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Better alignment needed between actuarial/IT departments


January 8, 2007   by Canadian Underwriter


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“Model steward” positions should be created within organizations to better align actuarial and IT departments, according to the Insurance and Actuarial Advisory Services (IAAS) practice of Ernst & Young LLP.
Both actuarial and IT departments are critical in conducting companies’ risk management assessments; as such, there should be a better alignment between the two departments, Ernst & Young said in a release announcing the results of its recent Actuarial Transformation(TM) Roundtable.
The roundtable brought together senior actuaries and IT professionals, focusing on ways to better align the two departments. Better communication between the two groups is required, the roundtable noted, 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.
“It was agreed that the actuarial department has vast computing needs and a heavy reliance on actuarial modeling, valuation and supporting technology,” Ernst & Young noted in its release. “Stochastic modeling requirements for financial reporting, pricing and risk management are causing a growing desire to benefit from the move towards 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 towards greater actuarial/IT alignment.”
The report suggests the formation of a new type of corporate position, a “model steward.” The steward’s responsibility would be to introduce standards for model coding and ensuring the use of a common language through the management of models, assumptions, testing and validation.
According to roundtable participants, model stewards would allow the IT and actuarial groups to work together more effectively by having the steward manage and mitigate 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 executives 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.”