of mainstream technologies and IT protocols could fundamentally transform their actuarial processes. Companies are looking to bridge this gap by identifying and empowering a team of leaders that understand the core strengths of each discipline."
Sources: Business Wire, Ernst & Young
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