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Actuarial Modeling

Modern Actuarial System Selection: Good, Bad, and Ugly Reasons

If you’ve been following along (and, obviously, why wouldn’t you?), you’ll know that we’re leading you through a series of blog articles about how to upgrade to a modern actuarial modeling system..

So far we’ve covered signs it’s time to look for a new system [8 Signs You Might Need a New Actuarial Modeling System (Part 1) (Part 2)], and how to make the case for conversion [6 Key Components of the Case for Actuarial Modeling System Conversion].

Last time we described a set of platform features you should consider as you perform your comparisons of various systems: 9 Criteria for Evaluating Modern Actuarial Modeling Systems.

In this article, we’ll provide some ideas on how to weigh your options.

We assume you are familiar with the whole “identify vendors, get bids, run a proof-of-concept project, narrow down competitors, etc”. Obviously that should be a part of your setup, and if you’d like some guidance on those elements, we’d be happy to offer our thoughts or run a proof-of-concept for you as well. [Click here to get started.]

We don’t make a big deal of this step because most companies will have a fairly standard process for doing such vetting of vendors. What we are pointing out, though, is that some of the influences that could be affecting your decision may not be so obvious. These are mindset elements you might not realize are affecting your process. They may come into play more often for actuarial software than, say, a relatively replaceable provider of goods or services that are highly commodified.

With that, we offer you our perspective on the mindset you should employ (or avoid) when evaluating modern actuarial modeling systems.

Good Reasons

There are many good reasons to switch actuarial modeling systems. The majority of good reasons are generally around the theme of advancing your actuarial practice.

They give you more functionality, such as being able to fulfill accounting requirements under whatever regime you operate (such as US Statutory, US GAAP, IFRS, etc.).

They may have more model governance controls that you need, such as being able to offer assurance that the models are what you say they are. Often, they offer an easier-to-use, easier-to-learn, or easier-to-modify interface. For example, see the following video about how easy it can be to change a variable name.

Modern actuarial systems may even come with direct access to cloud computing resources, which can significantly expand your capacity to work and allow you to get more results in less time.

Basically, though, the good reasons for choosing a modeling system all lead to this same conclusion: They enable you to do better actuarial work. That alone should be worth the effort of conversion.

Most of these evaluations are explicit. They’re part of the process already. They’re quantified and debated.

However, we know that there are other dimensions some organizations inadvertently add in when evaluating their systems for either an upgrade or conversion. Some of those reasons aren’t so good. Let’s investigate.

Bad Reasons

Granted, for privacy reasons, we aren’t going to make any claims about seeing these kinds of reasons deployed in the decision-making process. But we know they exist, and they often lie beneath the surface, so we should at least address them, if for no other reason than to appease our conscience.

And, by addressing them and bringing them out into the open, you can make sure they don’t stay hidden beneath the surface, leading you to a bad decision.

Marketing materials

Sure, you can make a fancy brochure and a high-color glossy booklet and slick pamphlet. But is that really what you need when you’re investing large amounts of money and dedicating your actuaries’ time to upgrade those systems?

Photo by Enzo Tommasi on Unsplash

At the same time, if a vendor hasn’t yet launched a blog, or a modern support website, maybe that’s not as big a deal as it might seem. They could be following Teddy Roosevelt’s “Speak softly, and carry a big stick” motto. The “speaking softly” is the fact that they don’t waste time bragging on how special they are, and the “carry a big stick” is simply getting to the work of making a great product for their clients.

Ultimately, the decision is yours. You and your team have to be the one to decide whether you believe they can deliver all the “ease of use” promised in that 74-slide Power Point demonstration. Despite the fact that it takes weeks or months just to get set up for a proof-of-concept project. [Again, no names here. But you know who you are.]

Be careful that you’re letting your decisions be driven by the real nuts and bolts of the work. Not by the kinds of slick materials often created by the same folks who brought you New Coke.

Personal relationships

The actuarial profession is a small world. There just aren’t that many places for professionals to work, and not that many university programs which produced them. You may have a history of taking classes with someone who went on to lead a new consulting division. Or, during a merger, you may be across the table from a former colleague.

We know people, too, because, frankly, there’s not that many of us to know. It’s a lot more likely than in generic software, or mechanical engineering, that at some point you will be interacting with someone you know personally.

What happens when that other professional you have an offline relationship with is now asking you to take a look at their new offering? Or, they’re giving you an option to get in early on this one deal, because they “like you” and “want the best for you”?

This becomes relevant when modern actuarial software vendors are calling on those they’ve worked with in the past. And attempting to leverage that relationship to gloss over deficiencies in their product offering.

Suppose your former colleague is now working for one of those vendors. Do you feel obligated to give that new vendor’s proposal more “weight” when evaluating against the alternatives, for nothing more than I trust her, because I know she’s a good actuary?

The point is, there may be relationships from your past that may be influencing your decision to license a modern actuarial software system. Remember, unconscious biases still exist, even in the heartless world of the actuary.

If you are making a decision because “I just trust them,” whether that person is a vendor representative or another actuary who raves about the system and how it’s going great for them, you’re not doing your due diligence.

Ultimately it could cost you in terms of poor alignment between your business (your products, your processes, your risk management) and the system you use to allow actuaries to do their work.

Because it’s their system, now, not yours. And when you have to live with the results of those decisions, you’ll do well to ensure you are fully invested in them.

It’s what you know from before

To be clear, there are only a handful of commercial software systems available to actuaries. Compare that to something like 700+ programming languages (depending on how you count), of which there are at least 50 “top” languages.

Or something completely different, like blogging – we count at least 30 different platforms available to host your musings. Plenty to choose from on that list, which also means that just because you know one, doesn’t necessarily mean that you’re going to be productive in a new medium.

As we pointed out above, the actuarial world is fairly small. As a result, the actuarial software ecosystem is correspondingly constrained. Suppose during your student program you rotated around through three different divisions and learned three major software programs. Let’s call them A, B, and C. [We save our creativity for the system, okay?]

When you move on to another position with a new company, you might have gotten hired specifically because you know System B, that they use in that office.

In a couple of years, then, during the system evaluation process, you’ve convinced the top people that you also know System C, and it’s the one that they should choose for their business.

But really, you are only advocating for that one because you know it from your past work. Do you also know about Systems D, E, and F? If not, why haven’t you taken the time to investigate? To evaluate? To make an informed decision?

Shortcutting the process because it’s what you already know is a downright bad reason for making a switch.

But don’t worry – it could get worse.

Ugly Reasons

As bad as those reasons are for choosing a new system (or not), we think there are a couple that are even worse.

It’s what everyone else is moving to, it must be okay

Wow. Just wow. This is a complete abdication of your responsibility to perform due diligence on the new system.

Sure, there’s safety in numbers.

Four out of five dentists recommend Trident. But what if your dentist knows that you’re allergic to aspartame, shouldn’t she adamantly refuse to recommend that to you?

We get it. One of the components of that safety comes from the fact that if the system has an error, it’s going to affect everyone who uses it, not just the risk-taking few. In a world where comparison is king (why else would we have GAAP?), you don’t want your bad stuff to be any different from everyone else’s bad stuff.

But if you’re just like everyone else, how do you stand out? How will you differentiate? How will you ensure that the decision is actually right for your business and your risk profiles?

The point is, if you are just choosing a system because many others have, you’re just hoping that it’s right for you. You’re trusting that their business practices adequately map to yours. And you’re making a statement that you’ve decided not to do the hard work to evaluate the merits and potential drawbacks of the new system for yourself.

That’s not just bad. It’s ugly. You can do better.

We’ll just stick with the current system because change is too difficult

Yes, change is hard. Very few people really want to change something about themselves, despite how much we want the different, better future we envision.

There’s the fear of the work. And the fact that you may be invalidating a decision that others have poured a lot of time, effort, and money into over the years. This article points out that contrary facts tend to entrench attitudes, not change them.

Which means that convincing others (either on your team, or the leadership above you, who also control the budget and have veto authority on your decision), may be tougher than you thought.

But sometimes it’s necessary. You have to modernize and advance, in order to just keep up, much less get ahead. 

If you’ve gone through the proper evaluation process and you have decided that:

  1. You need a new system, and
  2. You have made a case for a new system

Then you owe it to yourself to be as objective as possible about the systems you are considering. Yes, learning a modern actuarial system may take time, so that may be an influence on your decision. You definitely should include time to ramp-up knowledge of your new system, and time to scale back the old one.

It doesn’t have to be that difficult

Dorothy Andrews, of the Actuarial and Analytics Consortium, said this about learning to use a modern actuarial system: “I needed to complete a pricing project in 48 hours. After a quick demo of the software, within 24 hours I had a working model I could actually get results out of. It’s all point-and-click, and very user-friendly.

What historical system would have allowed her to get a working model she could understand with such short turnaround?

Admittedly, it’s not always so easy. Not every system is as intuitive as that one.

The temptation, though, is to give extra weight to this element of “existing domain knowledge”.

Part of that temptation is the perception that switching to new systems is hard. However, that challenge is usually more tied to the system you’re leaving, not the one you’re going to. Most often, new systems offer much in the way of advanced functionality, more intuitive interfaces, and easier controls. Those are some of the reasons you’re looking for a change, after all.

But remember, when you stick with what you know just because it’s what you know, then you’re not taking advantage of all that is available in the marketplace.

At this point, the time and money you’ve poured into your old system is a sunk cost. Sure, learning a new one should be a cost of conversion, but don’t put your thumb on the scales by also holding on to bad decisions from the past.

Chances are, your current system does not even have access to the full scope of technologies available today. Especially since those systems were designed twenty or thirty years ago. And modern actuarial systems use technology today that didn’t even exist two years ago, much less three decades ago, when your system was originally released.

So that means that if you are sticking with a system “just because it’s what you know”, you are, essentially, saying that you are okay with the tools that were fine and dandy when AOL was still a thing. And you’re asking them to do right-now kind of work.

Which doesn’t make a lot of sense. You send the signal that the pain you currently deal with is greater than the pain of change.

Which, on its surface, is readily understandable.

But it’s probably not true.

Unfortunately, we don’t have crystal balls to see exactly what our options are for the future. But if you look forward five years and see yourself having exactly the same struggles and frustrations as right now, that’s going to feel like a very big missed opportunity.

Don’t let yourself ten years from now curse you today for not doing the hard work.

Conclusion

If you’re wise, you’ll understand that changing software systems is like changing your mind. You may need some good reasons to do so, and at the same time you want to avoid bad reasons, either to change or to stay the same.

“A wise man changes his mind. A fool never will.”

Spanish proverb
  • Good reasons: Improved actuarial processes, better risk management, lower costs.
  • Bad reasons: Marketing, personal relationships, it’s what you know.
  • Ugly reasons: Herd mentality, change is difficult.

Once you’ve gotten all the bad and ugly reasons off the table, you can move forward and take the necessary steps to improve your models. Even better, you can improve your actuarial practice and become the professional you set out to be.

[If you’re interested in seeing some additional, “hidden” benefits of model conversion, send an email to info@slopesoftware.com, and request the “12 Hidden Benefits of Model Conversion” white paper. Do note, this is a special resource reserved for those who are really serious, so we don’t offer it publicly on the website.]


Next Time: How to convert your models