Working in the Vortex of Change

Working in the Vortex of Change

Presentation at the Singapore Actuarial Society 4th Life Insurance Conference 17-18 August 2017

Introduction

I was asked to speak on “Leadership in The Age of Change”. I changed the topic to “Working in the Vortex of Change” because “working” represents what all of us do, while leading in the more formal sense is more relevant to a segment. I have used “Vortex” because I want to dramatize this intense period of digital transformation, that we are whirling into. 

What I offer today are personal points of views. I do not claim that what I will say can be a panacea nor are my comments meant to be comprehensive.  

-------------------------------------------

I will make three points in my presentation

? We are going through an inflexion point which I will call the vortex of digital transformation – and this is fundamentally different from previous industrial revolutions because, in this instance, almost all white-collar professionals will face the risk of technological unemployment. 

? I hold it to be self-evident that it is better to be an agent of change instead of being a recipient of change. As a profession we can be, or be seen as, slow and complacent, we have been caught on the back foot before, and we must not make the same mistake

? We have important strengths as a profession but some of our strengths can be seen as weaknesses in the world of digital transformation. We may not have all the competencies and mindsets required – but as we go forward, we can be resourceful–and pivot our attention and resources to acquire them. The actuarial profession, and we as individual actuaries, can do something different to survive and thrive in this vortex 

Context

When I first entered the profession in 1970-80s in the UK – I certainly felt it to be influential, and highly regarded, powerful. And effective.

How relevant, effective and influential is our profession today? 

My own interpretation is that our profession has suffered a decline in terms of influence in the financial services – largely due to our own insularity and perhaps our own sense of complacency.  

The profession now faces challenges which are different from the challenges it faced (certainly in the British context) in the last 50 years. The challenge it now faces is digital transformation disrupting all professions, not just the actuarial profession. 

Professions, as we know them today, are the basis of practical and specialist expertise of a print-based industrial society. It is an increasingly common view now that professions like law, accountancy, medicine, management consulting, journalism, health and education, architecture and many other expert jobs will be disrupted. 

Today, we live in a different world where networks, connectivity, transparency, increasingly capable machines operate across many domains with great speed and multiplicative effects. This will undermine traditional industries and professions. Professions essentially is a monopoly of expertise protected by law, practice and regulations.

So, what does the actuarial profession need to do, if anything could be done? This is a central task for us as a group – as a profession, and as individuals. 

How can we survive, let alone thrive, as our company business models are threatened and our employers get disrupted, and industries and regulation get re-arranged? We too need to adapt, or better still help lead the way.

So, I think there is “a Job to be done” (to use Clayton Christensen’s phrase) by the actuarial profession as a whole and by many of us as individuals if we wish to perpetuate our relevance.  

Descent from Influence 1965-2015

I said earlier, that my own sense is that the profession has declined in influence. It has become more technical, the role of actuaries has become more analytical and functional, and relative to the leadership positions in companies, we have become less senior, less influential. This is very evident to me – as I re-engage with the profession recently. Our leadership roles in organizations have reduced and we come across as a provider of advice and analysis, with less authority to shape the framework of the advice and analysis. This in my opinion is dangerous, because we then become an order taker, a recipient of change and not an agent of change. When we are not an agent of change, we are no longer master of our own destiny. 

I want to give a very real example of what happened in my generation in the last 50 years. 

-------------------------------------------

For those who are interested, I strongly recommend the book “History of British Actuarial Thought”, recently published, by Craig Turnbull – which documents our fall from grace and influence in a most compelling and detailed way. This is a British story and is a long one – but the gist of it, was our inability to learn and incorporate the advances of financial economics in our pricing and valuation of guarantees (maturity guarantees, guaranteed insurability options) and the funding of final salaried pension schemes. Our complacency and self-absorption in our internal disagreement and analysis, in retrospect, is frightening. We became unstuck with volatility of financial markets which were the new norms as the last century closed. Our descent from influence in the last 50 years is largely due to this.

This is now a matter of the past. But today the challenges are digital and are of a very different order. We are now at the foothills amongst mountains of change which are sweeping the world. Hence, we must truly raise our game.

The Vortex of Change

I adopt the IMD Business school’s definition of digital transformation

The convergence of multiple technology innovations enabled by connectivity i.e. big data and analytics; cloud computing; mobility and mobile solutions; social media and other collaborative applications; connected devices and the Internet of Things (IoT); artificial intelligence and machine learning; blockchain; and virtual reality.

The kind of implications we often talk about in our actuarial, data science, company and management conferences tend to centre around our products and services, how to make them more technology enabled and more customer orientated and provide greater value for money. So, in conferences, we will encounter subjects like (but not exclusively) 

-------------------------------------------

? The automation of actuarial and operational work and finance 

? Digital Distribution and E commerce 

? Use of data-analytics and unstructured data for marketing, claims management, dynamic pricing, valuation and customer experience

? Changing risk types (driverless cars which threaten telematics before it gains traction)

? Revolution in health insurance arising from medical devices and wearables, genetics, wellness propositions, dynamic pricing

? Use of block chain on know your customer 

All these will speed up competition, complexity and are disruptive to existing jobs and processes. To do this well, by itself, is very difficult for any company and is particularly difficult for established companies because of ingrained culture practices and process, channel conflict and current focus on short term creation of value. It will require vision, speed, experimentation and joining the dots, required by a culture of innovation and design thinking – these are not skills which insurance companies are good at or are natural for actuaries. 

However, what’s at stake is far greater than the changes I have just spoken of. The greatest game changer and the real challenge is the impact of digital platforms and ecosystems on business models – and we already witness the dramatic advances of FAMGA (Facebook, Apple, Microsoft, Google, Amazon) and of course the Alibaba and Ten Cent of China of this world in many fields like payments, retail, media, entertainment, music, telecommunications and logistics. 

They seem capable of sweeping many traditional siloed and protected industries aside. We are fast approaching the vortex for insurance and financial services – payments and money transmission in the banking system is being disrupted – wealth management, personal general insurance, term and health insurance and car insurance cannot be far behind. 

The impact of asymmetric competition of digital transformation insurance businesses will take place. 

------------------------------------------

All of you know that

The greatest threat to a hotel is not another hotel

The greatest threat to a bank in payments is not another bank

The greatest threat to a music recording company is not another recording company

The greatest threat to a telecommunication is not another telecommunication company

So, the greatest disruptive threat to a traditional insurance company will not be another insurance company but one of the big network and platform like FAMGA, Alibaba, Tencent, telecommunications companies, medical devices and health wearable companies and car manufacturers.

 

In this context, it will be useful to ask, how are actuaries adapting to change? Do we tend to be leaders of change or are we recipients of change? Can we position ourselves as part of the solution, and not part of the problem? 

Future of the Professions in the Vortex

There is an excellent book which has also been published recently entitled “Future of the Professions” – by a father and son team Richard and Daniel Susskin. 

The central thesis is that in decades to come the professions as we know them will cease to exist as increasingly capable machines, increasingly pervasive devices and increasingly connected humans in technology- based Internet Society will make white collar professions less or irrelevant. 

Technological unemployment will occur as increases in economic activity and tasks arising out of productivity, unlike in previous technology revolutions, can be increasingly performed by machines. 

The journey there and our working environment will be in a state of flux. Professionals will need to learn new skills and competencies. In particular, we will need to 

? communicate differently, and by this the authors do not mean skillful presentations writing or listening. They mean the use of social media and networks. 1996 – e mails were opposed by the Law Society of England and Wales. 

? gain mastery of the data in our disciplines, and I will expand on this a bit later

? establish working relationships with machines effectively, and 

? the need to be increasingly multi-disciplinary. 

So, what are the implications for us as an individual actuary in a technical role in life company? 

I want to draw an analogy to a story which occurred in the NTUC union of taxi drivers some two years ago. Many of the drivers’ initial concerns were about the unlicensed Grab and Uber drivers who threatened the established jobs of taxi drivers. But very quickly, the drivers came to the conclusion that their jobs will not be threatened as they themselves can become Uber or Grab drivers. A few months later, when they saw a demonstration of driverless cars, the colour of their faces changed, as they suddenly realised that their jobs would be truly at risk.

Any taxi driver below 40 years old today who believes they will have a job as a driver as they near retirement is dreaming.

Any young professional, including an actuary, who believes they will have a similar job today as they retirement is dreaming. 

-----------------------------------

For many years, I myself always believed that driverless cars were within possibility in my own life time and I would probably see it at the last phase of my retirement, in my eighties. But now you and I know this is going to be commonplace in Singapore within the next ten or at most 15 years. If you google “Tokyo Olympics and driverless car”, you will see how real it is. Change can occur very slowly initially, but when it comes, it can come very quickly indeed. 

The taxi driver today will disappear like print workers, typists, farmers, photographers, and increasingly, postmen and postal service workers, et al. 

Let us look at the individual, the actuary, i.e. you google “strengths or competencies of an actuary” – you will get a list of outputs as shown here”

? Specialized math knowledge. Calculus, statistics, probability.

? Keen analytical, project management, and problem-solving skills.

? Good business sense. Finance, accounting, economics. Solid communication skills (oral and written)

? Strong computer skills.

Or you can check with Investopedia – and it says basically the same thing

? Analytical Problem Solving Skills

? Math and Numeracy Skills

? Computer Skills 

? Knowledge of business and finance 

? Communication and interpersonal Skills

Based on this profile, we can say that actuaries tend to be 

? Rigorous and analytical

? Cautious and fact based

? Will not be too intuitive and need data to make decision

? Will be structured in our approach

We have strong numerate and logical skills. We are narrowly focused specialists – in very traditional industries. We deal with a lot of structured demographic, morbidity, mortality, and health data carefully honed, and cleaned up smoothed within our known pricing and risk experience over the years.

The world of data today comes from unstructured data which comes with great variety of unrelated sources, in great volumes, and in real time. 

The data we used can be replicated more accurately, quickly and dynamically by unstructured data culled from wearables and devices, GPS and location devices, mobile, lifestyle and behavioral data in social media and much wider data sets held in the repositories outside our financial institutions. Many of the work and skills we used to do can be replaced by expert systems, automation, innovation, data science, artificial intelligence, deep learning aided by cloud computing and powerful networks.

This creates the opportunity for true disruption of the industries and the profession we work in. Can we help to lead in the thinking of opportunities presented by this digital revolution changes. I believe we should lead. 

There is much we can do to perpetuate and sustain our relevance in the next 12 months, next three years and ten years to generate opportunities and pathways for the people in our profession. 

As we peer into the vortex of digital change, there seems to be a consensus on the kind of mindsets, competencies and knowledge which are valued and which will enable us to thrive. Key words are design thinking, experimentation, acceptance of failure, agility and so on. Some of these characteristics overlap with our largely cognitive skills. We have some of the strengths, but some of our other strengths are also weaknesses. There are many skills required in these new domains for which actuaries are not well known for. But we can and we must learn them, we can pivot our mindset towards these competencies.

-----------------------------------

Many of you are familiar with the literature on innovation. I will tease out some of the key themes from materials I am more familiar with from three sources 

? Design Thinking 

? Agile Leadership - IMD Centre of Digital Business Transformation 

? Harvard Business Review article on Innovation 

 In traditional business thinking – we start with a vision and a plan. Almost certainly, capital resources are required, and an intellectual and analytical assessment of return on capital and risk appetite. We see most players outside our system as competitors and we plan to succeed and do everything possible to avoid failure.

-------------------------------------------

This is not the ethos for innovative cultures, where the key approach is experimentation using whatever resources one has. Players and competitors in the ecosystem are welcome as allies or collaborators. There seems to be a celebration of failure as witnessed in some companies. “Fail fast, learn fast and move on” is the new mantra.

In our traditional approach, we tend to define our problems clearly – using spreadsheets and power points to explain our strategic ideas and road maps on product development, and what powers us is definitely corporate recognition from the hierarchy or the board. And we defer to the most senior person in the room who knows best.

-------------------------------------------

The world of design thinking is about customer intimacy, outside in approaches, joining the dots across functions and iterative experiments, often they are driven by peer groups and recognition of customers.  

At the IMD Global Center for Digital Business Transformation they identify their central skills of agile leaders which are required to thrive and survive in the vortex of digital change. 

? Hyper awareness and engagement– constant scanning of internal and external environments for opportunities

? Informed decision making – making use of data and information to make evidence based decision making

? Fast Execution – a willingness to move quickly often valuing speed over perfection

I think, we can say actuaries are strong in informed decision making. But we will be less hesitant say we are hyper- aware and fast executors.

-----------------------------------------------

In a different study, published in Harvard Business Review (Katharine Graham Leviss) it says the traits are valued are a strong bias for curiosity, courage and seizing of opportunities and maintain strategic business perspective. Some actuaries have these, but we would not say these are our strongest traits.

We can say our strongest traits is “keeping order and accuracy” because this is our training but according to this research this is not good for innovation – and we can well understand why.

Job to be Done 

By nature, personality, self-selection and by training we tend to be structured, data-driven, cautious, and narrowly focused. And we tend to be deliberate in our approach. This is our nature, but we can tilt our attention outwards. We need to be aware that there is a whirlwind out there, and getting to the right base line is necessary for participation. 

For the profession – we need to do some serious thinking on how we ensure the profession, and more importantly the people in the profession, has the skills, competencies, mindset and the language to thrive. We certainly need to make a significant foray into data science which I know both the IFoA and SOA are doing, venturing and build bridges into adjacent domains of expertise like social media and communications, cloud computing, Internet of Things, sensors and devices, affective computing, robotics, genetics and artificial intelligence, not necessary being experts ourselves but become more knowledgeable and connected - so that we can continue to be business advisors, strategists and leaders and managers of change in organizations. 

Much wider is the need to collectively awaken to the threat sweeping the actuarial profession – this must be brought into the forefront of the profession’s awareness - it is a turning our attention outwards to the context in which we are operating in and a willingness to let go our past habits and practices of introspection.  

So, what do you need to do as an individual actuary? I think we can see the glass as either half empty or half full it. My recommendation is to stay resilient and optimistic. If we are prepared to embrace change, I think the future is for us to create. 

-----------------------------------------------

In my opinion, you will need to get to the right base line of understanding. The world and vortex of change may appear frightening, but with knowledge and understanding, your confidence, choices, and capability will widen and increase. Knowledge, understanding and experimentation are the basis of mastery here. 

I will highly encourage you to attend courses and read the right books – to get the right language, and to follow leading commentators and immerse into the digital economy. Your contacts and knowledge can only multiply, and volunteering for projects and participation in initiatives give you the additional opportunities to learn. It is better to go beyond actuarial areas and truly understand what else is happening. 

If I work in health insurance, I will be curious on how health devices and sensors at home and care centres can feed into an internet ecosystem to allow you continuous monitoring, pricing, incentive, claims and risk management. 

If I work in life insurance, I will be curious on how our traditional insurance can be deconstructed and distributed, through social networks and other eco-systems. 

If I am in motor insurance, I will be curious not just in telematics, (which actually is so passé, even before it gets traction), but in driverless cars on how it impacts the risk capacity and pricing, and if I work in commercial insurance, I will be curious on how drones can be used in claims surveillance and management 

And in all aspects of insurance, we need to be aware on how data science, increasingly capable machines, increasingly pervasive devices, and increasingly connected networks impact customer experience, marketing and financial management.

Conclusion and Change

The most important thing here is our mindset and how we direct our attention. Not engaging with change is not an option. Change is personal, do enter the change process yourself, and embrace it. There is no end to your professional and personal development. It is truly continuous. It looks as if most of the revolutionary breakthroughs occur at the intersections of disciplines and it will be strategic to go beyond our comfort zone, open our minds and learn new skills. 

All of us accept that change is the only constant, and I accept that it is not always easy. What I have attempted to do in this presentation is to advance the proposition that it is better to be an agent of change than to be a recipient of change. As a profession, we face the risk of being swept away by the vortex of change. In this regard, we are not alone.

I am fundamentally optimistic. I believe we have the resilience and skills to adapt. A new and exciting society will emerge. The job to be done is to direct our attention towards this vortex and consider how we could perpetuate our individual relevance and make our collective capabilities useful in the new society which will result. 

   

TSC 

August 2017