David Hopewell - Senior Consultant, Milliman

David Hopewell - Senior Consultant, Milliman

How long have you worked as an actuary?

I’ve been an actuary for 29 years.

Which markets have you worked in as an actuary?

I’ve worked across the life sector, including capital management; annuities, savings, retirement; traditional life. I’ve also worked in derivatives and as a consultant at Ernst & Young.

What do you see as key characteristics of innovative actuaries?

To embrace innovation, actuaries have to be prepared to fail, which goes against much training and sometimes personality as well. They strive to be as accurate as possible.

Those actuaries that are comfortable diversifying their skills and not staying in one area are more likely to innovate and succeed when doing so.

I believe it’s important that actuaries realize that innovation brings disruption. Innovation can force change, which disrupts the networks people rely on to get their work done. That leaves the innovator alone, at least until proven right. This is common, and not limited to actuaries.

What factors do you believe influence the impact actuaries can have within their organizations? 

The number one factor determining how influential anyone can be, particularly someone with the innovation mandate, is executive support. The CEO has to not just say they care,  but reinforce innovation in practice by asking their team to deliver metrics demonstrating how innovation is brought into core processes and succeeding.

Without that urgency to change, the company is usually reluctant to adopt tools and practices required for change. There are lots of good, or at least understandable, reasons for that which need to be dealt with.

It’s possible for another C-suite member to foster this environment in their domain, but when the CEO is that person demanding change from their direct reports, that’s influential. There are also examples of non-CEOs taking this mandate on successfully and becoming CEO as a result. 

Another thing innovative actuaries need is to find practical opportunities. There is a guerrilla path to innovation success, and the challenge of innovation and analytics is moving them from the periphery of the business to the core. Here executive support is more like air cover than advocacy, but you still want at least one important person on your side. 

Unless innovation gets into the core processes, it won’t impact the way business is done and won’t drive substantial P&L or culture change. An innovative actuary needs to understand what is peripheral and what is core and must tack towards what is core. This is not always the easiest or coolest work, but it is most likely to make an impression on the people who count the money or report to investors. It’s something traditional stakeholders understand and care about.

Finally, personally modeling and demonstrating a forward-thinking mindset is critical. You influence people by believing in and using what you promote, Walking the walk proves innovation is more than just a cool idea.

What are some key ways you see the actuarial profession evolving in the next few years?

I see it diverging.

The traditional actuarial areas, like solvency and product, I think will remain. Those are more distinct than before because on average companies are investing less on early stage actuaries, so people are landing in their speciality more quickly. The result of this is actuaries may not have encountered as many types of problems when they start to run processes. Many pursue more exposure for that reason, and that is a positive but then come back to their jobs and struggle to implement change.

This is often by design as the more optimized, streamlined, and controlled a process is, the harder it is to change in a positive way. So, they are left with a difficult choice of developing their innovation skills and doing what their employer needs them to do. This is one of many ways the status quo challenges innovation and pushes it to more peripheral functions.

I see the profession diverging between the actuaries who view this as their preferred career path, and the actuaries who demand more and crave rotational opportunities, sometimes outside the actuarial mainstream. They are much more likely to be more innovative over time because innovation is a network effect; the more areas you understand, the more connections you see, the higher the odds of making meaningful connections increases.

I’m a big believer in the idea that if you know 100 things, you actually know 10,000 things, but if you only know one thing, then you only know that one thing.

The challenge for insurance companies, particularly those who want to buy talent and not build, is these motivated people who want to rotate their roles get stuck in what they’re good at and aren’t offered the opportunity to move around. The question is how do you allow them to grow on their terms, which allows them to be successful and innovative?

For some really motivated and innovative actuaries, they will find that they won’t be able to grow and evolve in roles within incumbent companies, and so they will leave for roles and companies where they can. This is another trend we see. 

Despite there being significant collaborative potential between data science and actuarial science, the two expert fields don’t always mesh in insurance. How do you believe they can work together more successfully?

They’re more different than most people think. Their fundamental objectives are different.

Actuarial science is designed to converge sets of data into an answer, the determinants of which are mostly known in advance. Analytics, or data science, is fundamentally more exploratory. Sometimes the answer to a question can be that there is no answer, which doesn’t happen in actuarial science. Analytics faces a wider range of techniques and potential outcomes, and must be approached flexibly when implementing the results. 

If you think about it in terms of design thinking, there’s divergent thinking and convergent thinking.

One difference is that actuarial divergent thinking is more limited in scope compared to data and analytics divergent thinking, where even the question you ask requires a design element. The actuarial data set is determined in advance, and the results usually need to converge within a range set by prior expectations.

It also depends on the area. Product, for example, is already pretty optimized for its environment and the target zone for answers is a rather narrow range of prices  and structures determined in advance. There are more dimensions to be explored for sure around customer segments and decision making, but it seems to be hard to bring that into the process. Product and pricing are also quite intricate.

All in, that makes it harder to bring new things to the table. That doesn’t make it less necessary, so the actuaries who figure this out will have very good careers. But it does slow things down, while the analytics world moves fast and grows. There is also not widespread understanding of analytics in life companies, and making smart decisions that aren’t well understood creates an innovation challenge as well. P&C is different. They understand analytics pretty well, but it is still the specialists who do it. So maybe it's just hard to acquire both skillsets.

These issues can and are being solved, but many actuaries wont be exposed to that unless they actively seek it out.

Is innovation more likely to be impactful if it’s financial rather than efficiency driven? 

Well, if something is efficiency driven and it doesn’t become financial, then it didn’t really happen. All of it is financial in the end. Any core innovation activity must either increase capital or income; it’s either a balance sheet item or an income statement item. 

Innovating is a little risky and a little hard and, while it sounds good, it requires the ability and willingness to take risks. The reason we do it is because it improves operations in a way that is visible.

In the best case, it’s used to approach existing markets in a disruptive way or enter new markets to drive top-line growth and subsequently bottom-line growth, frequently with higher margins. A company only needs one durable idea to dominate their segment so the reward is huge. If innovation isn’t driving these changes it’s on the periphery, and the next funding cycle, when discretionary spending is getting challenged, funding shrinks. Lack of an executive mandate is a red flag that this is happening, but if your ideas are making money you will find a sponsor.

The bottom line is that the same thing driving the executives should be driving the innovators, because you have to align with management to move the needle at the enterprise level.

There’s more to it than asking how one becomes an innovative actuary. You break it up into different pieces: how do you train, how do you align, how do you get support, how do you execute, how do you choose opportunities, etc.  

What are some of the more impactful innovations in the actuarial field and why?

Tableau and Alteryx are both great because getting actuaries to think and present visually opens up a whole new frontier of stakeholder satisfaction, which I think is very important.

You have to include the cloud, because the cloud is going to enable innovations in financial reporting and may create enough capacity that actuaries will be able to exercise flexibility.

One of things limiting actuarial data science is the systems they work on are so limited and rigid that, even if you find something out, you might not be able to do anything about it. Moving to a cloud-based computational environment changes that. Cloud enablement really is the biggest opportunity and I don’t think it’s gone that far in changing things yet.