The world is changing at a more rapid pace now than it ever has in the past. Technology is being created and developed currently that will have untold impact in the future, and as a profession, actuaries need to keep up with this innovation. This discussion piece will take a look at the future of the actuarial profession in the context of this rapidly developing, technology driven future.
Will the Profession Still Exist?
The field of data science has been one of the fastest growing industries in recent history. According to a study carried out by the Royal Society, demand for data scientists and data engineers in the UK alone has grown by 231% in the last five years. This is a pace set to continue in the future and the question is, can the actuarial profession compete with this?
Actuarial science is a historic profession dating back to the 1800s when the first insurance policies were created for marine security. Data science is a very new profession, but one that seems to have a lot of cross over with the areas of expertise actuaries are historically known for. Is this something the actuarial profession should be nervous of?
To become an actuary it takes an undergraduate degree then the completion of a long series of professional exams. Data science does not have these additional exams as a barrier to entry. This may cause many people with the skills to become an actuary to choose data science instead, to skip these additional exams.
The number of industries that data scientists work in is already greater than the traditional actuarial industries of pensions and insurance. Potential actuaries may be drawn to this greater variety of industries and opportunities leading to dwindling numbers of actuaries in the future.
There is also far less regulation in the field of data science when compared to the actuarial world so innovation can occur far more rapidly without the governing bodies holding them back. The lack of regulation is an exciting prospect for current data scientists but could have an adverse impact on the future data science.
I believe the future of the actuarial profession will be a collaborative one.
Actuaries and data scientists have a lot to learn from each other. There needs to be a balance in the two professions.
Data scientists are innovating rapidly with little regulation and actuaries are starting to lag behind slightly when it comes to technology. However, the actuarial profession does have comprehensive frameworks and regulations in place to make sure any developments are carried out ethically.
Actuaries have a history of being able to spot the difference between causation and correlation and the ability to embed ethical frameworks into working practices which is a skill data scientists have yet to develop.
I believe that the historic skill set of the actuarial profession could work collaboratively alongside the exciting technological innovations data science is at the forefront of.
Technology of the Future
The future of the technology industry is already happening. The European Insurance and Occupational Pensions Authority (EIOPA) published a report on Big Data Analytics in motor and health insurance. It found that tools such as artificial intelligence or machine learning are actively used by 31% of firms, with another 24% at proof of concept stage, primarily used for pricing, underwriting and claims management. It also found that cloud computing services are already used by 33% of insurance firms.
But how are these new technologies actually benefiting actuaries now and how will these benefits impact the future of the profession?
Machine learning and Artificial Intelligence take away many of the more menial tasks of an actuary. The number crunching and calculations, as well as identifying any new trends in data will now be on the onus of the computer. This frees up the actuary to spend more time on the translation of data to the real world.
Traditional data sources such as demographic data or exposure data are increasingly combined with new sources such as online data and telematics data. This consumer data is gathered through search engines like Google, social media data, mobile devices such as smartphones and wearables using artificial intelligence.
Having more and more information available has a number of benefits:
- It allows for more accurate pricing for insurance;
- Analysis of social media can be used to spot fraudulent claims;
- Analysis of internet search histories or social media content can be used to match consumers to specific products;
- wearable technology tracks steps allowing discounts on products like life insurance for active healthy people.
These are some of the current innovations that will be carried forward into the future, but between now and 2050 there is bound to be new innovations introduced to the industry.
Block Chain is currently being used in the crypto currency and NFT world but it could have benefits in the actuarial profession.
The idea of having a decentralised list of every insured person’s information could be very beneficial. This removes the need for information to be gathered on the insured through the use of forms or other manual methods every time they take out an insurance policy. It also allows pension firms to know the risk characteristics of the person to allow them to invest their money in the portfolio with the corresponding level of riskiness.
These advances in technology will change the whole skillset needed to be an actuary.
The Skillset of the Future Actuary
The current stereotype of an actuary is that of a backroom number cruncher that is good at maths and risk assessment.
This is set to change in the future.
Actuaries will have to adapt to these technological advances and bring themselves to the forefront of the innovation.
Of course the skillset of mathematics and risk assessment will still be present. However, being able to write multiple coding languages, knowing how to monitor artificial intelligence, being an expert in block chain technology and especially being a translator of all of this information will all be necessary skills in the future.
This change in skillset will have an impact on the professional exams undertaken by new actuaries.
As a lot of the underlying calculations actuaries traditionally calculated manually will be automated, the exams covering these areas will be replaced with exams covering topics like coding or artificial intelligence.
As actuaries also branch out into more and more industries, the exams must keep up in line with this as well. Currently the exams cover pensions, insurance and investing but as the actuarial profession branches out to industries like ride sharing or environmental risk analysis the exams must cover information relevant to these industries as well.
Ethical Concerns for the Actuarial Profession
Are there any reasons for the actuarial profession to be concerned with all of these advances and changes?
With the introduction of big data analytics there is the potential for some ethical concerns. As more tasks become automated through technology like a cloud computing software, the chance of a cyber-attack increases as well.
Cyber security will be a bigger and bigger concern going forward for the profession and more focus will have to go into cyber security training or introducing greater collaboration with cyber security firms. It is the actuarial company’s responsibility to look after their client’s information and ensure it is protected from attack.
With more and more data available from many more sources, pricing of insurance products can be far more accurate and in line with the insured’s risk level. However this could lead to potential price discrimination or people being priced out of the market. Pooling of risk has always been a key aspect in actuarial work but with more information available, these pools of people will get smaller and smaller and will lead to higher risk parties being unable to be afford cover. This could cause reason for concern for areas such as car insurance where it is mandatory for every driver to be insured.
As more decisions will be automated and driven solely by numbers, it will fall to actuaries to humanise these outputs. Technology can be efficient but it cannot make the humane decisions and ethical considerations that an actuary can.
As big data and automation become an ever more important part of the actuarial profession, a human eye will be needed to make crucial decisions. Actuaries can apply a level of emotional intelligence a machine is incapable of, providing new insight, and translating this generated data in a user-friendly, easy to understand manner.
There must also be transparency in judgement, actuaries cannot hide behind new technology and automated outputs. The actuarial profession must keep up its strict actuarial code, by 2050 many things will have changed but the principles of:
- Competence and Care
- Speaking up and Communication.
The future can never be accurately predicted and we can never completely discount the chance of extreme events happening.
Another pandemic like COVID-19 is possible.
COVID-19 has had a big impact on the actuarial profession. It has made insurance companies more wary of future risk, impacted the stock market, caused pension values to crash and generally caused the profession to be more risk adverse. Another event like COVID-19 could halt a lot of progress and development currently in place for the future as actuaries have to put far more time into recovery efforts rather than putting time into innovation.
Another key factor for the future is climate change.
By 2050 the world could be completely different if the most extreme predictions of rising global temperatures are realised. The number of claims on flooding and natural disasters will increase exponentially causing many insurance companies to collapse leaving many actuaries without jobs. There will be strict restrictions on carbon based fossil fuels as well as massive changes in government policy to combat the adverse effects of climate change.
These governmental policies will have untold effects on the entire global infrastructure which will completely change not just the actuarial profession but the entire working world. Somehow the actuarial profession will have to adapt to these changes in ways we could not possibly predict.
On the other end of the spectrum of extreme events, there is the possibility of rapid technological advancement. Something like recreational space travel is not completely unrealistic within the next thirty years. As well as the possibility of permanent infrastructure being built on the moon or in space.
The chances of self-driving cars being common place is quite high. Insurance actuaries must be able to understand all of this technology in order to be able to price these policies. The professional actuarial bodies must educate actuaries on these matters so they are able to deal with them.
In the case of self-driving cars, they may make normal car insurance obsolete, this will remove a staple part of the insurance industry. The shake up that these kind of advancements cause will only be fully recognised whenever they happen.
I think that moving forward the outlook for the actuarial profession is a positive one. The US Bureau of Labour Statistics has predicted that the employment of actuaries will grow by 24 % from 2020 to 2030 which is much faster than the average for all occupations.
Despite claims that data scientists and machine learning will make actuaries obsolete, actuarial science is a growing industry.
I believe that by 2050 the actuarial profession will have grown in popularity and visibility. Actuaries will be working alongside data scientists in new exciting fields of industry taking full advantage of current and future advances in technology.