Faced with huge pressure to overhaul their working practices, risk and actuarial departments have had to choose between transforming their systems and making incremental modifications. In the first part of this InsuranceERM and Milliman roundtable, industry experts discuss the challenges with the two approaches
Jack Buckley, chief actuary & director of risk, Argo Global
Martin Burke, CRO, Mitsui Sumitomo Insurance Underwriting at Lloyd's
Hugo Coelho, assistant editor, InsuranceERM
Stephen Coombes, CFO, Sun Life Financial of Canada
Matthew Croft, head of finance systems & actuarial modelling, Prudential UK
Martin Jarman, enterprise risk management director, RSA
Zaneta Kovaliova, director, global finance operations, AIG
Chris Lewis, consulting actuary, Milliman
Pat Renzi, principal, life technology solutions, Milliman
Chaired by Christopher Cundy, contributing editor, InsuranceERM
Chris Cundy: Do you see a clear separation between incremental change and transformation, or is it really a bit of a grey area?
Stephen Coombes: There is a clear distinction between embarking on a multi-million pound project to replace and renew, rather than choosing to adapt and amend what you have. But I would say that if you think you have reached the end of your transformation project, then you are probably wrong, in the sense that there is always incremental change required as new regulations come through.
Pat Renzi: The difference is that incremental change is something that is managed within a particular area, but transformation touches many different areas within an organisation. You need to change your people, systems and processes, which makes it more challenging to manage.
Jack Buckley: With these large transformational changes it is more about hearts and minds. If you do not get buy-in from the business upfront, before you start the change, it can be quite difficult because you are going to meet roadblocks along the way. For small, incremental changes, you can go ahead headstrong, but for the larger ones you need more buy-in.
Zaneta Kovaliova: Consider the external drivers for change: regulatory requirements, digital, changing customer behaviour, competition and others. These are pushing companies to fundamentally rethink their business models. This means rethinking strategy and what people, technology and processes we will need to address that strategy. If you think about that, the change will have to be more significant and transformational compared to what the insurance industry had a few years ago.
Matthew Croft: The problem with some incremental change can be that you just end up changing slightly what people already know and are comfortable with. As the technology moves on incredibly fast, that is just not really going to move your business forward very much. Taking that leap forward with new technology, to me, is one of the big upsides for transformation. On the other hand, you cannot expect to get funding to run a transformation exercise every year, so you need to get adept at delivering change in smaller steps.
"I do not like big, large-scale change where it is all jam at the end." Matthew Croft, Prudential UK
I also think, on transformation projects, doing them in an incremental way where you offer value quickly and people can see the value and get the buy-in, is very important. I do not like big, large-scale change where it is all jam at the end. To me, that is a big danger in getting buy-in from the business.
Reluctance to change
Martin Burke: The biggest thing for me is this constant fight against the majority of people's inner voice telling themselves, 'Can we not just leave things as they are for a while, just for a couple of years, and concentrate on the rest of our business.' The whole business is being affected all the time. We have had Solvency II, which has affected governance, risk, finance and compliance, but underwriting is going through changes too. Everything is moving and shifting all the time.
Chris Cundy: How do you deal with that resistance to change?
Martin Burke: You need to communicate until people are sick of it. Also, it is not a single path that you have to stick to. It will change and develop as you go through the process. You have got all these behavioural heuristics that you come up against whenever you go through a major project.
The most difficult to deal with is the investment heuristic, where you have invested so much money in something, why can you not do it the way you originally thought? To get people to say, 'Well, let us just stop doing that, which is what we originally thought, and actually move on to something else,' is challenging. What they are trying to do is get to the end of that road and then reach another stable period – which they are never going to get to, but it is this tide we are constantly fighting.
Culture of change
Chris Cundy: Should companies be more willing to constantly improve and change things? Do you think that would be a benefit?
Martin Jarman: Obviously you would expect to change for the better, but there is so much constant change going on within the industry that it diverts resources away from running the business. Where you would want to be focusing on your business and making it more economically viable, what can happen with change programmes is the day-to-day operations are strained as the best people are recruited onto the project.
Zaneta Kovaliova: I agree. It is so important we have a focus and reprioritise the change so we are still leaving reasonable time for business as usual. You also have to consider interdependencies between those change projects and develop an integrated change plan to avoid duplication of effort.
"The success of running projects is heavily dependent on the underlying culture." Martin Jarman, RSA
Jack Buckley: We must accept that we are not a technology industry. Technology industries are used to a rapid rate of change, and now we are trying to put that rate of change onto the insurance industry. The people that we have might not be able to adapt as fast. Maybe the people inside certain organisations have not got the ability to really evaluate those decisions they are trying to make.
Matthew Croft: There are probably a lot of people in senior positions in insurance companies who have got there by being technically proficient in what they do in the actuarial risk/finance space. That does not necessarily mean they are good at delivering change.
Chris Lewis: One of the things is to try and design a solution that moves more of the technology into the technology space and leaves the subject matter experts to do what they do best. That is the Holy Grail, getting the people doing what it is that they are best at, but blending them together to produce a solution which is greater than the sum of the parts.
Martin Jarman: I used to work for GE, many years ago, and that was a culture that fully embraced change. Does that exist in the insurance industry? The success of running projects is heavily dependent on the underlying culture.
Hugo Coelho: Insurers are described, most of the time, as reluctant reformers. To what extent are Solvency II and other regulatory pressures changing this culture?
Matthew Croft: I think everyone is much more used to working with the change community. If I go back to the office now, there are 'change' people sitting next to the actuarial team who work on Solvency II. That kind of interaction typically would not have happened prior to that project starting. When we move on to doing other transformations, people will be better equipped to work in that type of environment.
Planning the path
Chris Cundy: Do you feel that there are times when transformation is the only realistic path you could take?
Jack Buckley: When you look at where you need to be in the future – in a specific timescale – sometimes there is no option but to take that big step. But there are risks involved in that and if you do not have to make a deadline, the risks are unnecessary to take.
Martin Burke: It depends on the political environment. A change in management can allow the change agenda to be driven much harder, or provide an opportunity to rethink.
"No one really wants to work in an organisation that is not changing at all." Stephen Coombes, Sun Life Financial of Canada
Chris Cundy: Do you think that incremental change is always 'safer' than transformation?
Pat Renzi: I think it is probably safer from the perspective that more companies are successful with incremental change, but the danger is that you do not end up at a good place.
Martin Burke: It is safer from a keeping-your-head-below-the-parapet perspective, because you do not have to ask for as much budget to do incremental change. There is clearly a political risk attached to actually packaging it all up and doing it at once. If you can keep things changing incrementally, the only downside of that is there is possibly less credit to be gained afterwards!
Stephen Coombes: There is a people aspect, in that no one really wants to work in an organisation that is not changing at all. It is not good for one's ambitions, one's learning or one's development. Therefore, most managers who are ambitious or interested in their career will want to change things. Naturally, they will want to improve things. So incremental change can lead to a real risk of losing one's most ambitious and aspiring people
Pat Renzi: We were working with a company that had a 10-year programme of major change within the organisation, starting with customer-facing systems and process and then moving to the internal and then to the back office. Once they started on that path of change, the number of résumés and CVs that they were receiving on a regular basis just skyrocketed, because people wanted to work at a company that was clearly really trying to be at the forefront of things.
Stephen Coombes: It strikes me that businesses need to survive and thrive, and sometimes incremental change will not even allow you to survive.
This raises the interesting question of how you decide your project transformation portfolio. That is an issue which goes to the top management team to consider, usually on an annual basis.
Resources are usually scarce, so selecting the right projects, and the right way to deliver projects, becomes a critical decision. Therefore the choice between incremental change and transformation becomes crucial. I know, as a chief finance officer, at the start of any business planning period I will get requests to spend multiples of the budget I have.
Zaneta Kovaliova: Prioritisation is difficult. We approach this challenge by really understanding what our current strategy is and what the top three or five things we want to achieve this year are, and then saying, 'These three or five change programmes are strategic and key for us,' and focusing on those. Understanding time frames for all change programmes is a significant requirement.
Jack Buckley: Time frame is a very interesting point, because if your time frame is too short your day job gets impacted which can lead to firefighting. I think you need to separate the long-term and the short-term.
"No one necessarily wants to be at the absolute cutting edge." Martin Burke, MSIUL
Chris Cundy: Does regulatory change always go to the top of the list?
Stephen Coombes: It tends to absorb most of the budget.
Pat Renzi: One of the things that I have seen companies do is use regulatory change as the impetus to do a transformation that they have been wanting to do for a good business reason.
Stephen Coombes: That is definitely true. A number of managers are very adept at piggy backing their favourite projects on regulatory issues. In the finance and actuarial area, where typically for many years we have been getting by on incremental change, Solvency II has been the catalyst for transformational change.
Chris Cundy: Is what your competitors do an influence on your decision to transform?
Martin Burke: It is a big factor, because that is pretty much the first question anybody is going to ask me. "You want to talk about something? Well, what is everyone else doing?" No one necessarily wants to be at the absolute cutting edge, leading off in a direction that they are not sure other people are going to follow.
Part 2 of this roundtable – discussing the scope of a project, measuring the value of systems change and personal experiences of change – can be read here.