By Jay Jaffe and Bill Rearden
On Nov. 14, 2017, the E&I Section sponsored a Town Hall program featuring Michael Schrage. Schrage is a research fellow at MIT’s Sloan School of Management’s Center for Digital Business, and Imperial Colleges’ (London) Innovation and Entrepreneurship programs. Schrage is also an author, featured magazine writer, and an active business consultant regarding the “innovation process.”
The title of Schrage’s presentation was “The Next AI: Actuarial Innovation.” His remarks made it very clear that actuaries must make a conscious decision whether to be partners or subcontractors in the innovation process. He explained that actuaries come to the table with the understanding and know-how about using data—two of the critical skills needed in a business environment that is now being led, in large part, by “data scientists.” He argued something obvious, but not necessarily ingrained in the actuarial culture: actuaries need to think of themselves not only as professionals, but as members of the larger data science community that is leading today’s technological world.
Schrage made it very clear that innovation means creating new value. A business measures innovation success in terms of ROI, but not the ROI that comes to mind for most business people. The ROI that Schrage uses as his success criteria is return on innovation. Good ideas by themselves may not qualify as innovations.
Another of Schrage’s comments was that invention describes a novelty whereas innovation is the conversion of something that is novel into value. Great ideas don’t usually translate into value. Novelty becomes value when customers, not companies, make a novel concept valuable.
Schrage explained that businesses interested in creating a more innovative culture generally start by asking the following question, “How can people create more valuable innovation?”
He quickly pivoted to pointing out that nowadays the question should be inverted, “How can innovation create more valuable people?”
Finding the answer to the second question will produce far more value than any number of answers to the first question.
Near the end of his remarks Schrage had an observation about the actuarial profession: actuaries have a risk-averse perspective rather than an innovative outlook and innovative culture. In his opinion successful organizations (and, by extension, professions) must be committed to an innovation culture. This is no small task for a company or an individual.
Schrage explained that taking a risk does not mean doing something foolish. He explained that actuaries can participate in, and contribute to, an innovative culture by using their skills not only to calculate the risks for a potential new project, but also become proficient at explaining the risks associated with that project. Helping navigate risk is a role ideally suited for actuaries. It would be best if these explanations would concentrate on the tasks and risks that will be necessary to make a project succeed rather than looking at the ways to simply avert a project’s inherent risk factors.
In Schrage’s view, building a culture of experimentation will help foster an innovation culture. There are now many opportunities to test experiments using digital media. These tests can be done inexpensively and generate hard results in almost real-time. Actual feedback is more revealing than most market research, discussions, or theorizing, and it is much more economical. Digital testing will go a long way to making the determination of a project’s level of risk and value more accurate. More importantly, successful experiments from digital media can easily be scaled to have breakthrough results.
An organization with an innovative culture will look to generate as many testable hypotheses as possible. These testable hypotheses are probably more valuable than a company’s hard assets. It is worth repeating that internet-based activities are ideal for this task because of their speed, scalability and cost effectiveness.
One of the tasks an organization faces is deciding which projects are to be undertaken and encouraged. In the end, decisions of this type usually involve measuring risk vs. value. Innovative projects with the greatest V/R ratio are probably going to receive more attention than projects with a low V/R ratio.
Schrage’s proposition that the aim of innovation is to produce more valuable people means that the talents and skills of actuaries may need to be reoriented. Both individual actuaries and the actuarial profession should learn how to become better collaborative participants rather than just subcontractors in an innovation culture. The first step should be for individual actuaries to take “the innovation bull by the horns.”
The E&I Section is committed to helping both its members and the actuarial profession adopt the new skills needed to be innovators as well as data scientists. One of the section’s goals is to create value with sessions and events that highlight the most relevant trends and information related to innovation. Equipped with greater understanding of the growing digital economy, actuaries can add value to themselves and/or their employers by moving from the back-office to roles that support innovative decision-makers or themselves becoming the innovative decision-makers.
The following are examples of several recent and future innovation related activities sponsored by the Section:
- As of July 2017, E&I Section members now get real-time updates on all hot trends in innovation with digital access to the New York Times. Contact firstname.lastname@example.org to start your free member subscription.
- Section-sponsored events, like the Schrage Town Hall (click here to watch), provide opportunities to further explore and understand digital capabilities—particularly successful applications of digital experimentation taking place in the actuarial space. Stay tuned in 2018 for E&I Section-sponsored webcasts on Blockchain and Bitcoin, Artificial Intelligence, and Disruption.
- The E&I Section also presents several podcasts that interview Actuaries in non-traditional, entrepreneurial and innovative roles. Click here to hear what these actuaries share in common.
- In 2018 the E&I Section is launching several new initiatives to showcase innovation in actuarial science. The new initiatives include an inaugural Risk & Innovation Symposium in the late fall, a written-submission Innovation Competition for SOA members, and Pitch Competitions for university students. Stay tuned for more information about these events and how you can participate.
The E&I Section recognizes that creating and living in an innovative culture also revolves around relationships within the profession, the employers of actuaries, as well as in the greater digital business community. The Section recommends that actuaries take advantage of the numerous networking opportunities provided by SOA sponsored programs in order to build and cultivate strong relationships across the profession.
In November 2017, the E&I section expanded its networking horizon by co-sponsoring a Happy Hour event in New York City with the International Section and the Actuarial Society of New York. In 2018, the section is planning another evening networking event in New York City for March 8 followed by future events during the year in Chicago, Toronto and Los Angeles.
Becoming an innovator is not an overnight process. It is a long-term undertaking that builds on personal experiences, training, education and relationships. The E&I Section continues to create valuable resources in each of these areas. The E&I Section Council invites comments and suggestions from members. Feel free to share ideas for future E&I Section-sponsored events and sessions with Bill Rearden, email@example.com.
Jay M. Jaffe, FSA, MAAA, MS, is president of Actuarial Enterprises, Ltd. He can be reached at (312) 397-0099 and firstname.lastname@example.org.
Bill Rearden, ASA, MA is co-founder and strategy consultant at Ironbound Consulting Group in New York City. He can be reached at (646) 291-6420 and email@example.com.