Future of The Profession, Misc

Climate Risk and Actuaries

Climate Risk and Actuaries

As we come to terms with yet more global temperature records being broken across the UK this week (July 2022) and communities struggling to deal with the impact, here's a chilling thought:

Imagine looking back at this summer in 20 years time as the good old days when summers were cooler and more bearable.

Yet, that is potentially the direction we are heading as global warming and climate change appears to ramp up it's effect.

After all, the heatwave we are currently experiencing here in the UK isn't a regional heatwave as usual. Instead we appear to be undergoing a global heatwave, as multiple heatwaves around the world have broken previous temperature records.

Portugal, for example, reached 45 degrees Celsius (113 degrees Fahrenheit) on July 13 2022 causing widespread wildfires. Tunis, in Tunisia, hit 48 degrees Celsius breaking a 40-year record and in June 2022 Japan saw the worst heat wave in its history.

The science is extremely strong that this is not an outlier year and that things will not return to more normal in the near future.

A quick scan of the UK data highlights just how the current temperatures we are experiencing are quickly becoming the 'new normal'.

The five hottest days on record in the UK are at the time of writing (20th July 2022) as follows:

40.2 degrees Celsius (July 2022)

38.7 degrees Celsius (July 2019)

38.5 degrees Celsius (August 2003)

38.1 degrees Celsius (July 2022)

37.8 degrees Celsius (July 2020)

37.1 degrees Celsius (August 1990).

The risks of the current path we are on are significant, potentially catastrophic and downright scary.

As the predictors of complex risks, actuaries are well placed to help model and make sense of some of the repercussions of climate change.

Source: https://earthobservatory.nasa.gov/ 

Health and Mortality Risks

One particular risk category, of actuarial interest, relates to the health and mortality risks caused by a warming planet.

The mortality repercussions are not always obvious, but here are 3 of the big health and mortality risks we may be exposed to as a result of a warming planet:

1. Extreme weather events

As we have witnessed in recent years, a warming planet brings with it all sorts of different potential extreme weather events that have potential repercussions for our health and mortality rates. For example wildfires, caused by heatwaves already cause more than 33,000 deaths globally per year.

Then we have droughts, floods and freak storms to name just a few of the potential hazards we will likely increasingly have to contend with.

2. Exacerbation of current conditions

Heat places the body under a great amount of stress putting the respiratory and cardiovascular systems at risk.

The very young and old are particularly vulnerable.

The Climate Impact Lab conducted an interesting study on the largest data set ever compiled on subnational human mortality around the world. Their study quantified the relationship between temperature and death rates across the globe and found that "On average, a single hot day increases mortality rates by 4 deaths per 1 million people".

3. The unknown unknowns

Finally, we should always keep in mind that there are many other potential 'black swan' events that may result from a changing environment and ecosystem. Many health and mortality risks we face in the future may be a result of factors and interactions that we simply cannot foresee with our limited knowledge.

The extent to which the population is truly at risk from global warming as far as health and mortality is concerned, is very difficult to gauge. However it seems this is an area where actuaries should be paying attention and can help understand the future risks.

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Actuarial Study, Future of The Profession

What to do with an Actuarial Science Degree?

“This is a guest article written by Amy Kelly. Amy can be found on LinkedIn here.”

Actuarial science. A specialised degree often thought to have the primary objective of preparing students for the actuarial profession. Whilst most graduates of a degree in actuarial science tend to continue along the actuarial route, this may not be best suited to everyone.

As an 18-year-old student, choosing a degree to study at university can be very daunting. This single decision has the power to determine your lifelong career path. However, at such a young age, can we really conclude that one specific profession is right for us? This leads to the main questions of this
essay…

  • Does an actuarial science degree present a career as an Actuary to be the ultimate end goal for its graduates?
  • Does it fail to highlight the endless possibilities presented to graduates given their exceptional skillset and intellect?

This essay will explore various routes available to actuarial science graduates. Yes, it may be true that many graduates choose to take the traditional path of undertaking the professional exams to qualify as an Actuary. These individuals can move forward, utilising skills learned from the actuarial science degree in numerous traditional actuarial roles as well as pushing the boundaries and moving into new areas of work.

Although targeted, the skills developed throughout an actuarial science degree are not specific to a career as an Actuary. There are many other stimulating career opportunities that I believe should also be encouraged to those with the skillset obtained from an actuarial science degree.

From Actuarial Science Degree to Qualified Actuary

Universities offering a degree in actuarial science can be found all over the world. Many of these universities have designed modules in accordance with the professional actuarial exams set by the Institute and Faculty of Actuaries (IFoA). To date, the IFoA have accredited 44 universities across the globe. This allows students at these universities to obtain a number of exemptions from the professional exams upon graduation.

The university one attends alongside the modules undertaken will determine the number of exemptions one can obtain. Students complete several (generally) maths-based modules each year, including subjects such as: pure maths, economics, finance, and statistics. As a graduate of a specific actuarial science degree, you will have a head start on the actuarial exams, hence continuing along this route may be seen to be the ‘easiest’ option. However, anyone that has gone through the process knows that it is far from easy.

Working through professional exams is exceptionally challenging. Student actuaries are required to study for these exams in their own time. Although most companies may grant study days for each exam, balancing exams with a demanding workload is not an easy job.

Under the new IFoA curriculum that began on 2 January 2019, students are required to take at least 13 professional exams.

To become an Associate member of the IFoA, students must complete all of the following exams, as shown below (Source: IFoA website):

‘Core Principle’ Exams

core principles exams

Actuarial and Business Exams

actuarial and business exams

Moving forward to become a Fellow member of the IFoA, students must complete:

Two ‘Specialised Principle’ Exams to Determine Career Direction

two specialised principle exams

One ‘Specialised Advanced’ Exam to Reach Fellowship

one specialised advanced exam

This is the general route taken by numerous actuarial science graduates aiming to become a qualified Actuary. Although this is a very common path taken, the way in which graduates follow this pathway may vary.

There are many different possible job prospects for student actuaries.

Traditional Actuarial Roles

The IFoA define actuaries as “problem solvers and strategic thinkers, who use their mathematical skills to help measure the probability and risk of future events.” They then “use these skills to predict the financial impact of these events on a business and their clients.”

The skills and qualities of an actuary are becoming increasingly sought out by different businesses and industries. As the world is developing more rapidly than ever, the need for companies to predict and manage risk is becoming ever more important. This is where actuaries come in. Conventionally, the main fields actuaries are associated with include pensions, consultancy and of course insurance! The insurance industry is a major employer of actuaries, historically employing more than any other industry.

Pensions

  • Actuaries in this field traditionally advise companies on how their pension schemes should be managed based on their employee structure. This includes advising on the calculation of their liabilities and advice on funding the liabilities as well as what assets to invest in.
  • Government agencies often employ actuaries to operate pension, retirement, and insurance programs.

Consulting

  • Consulting firms acquire actuaries to advise clients on financial decisions such as pension, retirement or other employee benefit schemes involving risk.
  • Consultants must be able to analyse the risk at hand and communicate their results efficiently and effectively to the client.
  • More client-based projects are involved, utilising the softer skills obtained from the actuarial science degree: communication and presentational skills.

Consulting offers a lot of variety and personal interaction with clients and colleagues. You can become an expert in your particular domain and move across different assignments making the day to day role a very exciting actuarial role. Consulting roles do tend to come with more pressure and longer hours however.

The Insurance Industry

  • Comprises of several areas including life, health, and general insurance.
  • Actuaries are employed to develop insurance products which they then price and monitor in all areas of the industry.

Although these sectors are all diverse, the basic strategic methods and skills used will be similar, stemming from methods taught in the actuarial science degree. A few of the commonly used actuarial practices are highlighted below:

  • Valuation – involves calculations and modelling aimed to advise an insurance company on the amount of capital and reserve that should be held.
  • Product Development and Pricing – devising insurance products and an adjacent pricing strategy for that product.

This gives us an idea of a few traditional roles presented to actuarial science graduates today. These jobs apply the strategic thinking skills and actuarial techniques they have learned to the real world.

Modern Actuarial Roles

Many years ago, the duties of an actuary may have been largely confined to these select few career paths.

Fast forward to 2022 and we can see that modern actuaries have started to push the boundaries and show the world how powerful their knowledge and skills can be.

Industries which originally had no ‘need’ for actuarial intervention are beginning to see the positive impact that predicting financial risk may have on their success. Not only are they involved in prediction of financial risk for insurance, but actuaries are also beginning to lend their expertise to other areas of prediction such as: Investment, Technology, and Climate Change.

The world as we know it is ever changing. Luckily for actuaries, changes in the world bring about new risks and with them new actuarial opportunities. As different fields begin to recognise the value of risk assessment in this new volatile, uncertain and complex world, the employment opportunities for actuaries become endless. Actuaries are more in demand than they have ever been before, leading to boundless global opportunities for actuarial science graduates.

Climate Change

Climate change is an obvious ongoing change that we are confronted with as an entire population.

From the risk of extreme weather to global warming and a rise in sea levels, this phenomenon has already made a huge impact on earth.

Actuaries have a social responsibility to use their expertise in quantifying risk and managing forecasts to provide high quality advice to the ultimate decision makers within our governments.

The International Actuarial Association (IAA) are a globally recognised organisation which aim to progress the development of the actuarial profession. In September 2009, The IAA set up the ‘Resources and Environment Working Group’ (REWG) to help combat climate change.

This group have been involved in ongoing projects such as:

  • Carbon pricing,
  • Flood risks,
  • Insuring vulnerable populations,
  • Government budgetary impact.

Investment

Actuaries are becoming increasingly involved in the world of Investment.

Investment management consist of investing client money in the stock market with the aim of making a target profit for a set level of risk. This involves trading in a selection of ‘safe’ and ‘risky’ stocks.

Choosing the correct portfolio of assets for the clients’ needs is a tricky job, traditionally executed by the investment manager.

However, actuaries have more and more often found themselves lending their analytical skills and profound understanding of asset interaction to the field of investment management.

Technology

As our world evolves, becoming ever more data-driven, the rapid technological advances we face are infinite.

Autonomous cars for example. An idea that in the past, seemed somewhat a gadget of science-fiction has been realised in today’s world. Although becoming more credible, there are many risks and ethical issues related to this new technology which must be measured before becoming publicly available. This is where companies such as Tesla require actuaries to assess and manage the risk of their products.

Actuaries face a new problem…

The shift of liability from person to product.

Actuaries will be required to adapt their risk profiling calculations in future to allow for this problem. The calculations of insurance premiums will also be affected whilst a car is driving in autonomous mode.

Insurance premiums may no longer be calculated based on the individual characteristics of the driver, alternatively based on the technology behind the vehicle itself. Although this concept is still a grey area, actuaries have an opportunity to play a key role in developing a solution to this problem.

Non- Actuarial Career Paths

Each career path mentioned so far stems from the actuarial profession. At the beginning of this essay, it was mentioned that actuarial science was the main route chosen by actuarial science graduates. I have highlighted how this ‘one route’ can open many diverse opportunities which may interest graduates.

However, there may still be many who find themselves uninterested in any of these actuarial career prospects.

After completing an intellectually demanding degree such as actuarial science, one may find themselves wanting to take a break from exams. Perhaps they wish to use their new skills in an alternative, equally stimulating profession. Although the degree itself may be specialised, the skills that students learn can be utilised and adapted in almost any profession.

A few career prospects compatible with someone graduating from an actuarial science degree have been discussed below.

Financial Analyst

As previously mentioned, actuaries have started moving into the world of investment management.

An actuarial science degree provides students with basic knowledge of the stock market and the interaction of assets and derivatives. This field is not commonly emphasised; however, some graduates may wish to focus on the financial information rather than the risks involved. A financial analyst is similar to an actuary in that they analyse data guiding businesses and individuals to make the best decisions for them.

The main differences are:

  • Actuaries deal with risk making decisions whereas financial analyst’s deal with the financial data.
  • The qualification route differs - financial analysts work towards becoming a ‘Certified Financial Analyst’.

This route may be preferred by graduates who are more financially orientated. However, for those seeking a rest from exams, this may not be the desired direction for you!

Data Scientist

Although an actuarial science graduate can be employed to a multitude of professions, their analytical skills and ability to solve complex technical problems have recently been well matched to the modern role of a Data Scientist.

Data scientists use large datasets, often developing their own programs and algorithms to find trends and come up with innovative solutions across all industries. Making use of both qualitative and quantitative data, data scientists tend to use more modern and imaginative methods of analysis than the traditional methods employed by actuaries.

Data science is in many ways like actuarial science. However there a few key differences which may make this career more attractive to some Actuarial Science graduates.

  • Data scientists employ a more informal nature of learning. There are no set professional exams.
  • They are however subject to ongoing learning e.g. via ‘Massive Open Online courses’ and developing a portfolio of models is common practice.
  • Predictive analytics and modelling are the focus of data science. There is less emphasis on risk modelling.
  • Although actuary is beginning to branch into non-traditional fields, data scientists are a relatively new career option, and their skills are already being utilised in a wide variety of industries.

As many of the skills required of an actuary and a data scientist overlap, this could be a perfect position for an actuarial science graduate. Possibly offering a broader set of opportunities.

Concluding Point

It is easy to say that actuarial science is a career specific degree. However, I believe that someone with this opinion has not done their research!

On a closer look, we see that this degree provides students with a skillset which can be adapted to an endless number of innovative and stimulating careers.

Yes, the prospect of following the traditional path to become a qualified Actuary is most certainly a front- line contender, nevertheless it is by far the only career path presented.

The world as we know it is advancing every day and risk is becoming ever more prevalent and complex and so actuarial science graduates are in demand globally, now more than ever!

So, if you are an actuarial science graduate, do not let anyone else forecast your future. The distribution of opportunities available to you is perpetual. Lucky for you, it is your job to predict the outcome!

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Actuarial Study, Future of The Profession

Why Should you Choose a Career as an Actuary?

“This is a guest article written by Michael Preston. Michael can be found on LinkedIn here.”

Are you considering a career as a an actuary? Actuaries are the backbone of modern-day insurance and pension industries. We are the fortune tellers of the financial sector. We use every aspect of data to look for innovative ways to solve problems. Actuarial Science is a profession that is expanding with the rising influence of technology (as seen via InsurTech) and with actuaries taking big strides into learning the importance of data science.

This article provides insight into the actuarial profession, the challenges you will face as an actuary and ultimately why you should choose to become an actuary. We also delve into what the future holds for an actuary by analysing the emergence of data science and the rapid evolution of technology. This essay concludes with answering important questions about the actuarial profession and whether the profession will be sustainable and secure going into the future.

An Exciting Challenge

It is no secret that you need high intelligence, initiative, and motivation to succeed in studying actuarial science and having a successful actuarial career..

You need to have a hunger to learn new concepts and ideas. However, the common misconception with actuarial science is if you are a number cruncher you will succeed. To quote wealth management executive Nicolette Rubinsztein:

“The best actuaries are the ones that through their engaging personalities and communication skills are able to take the brilliance from their spreadsheet and share it with a wider audience”.

A big hurdle for mathematical students set on an actuarial career path is learning how to be a good communicator. Analysing your results to determine what they mean and to be able to convey these results in a manner which is both coherent and comprehendible is a key aspect of an actuary’s job.

Perhaps the biggest challenge of becoming an actuary are the actuarial exams. Qualifying as an actuary is a marathon not a sprint. It is about taking the time to learn and understand complex concepts. While challenging, it is a hugely rewarding journey. You will gain a vast amount of knowledge that will help advance your practical skills in the workplace to an exceptional level.

You are also given the opportunity to specialise in a field of your choice. I have highlighted below the Specialist subjects that can be taken by actuarial students studying under the Institute and Faculty of Actuaries (the UK professional body):

  • Health and Care (SA1)
  • Life Insurance (SA2) 
  • General Insurance (SA3)
  • Pensions and Other Benefits (SA4)
  • Investment and Finance (SA7)
Pathway to becoming a qualified actuary

Figure 1: Pathway to becoming a qualified actuary (Source actuaries.org,uk)

Endless Opportunities

There are various routes one can take when studying to become an actuary. The freedom of choice is an attractive element of the actuarial path.

The Pensions Actuary

The actuarial career of a pensions actuary involves several responsibilities that help pension schemes meet the needs of the trustees and members. They provide advice to their clients on the extent of their liabilities, the most suitable investment strategy of the scheme, risks associated with the scheme and overall pension  scheme advice  (e.g. scheme design, compliance with regulation etc).

There is no doubt that the pensions industry is facing challenges with volatile markets causing uncertainty in pension costs and the increases in longevity. To help defuse this, we are seeing employers accelerating the need for consulting qualities in their employees to help advise members in making difficult decisions caused by these uncertainties.

Actuarial Consulting provides an interesting career choice. As an actuarial consultant, you will be doing a greater variety of work and learn quickly. It also gives you the opportunity to meet face to face with clients and network with more senior representatives in the company.

The Life Insurance Actuary

The actuarial career of the life insurance actuary is a stimulating career choice as you will be designing pricing models and creating intricate stochastic models that show how changes in economic conditions can affect links between assets and long-tailed liabilities.

We are seeing the life insurance sector technologically advancing in many ways. Life actuaries want to spend more time on the analytics of data rather than the farming and processing of it. We are seeing increased focus on wearable technology such as fitness trackers which brings in a considerable amount of data without the need for human interaction. On the analytical side we are seeing an increased amount of machine learning and predictive analysis to identify likely future relationships and trends.

One could argue that perhaps the need for human actuaries will diminish as the level of machine learning advances.

Moore’s law states that the speed and capability of computers is doubling every two years. So, what does that mean for us?

Do not be frightened!

The role of the actuary in life insurance looks set to change over the coming years with AI perhaps taking more responsibility on the data analytic side. However, humans will still be required to make morally tough situations where AI cannot. The life insurance actuary has an exciting and daring journey ahead and I believe the advancement of AI will only lead to higher quality of actuarial products and services and allow actuaries to move into higher value activities such as getting more involved with strategic decision making within the company.

The General Insurance Actuary

The general insurance actuary has similar tasks to the life insurance actuary, however as a general insurance actuary the products are based on the contingency of events such as theft, fire and flood to property and liability rather than paying out on death. You will be applying your extensive knowledge on stochastic modelling to derive estimate premiums based on a range of economical and social factors. You will also be involved in solvency modelling and reserving calculations to assess how much companies need to set aside to meet future needs and to ensure they can fulfil their financial obligations.

The appealing feature of general insurance is perhaps the variety of work. You would be surprised at how many fields and opportunities are out there. From home and motor insurance to insuring professional athletes against injury. While it would be a rarity to see an actuary in the latter you can see my point, the immense variety of projects that you will work on will keep you driven to succeed.

The Worldwide Actuary

If you are looking for a change of scenery, then becoming an actuary is the way to go. Asia, Australia, Canada, South Africa, and USA are just a few locations which have Institute and Faculty of Actuaries (IFoA) members. With its membership spanning 120 countries and 66% outside of the UK, there are endless avenues to explore. Young people are increasingly recognising the opening that becoming an actuary provides to explore the world with 43% of members from the IFoA aged under 30. The training and support you receive from the IFoA will provide you with an internationally recognised qualification that unlocks global opportunities that very few careers can provide in the modern day.

ifoa members around the world

The Future Will Be Different but Promising

Before anyone starts any career path, they want to know what the future of their chosen profession beholds. Will their vocation dwindle out and become obsolete? Will I have an exciting and rewarding long term career ahead of me? Before answering this, consider that we are seeing some professions, such as travel agents, that have not been able to adapt to the technological evolution of the 21st century.

But what about actuaries and the actuarial career path? Will they die out or will they thrive? What hurdles do they need to overcome?

The Emergence of Data Science

Traditionally, actuaries have taken historical financial data and applied methods taken from finance, mathematics, and economics to interpret data. This data often comes from pre-developed software that has been tried and tested. However, in a modern-day where there is a persistent hunger to extract more data from more sources to provide better analysis, perhaps actuaries need to bring forward more innovative methods to extract data. This desire that industries must constantly improve their predictions is what will steer actuaries towards the need to learn data science.

Data science is difficult to define as it is a practice that is continuously evolving and covers many professional fields.

Essentially, it uses scientific methods and algorithms to help analyse data that is considered unstructured. Using this unstructured data allows insurers to create more personalised analysis of individuals based on actual data from the individual rather than estimates.

Some examples of data science practices:

  • Car sensors – analyse the distance driven, where they are driving etc. Used in motor insurance premiums. For example Metromile's business model is based on "pay-per-mile" telematics.
  • Fitness watches – can be used to monitor an individual’s daily activity, heart rate etc. Used in health and life insurance. For example, Vitality use wearables to help price their insurance products and reward and engage with policyholders.

Actuaries will need to learn these methods of extracting unstructured data and how to analyse it to produce dynamic risk management. Actuaries will then be able to produce premiums which are more accurate and dynamic.

Does this mean that data scientists will replace actuaries? The short answer, no. It is true that we will see data scientists grow in stature over the coming decades, but data scientists have not specialised in economics or finance. This is what separates actuaries from data scientists, an actuary’s speciality is being able to advise and guide their clients on how to manage risk using their expertise. Data scientists are too widespread across many sectors to replace actuaries. We will likely see a merge between the two professions in the future with actuaries being heavily encouraged to familiarise themselves with data science.

Technology, Ally or Foe?

A growing concern is the uncertain influence technology will have on actuarial job security. We mentioned Moore’s law earlier which stated how fast technology and AI are advancing. A scary thought is AI could replace humans in several fields, not just actuary. Elon Musk added to this escalating fear by stating AI could overtake human intelligence as early as 2035. However, is this growing concern justifiable?

AI can use wearable technology and the internet of things to extract and analyse data. What is stopping this technology from replacing actuaries all together?

The truth is there are too many rules and regulations in place for this to happen. Human intervention is required to stop any abuse of data.

Despite these barriers for AI, change is still coming for the actuarial profession. What changes exactly? Well, its hard to say. Certainly, the human side of being an actuary in terms of advising clients etc will still be required. Looking back, we can see actuaries have adapted successfully before, by going from pen and paper to computers. Actuaries are too smart to be replaced by technology. We can see from the past, that actuaries are experts at harnessing technological aid to their advantage. To quote James Lynch, CAS Board of Directors, “Actuaries will have to become experts at system analysis, reaching conclusions from understanding systems of models with complex interdependencies”.

Uncertainty will always cause unrest; I believe actuaries will use technological advancements to their benefit and the profession of an actuary will prosper in the future.

The Elephant in the Room

It is no secret that one of the biggest incentives of becoming an actuary is the lucrative salary associated with the job.

Actuarial Science is one of the most rewarding professions out there with a highly competitive salary and bonuses throughout your career.

actuaries salaries

Actuaries have one of the highest graduate salaries of any graduate roles. Also, 82% of actuaries receive bonuses that encourage high performance levels in work and exams.

While salary should never be your main incentive to pursuing a career it certainly cannot be ignored. This along with very strong job security will provide a sustainable and beneficial job for life.

Closing Thoughts

Becoming an actuary is a career that provides an intellectual challenge every day. No day is ever the same. The profession provides training of the highest standards and a clear route on how to become fully qualified. The freedom of choice regarding career path is immense. Some actuaries also decide to go down non-traditional paths such as into Banking or Environmental Finance.

With regards to the future of actuarial science, actuaries will undoubtedly have to adapt in the future. Whether that is learning and applying data science practices or utilizing greater technology.

It is possible that data science techniques will come under ethical scrutiny. The increasing rise in data farming over the last fifteen years with the introduction of social media and smart phones also brings a growing cry for stricter privacy laws. Simply put, where will we draw the line?

Only time will tell but the actuarial profession is in an excellent place now and provides a valuable journey with challenging but rewarding moments. Reaping the rewards and resources of this journey will enhance your intellect and bring your professionalism to new heights.

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Actuarial Study, Future of The Profession

Do Actuaries Have a Future?

“This is a guest article written by Caolan McCarron. Caolan can be found on LinkedIn here.”

Thousands of pounds, hundreds of hours spent studying and numerous exams…all for an Actuarial Science degree. So, finding the answer to the question "Do actuaries have a future?" is something I am highly invested in. As I am sure, are you.

It is impossible to predict, with utmost certainty, what the future holds for us as actuarial professionals. Six months? One year? Five years? Who knows?

But something we like to do, something built into our makeup, is just that. To predict, to forecast, to estimate.

In this piece, I envisage what the future could look like. Will the roles of actuaries be like those present today? Or will the profession be forced to adapt and adjust to new challenges ahead?

Currently, 13,000 fellows of the Institute and Faculty of Actuaries work in various sectors in the UK. As we would expect, and visible in the adjacent pie chart, most actuaries work in life insurance, general insurance and pensions.

Healthcare, investments, and other sectors such as government, banking, and risk management complete the field, with those working in consulting firms potentially working across all industries. The demand for actuaries in these non-traditional areas is growing, with actuaries using their transferrable skillset to provide critical insights and analysis.

pie chart where sector actuaries work

A typical actuary's day-to-day responsibilities include reserving, product pricing, pension plan assessment, and offering general actuarial advice to businesses. Although a solid background in actuarial knowledge is required for these jobs, many actuaries would agree that parts of the job are repetitive and could be streamlined.

With advancements in technology, these repetitive tasks and procedures are being automated more frequently, and this trend is likely to continue in the future. This will allow actuaries to concentrate on higher-value work, such as analysing and interpreting results and providing actionable feedback to clients, rather than spending time performing routine tasks. Actuaries will therefore have a more meaningful and significant impact within the workplace in the future, rather than "crunching the numbers."

Artificial intelligence and machine learning are also rapidly emerging. By allowing humans and machines to work side-by-side, these innovations are likely to redefine the actuary's role. Interestingly, 17 percent of global executives polled by Deloitte say they are prepared to handle a workforce that includes humans, robots, and AI. Will this percentage rise in the coming years? It is something to keep a close eye on…

Actuaries must evolve and take on new dynamic roles as the old ones become outdated. As a new world of work emerges, I expect that the current job description of an actuary will look very different in future years.  Actuaries will need to adopt a "growth mindset" and continue learning and adapting to keep up with the changing times. With the best prospects likely to be beyond the conventional actuarial sector, innovation and adaptability will be key to success as a future actuary.

Additionally, as actuaries move into these other areas and possibly into more client-facing roles, the use of softer skills such as effective communication skills will become more important. With technology taking care of more of the "behind-the-scenes" work, the ability to share ideas with a non-technical audience will become more sought after and highly valued.

Throughout 2020, the companies Actuartech and Montoux undertook a research study called 'The Evolving Role of the Actuary'.

In this study, they addressed two main questions:

  1. How has the actuary's role evolved in recent years in response to new circumstances?
  2. How will actuary's roles change in the future?
the evolving role of the actuary

The preliminary study produced interesting results and provided an insight into what the role of actuaries could look like in the future. Participants in the study included actuaries from all over the world. Respondents predicted that in the future conventional roles would focus on integrating data science, especially in areas such as risk management, big data analysis, and experience analysis. Respondents also expected that actuaries would branch out into non-traditional areas such as insurtech, technology design and growth, and climate change analysis.

One of the non-traditional areas mentioned is insurtech. Insurtech is revolutionising how insurance risk is managed, as companies are rethinking how insurance is delivered and premiums calculated. Insurtech companies offer customised policies, use devices such as smartphones to dynamically price premiums and are constantly developing new products to bring to market. Insurtech could lead to a massive shift in the insurance industry and the actuary's role in the coming years.

A changing world that includes driverless vehicles, quantum computing, blockchain, and space exploration will continue to alter the insurance industry. Each new technological development will impact insurance, mortality, and even pensions in their own way. As a result, actuaries will need to constantly evolve to develop new, creative solutions to issues that arise.

driverless vehicle

Take driverless vehicles, for example. Companies will encounter various issues as they become more feasible, including risk evaluation, risk management, and liability. Just think how difficult it could be for insurers to assign liability in the event of an accident involving a driverless vehicle. Does fault lie with the driver (if the car isn't completely automated), the carmaker, or the supplier of the software systems that enable automation?

Actuaries, therefore, are an excellent choice for analysing and managing these problems when they arise.

Other emerging threats and problems, such as climate change, population ageing, economic crises, pandemics and conflicts, will cause the insurance industry to change even further. Actuaries will play a very significant role in these areas in the future.

Take COVID-19 as an example. Inevitably it has and will continue to change the insurance industry. It will almost certainly result in a greater focus on introducing emerging technology and an overhaul of insurance models and policy terms and conditions.

I believe actuaries will be at the forefront of designing and creating new products, models and policies to help mitigate the risks mentioned. As a result, continuous professional development will be critical to become proficient in these new areas so that actuaries can lead the way in providing advice and guidance.

While thinking of the never-ending possibilities that a fast-changing world will bring for actuaries, I can't help but think of the increased risk of disaster that accompanies such advancements and reliance on technology. The following example reinforces this.

In January 1986, NASA launched the Space Shuttle Challenger. The shuttle disintegrated 73 seconds after takeoff. NASA's model determined the likelihood of such a disaster to be 1/100,000, corresponding to a VAR of 99.999 per cent. However, since the engineers had concerns about the impact of the cold on O-ring seals, they measured the likelihood at 1/200, or a VAR of 99.5 per cent, using more intuitive tests. The O-rings had been designated as a "critical 1" part, meaning that if they didn't work correctly, the spacecraft and its crew would be jeopardised.

This extreme example highlights how important expert opinions are and that overreliance on models without human intervention could be disastrous. In my opinion, it is a strong argument against those who say "the job of an actuary will become redundant, and technology will take over". I anticipate that as technology advances, actuaries' roles will become much more critical in calculating the costs of new, emerging risks and developing, pricing, and evaluating a wide range of insurance products.

According to the US Bureau of Labour Statistics, actuaries' employment is expected to increase 18 percent from 2019 to 2029, further contradicting the idea that technology is here to take over.

Additionally, the paper, "21 steps for teaching mathematics," which was sent to the French Minister of Education in February 2018, further indicates the need for actuarial services in the future. The report states: "Artificial intelligence, modelling, digital simulation, process optimisation and massive data processing are pervading our world. They make use of fundamental and applied mathematics that require a high level of expertise."

Actuarial degree programmes have often emphasised high-level theoretical mathematics while still emphasising their applications. This puts actuaries in pole position to solve technical mathematical problems that arise in the future, with a particular focus on how to apply and implement real-world solutions.

So, to conclude. In my opinion…

Will actuaries have a future? Yes.

Will it look very different from right now? I think so.

As Frank Redington, a British actuary best known for his development of Immunisation Theory, once said, "An actuary who is only an actuary is not an actuary."

So…Learn. Adapt. Grow. Evolve.

Continuous professional development will put you in a solid position to thrive in the fast-paced world we live in and allow you to keep up with the ever-changing technology. The future provides many exciting, non-traditional challenges for actuaries, so embrace it. Dive in. Let us make the world a better place—a place where we use our unique skill set to manage and mitigate the new risks that appear.

I believe that actuaries who continue to upskill, learn, and adapt have a long and successful future in this world.

A more important question, in my opinion, and one that deserves your consideration, is...

Do you have a future as an actuary?

night vision glasses
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self driving autonomous car
Data Science, Future of The Profession, Technology

What Will Autonomous Vehicles Mean for Actuaries?

“This is a guest article written by Niamh Loy. Niamh can be found on LinkedIn here.”

In 1886 the first true automobile powered by a combustion engine was created. Radio broadcasts could be enjoyed while driving by the creation of the first car stereo in 1930 and the year 2000 saw the first hybrid car powered by electric energy and petrol. In 2003 cars could parallel park themselves and the year 2014 saw the creation of Tesla autopilot technology. The innovation and technological improvements that have been seen through the evolution of vehicles is astonishing and it only continues to become more impressive. You therefore may be asking yourself ‘What will be next?’. It is the belief of many car manufacturers like Volvo as well as tech-giants like Google that the next step forward in the area of transportation is fully autonomous vehicles.

What Exactly Are Fully Autonomous Vehicles?

autonomous vehicle

Simply put they are vehicles that will be able to drive themselves with no human interference. Yes, you did read that correctly and no, this isn’t something taken from a sci-fi film set hundreds of years from now! A report from Statista claims that one in ten cars will be self-driving by 2030. Five levels of self-driving have been clarified. Level 1 should sound familiar where the vehicle is controlled by the driver with some driving assist features included in the design – think cruise control. There a steady progression through levels 1 to 5 with 5 being the ultimate goal. Under level 5 the car is fully automated and can carry out all driving functions under all conditions. This means there would be no necessity for a wheel or accelerator (although it is still likely there will be the option for driver control). It is difficult to imagine that a car could follow all the road rules and driving basics that we have all had to do numerous driving lessons and tests to be allowed to do. However advancements in technology has made it that sensors can pick up everything a human would with the key benefit of autonomous vehicles being that they can actually pick up more than a human would.

What Are the Benefits and Concerns of Autonomous Vehicles?

The most beneficial impact of self-driving vehicles is that the risk of human error when driving would be eliminated. In a world where autonomous vehicles are part of normality no one could do things like speed, text while driving or run red lights. All of these things contribute to the number of road accidents but no driver means no human error. In fact, US Department of Transportation researchers estimate that road traffic fatalities caused due to human error could be reduced by as much as 94% by using autonomous vehicles. According to the World Health Organisiation, approximately 1.35 million people die due to road accidents each year. Imagine this number sliced by as much as 90% and the amount of lives that could be saved.

As well as the striking benefit of a reduction in road deaths McKinsey research suggests that as much as 50 minutes per day could be deducted from each person’s driving time (that’s 50 more minutes to watch Netflix per day) and the issue of parking spaces will be hugely decreased, reducing the need for space to park in the US by more than 5.7 billion square meters. Say goodbye to the days of looping trying to find a parking space for half an hour or worrying that someone is going to bump into your parked car! The same report also claims the reaction time of self-driving vehicles is already a third of that of a human with engineers continuing to work to further improve this time. These vehicles can therefore pick up on potential hazards much quicker than a human and avoid even minor road accidents. With all these potential benefits associated with self-driving vehicles you might imagine there should be a huge global push for them to be rolled out as soon as possible. Unfortunately as we well know (through many a zoom meetings/quizzes and online classes) technology, no matter how advanced, can sometimes malfunction and this is where issues arise.

man in a self driving car

Autonomous vehicles cannot 100% guarantee that no road accidents will occur because there will always be the risk (no matter how small) of a technical failure. In March 2018 an Uber self-driving car collided with a 49 year old pedestrian killing her, after struggling to correctly identify her on the side of the road and therefore not stopping as she crossed. It is accidents such as these that have contributed to the public concern over the true safety of self-driving vehicles. However, although this accident is tragic and could have been avoided, research still suggests that the overall number of road traffic deaths will be decreased. After all this exact event has occurred time after time due to human error and the probability of it occurring because of humans is much higher than it occurring due a technical fault of self-driving vehicles. A lot of people exhibit over confidence bias and have more trust in their own abilities than that of someone else or in this case something else and this brings a lot of opposition to the forefront of the topic.

Insurance and Pricing Actuaries – Why Are They Involved?

Engineers, scientists and test drivers are the first that come to mind when considering who are the people most important to getting autonomous vehicles on the road. It would be easy to forget that insurers are also extremely important in the process- remember an uninsured vehicle is not allowed on the road. In particular, pricing actuaries working for these insurance companies will be extremely important and play a key role to get these vehicles on the road.

Taking a step back let’s answer a basic question that very few people know the answer to and I know I get asked on the regular- what is an Actuary? Simply put actuaries are concerned with managing financial risk. Everything we do has risk associated with it. We take out insurance policies to protect against the risk of uncertain future events that could have a high adverse impact on us whether this be life insurance, health insurance or car insurance. The premium insurance companies quote you for insurance isn’t plucked out of the sky! It is actuaries that we trust to access specific risks and come up with an informed and reasonable premium to charge for insurance coverage in the event these risks occur. Much like the weather risk is not stagnant but it is constantly changing and actuaries need to continue to adapt and respond to changes in this risk through updating their models, statistical methods and mathematical techniques to keep up to date with new innovations and changes in the world that affect the risk they access. Autonomous vehicles are one of these changes.

Fewer vehicle crashes means fewer claims to an insurance company but the company cannot simply take this claims reduction as a win and continue to price in the same way. General insurance actuaries will need to adjust their pricing to reflect the expected reduction in claims so we could expect lesser premiums. Further to this, how the policies will be priced will be entirely different. Currently, insurance companies price their personal vehicle insurance using models based on a range of factors that include driver age, gender, number of additional drivers and many more factors related to individual driver characteristics but if there is no driver these factors become irrelevant. Even the no claims bonus that all insurance companies implement in their policy pricing will have little meaning when it comes to autonomous vehicles because there will be a random nature to when malfunctions occur that result in a claim rather than an indication that there is a lack of driver skill. When considering autonomous vehicles the risk will shift from the driver to technical failures. Therefore things such as connectivity issues, equipment failure and even cyber-attacks will be extremely important. How to collect data, model and incorporate all these new risk factors will be a big challenge that pricing actuaries (who build the pricing tools you would input your details into online to get a quote) will need to overcome.

Another difficult question becomes one of liability in the event of an accident, which is extremely important in the case of insurance. If a malfunction occurs while the car is driving itself then surely it must be the fault of the vehicle manufacturer and not the owner of the vehicle? Therefore it is possible that future vehicle insurance will shift from individual policy holders to car manufacturers instead. But wait- does there will be no need to buy car insurance? Unfortunately, if this became the case then manufacturers will experience higher operating costs and therefore this insurance cost will passed through in a higher vehicle price. To bring the prices of autonomous vehicles down then more likely is that of a joint ownership between vehicle manufacturer and individual holder meaning that insurance companies and in particular pricing actuaries will have to find a way to balance individual coverage with product liability coverage on the manufacturer’s part. If this doesn’t sound like a difficult enough task as it is the question of liability and the implications for insurance companies becomes even more difficult when we consider the transition period where we have both human operated vehicles on the road along with partially and fully autonomous vehicles. It could be very difficult to argue whether human error caused a crash or a technical failure and finding a way of accessing this will need to be addressed. Insurance companies will need to be able to provide a new form of insurance for autonomous vehicles while also providing traditional vehicle insurance and both will need to be separated in terms of claims and for pricing actuaries to examine the profitability of their pricing. This could lead to double the workload!

Will Other Types of Actuaries Be Affected?

It is clear general insurance pricing actuaries will face the most drastic changes and challenges due to autonomous vehicles but other types of actuaries will see some changes too. Reserving actuaries calculate what cash an insurance company should hold in order to be able to pay out expected claims. Since general insurance companies will see a reduction in claims it is likely that their reserving actuaries will see a reduction in their necessary reserves. Incorporating past claims experience to calculate their reserves could pose a challenge for the first number of years due to a lack of data in relation to autonomous vehicle claims and they will need to be careful not to overestimate the improvement in claims experience each year as autonomous vehicles are gradually rolled out.

As I have mentioned road deaths are expected to hugely decrease therefore actuaries should experience a decrease in mortality across all ages. Life policies could expect a slight decrease in premium due to a decrease in the likelihood of death while pension policies may experience a slight increase in premium due to a longer expected pay out period as a result of longer survival. Actuaries can also expect the ‘accident hump’ in the mortality curve to become less prominent. This is the part of the mortality curve that doesn’t follow the general increasing across ages mortality trend and in which mortality increases slightly before decreasing again across the age range of approximately 15-30. A big part of this is due to younger and newer drivers being more reckless when driving and having less experience on the road resulting in more accidents.

Health insurance companies should also experience a decrease in claims that health actuaries will need to take into account when pricing due to the reduction in injuries and necessary healthcare associated with road accidents.

autonomous vehicles on the highway
So although roll out of autonomous vehicles is still a while off yet it is clear that there are many factors that need to be considered before they can be offered to the public. General insurance companies and in particular the actuaries that work for them will need to begin planning for how insurance for these vehicles will be approached so that when the manufacturing and technical side of the vehicles has been perfected a lack of planning and consideration by actuaries doesn’t hold back the process of getting them on the road and making a beneficial impact within society!
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Autonomous Vehicles: Mortality & Insurance Implications
Data Science, Future of The Profession, Technology

Autonomous Vehicles: Mortality & Insurance Implications

In 1908, Henry Ford profoundly changed the automotive industry by developing and manufacturing automobiles at scale. The Ford Model T is generally considered to have been the first affordable car, subsequently ushering in the era of mass-market transportation and leading to widespread societal changes around the world.

111 years later, in 2019, the recent advances in computing power and artificial intelligence have made the previously science-fiction idea of living among unmanned vehicles, capable of navigating their landscapes without human input, a reality. A number of companies are already testing their vehicles in various locations and, since 2009, Google-owned Waymo has already driven more than five million (real road) miles, using self-driving technology (Waymo, 2018).

In a similar fashion to Ford’s global impact, autonomous vehicles will also change society, by significantly altering how we travel.

The areas of potential impact are wide and far-reaching and could include:

  • reduced car ownership
  • radically different car design geared more towards comfort and luxury
  • more older drivers, fewer taxi/bus/truck/delivery drivers
  • lighter burden on hospital and emergency services from fewer road accident injuries
  • significant improvements to rush-hour traffic

However, perhaps the most significant and important implications, at least to the actuarial profession, is the potential for reduced mortality and morbidity from traffic-related accidents and an overhaul of personal auto-insurance risks.

Mortality & morbidity implications

Previous research has indicated that over 90% of road accidents today result from human error. For example, the National Motor Vehicle Crash Causation Survey conducted between 2005 and 2007 attributed critical crash causation as follows:

Vehicle cr​​​​ash attribution

mortality statistics

As we try to forecast and imagine the future driverless world implications, we should first note that nearly 1.3 million people die globally in road crashes each year and an additional 20 to 50 million people worldwide are injured or disabled (Association for Safe International Road Travel, 2013). Indeed, road traffic injuries are currently estimated to be the ninth leading cause of death across all age groups globally and the leading cause of death among people aged 15-29 years (World Health Organisation, 2015). Given the potential for driverless cars to reduce accidents caused by human error the mortality and morbidity implications from autonomous vehicles are profound.

It is of particular interest to consider where these mortality effects are likely to have most impact. Unsurprisingly, traffic related deaths are not uniform across geographic location, socio-economic status, gender and age groups.

The World Health Organisation (WHO) highlights some of these disparities:

  • Income: The global average number of deaths per 100,000 population is 17.4. However, the breakdown between low income, middle-income and high-income is 24.1, 18.4 and 9.2 respectively (WHO, 2015).
  • Location: The African region has the highest fatality rates (26.6 per 100,000 population) and Europe has the lowest (9.3 per 100,000 population) (WHO, 2015).
  • Age: 60% of road traffic deaths are among 15-44 year olds (WHO, 2013).
  • Gender: 77% of all road traffic deaths are men (WHO, 2013).

Proportion of road traffic deaths by age range and country income status

WHO statistics

In terms of the potential for improvements in vehicle accident related mortality and morbidity, this may depend on the degree to which drivers in society can and wish to transition from fully operating vehicles to vehicles that are completely automated. Despite recent advances, there are still many hurdles and obstacles to overcome, and like any innovation there will be a prolonged period of transitional change before autonomous vehicles become mainstream. According to the Society of Automotive Engineers’ (SAE) J3016 standard there are six different levels of automation from level 0 (no automation) to level 6 (full automation), as shown below:

Insurance implications

Inevitably, the motor insurance world will change drastically as we move through the six levels of autonomy. As previously discussed, it is estimated that over 90% of road accidents today result from human error. Hence, personal car insurance will be redefined as risk moves from vehicle users to vehicle manufacturers and software/hardware suppliers.

Attribution of liability will become a much more grey area as discussed in AIG’s 2017 report, ‘The Future of Mobility and Shifting Risk’. In a survey they carried out asking “who is liable in a fully driverless world?” respondents identified various parties that might be liable in crash scenarios involving driverless cars. The parties identified included (AIG, 2017):

  • the car manufacturer,
  • software programmer,
  • vehicle occupant,
  • vehicle owner,
  • parts manufacturer,
  • internet service provider,
  • pedestrian and road manufacturer.

As the inevitable driverless world takes over, many traditional auto-related risks will no longer be as prevalent. Risks such as those caused by reckless or distracted driving, speeding, ignoring stop signs/red lights, unsafe lane changes, tailgating and road rage will be replaced by new, emerging risks such as malfunctioning software and cyber security.

The migration and ensuing calculation of risk will be particularly challenging during what has been called the ‘chaotic middle’ transition period where vehicle owners and the AI software share responsibility for the vehicle’s operation and any resulting liability.

Clearly, we are entering a new era of transportation. Despite the many challenges ahead, it appears that significant changes will be increasingly felt across many different aspects of society, as autonomous vehicles make their way into our everyday lives.


References

AIG (2017). The future of mobility and shifting risk. (Innovation + Risk series; 8). December 2017.
https://www.aig.com/knowledge-and-insights/k-and-i-articlethe-future-of-mobility-and-shifting-risk

Association for Safe International Road Travel ([2013]). ‘Annual global road crash statistics’; ‘Annual United States road
crash statistics’. http://asirt.org/initiatives/informing-road-users/road-safetyfacts/road-crash-statistics

Society of Automotive Engineers (2014; 2016). Taxonomy and definitions for terms relating to driving automation systems for on-road motor vehicles. J3016_201609. https://www.sae.org/standards/content/j3016_201609/

Singh, S. (2018). Critical reasons for crashes investigated in the National Motor Vehicle Crash Causation Survey. (Traffic Safety Facts: Crash; Stats. Report No. DOT HS 812 506). March 2018. Washington, DC: National Highway Traffic Safety Administration. https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/812506

Waymo (2018). Waymo safety report: On the road to fully self-driving. https://waymo.com/safety

World Health Organization (2013). Global status report on road safety 2013: supporting a decade of action. http://www.who.int/violence_injury_prevention/road_safety_status/2013/en/

World Health Organization (2015). Global status report on road safety 2015. http://www.who.int/violence_injury_prevention/road_safety_status/2015/en/

Note

A version of this article was originally published in the Institute and Faculty of Actuaries Longevity Bulletin (Issue 11, September 2018) and reproduced here with kind permission. The original article can be downloaded here.

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Can the Actuarial Profession Survive? – ProActuary
Future of The Profession

Can the Actuarial Profession Survive?

Having been in the actuarial profession for nearly 2 decades, working in 5 different countries and teaching hundreds of actuarial students, there are a few things I’ve observed:

1. Qualifying as an actuary is great…BUT it is no longer the golden ticket to freedom and security.

To continue to succeed, we can not afford to stay still. To thrive or even just to survive, we must continually be improving, both professionally and personally. We must master the art of learning.

‘Learning to learn’ efficiently and effectively is a key skill in this ultra-competitive world. Not just for passing actuarial exams, but for lifelong upskilling.

2. Opportunities and choices are everywhere.

We are overloaded with information and distraction. Focus is the new currency.

We need to improve our ability to cut through the noise, make optimal decisions, work efficiently, avoid distraction and learn to ‘hack’ the system – all whilst staying healthy and sane!

Psychology (e.g. embedding a 'Growth Mindset,' technology, awareness, smart learning, leverage and a commitment to lifelong study are key tools in this battle.

3. Technology, InsurTech, big data, data science, blockchain, machine learning, AI, IoT, etc. All these things are changing the world, at an ever-increasing rate.

Actuaries should be keeping aware of, embracing and taking advantage of these opportunities.

4. We are all in the game of marketing and sales, whether we like it or not. To some extent, we need to be able to effectively sell our employer, our ideas and of course ourselves.

Actuaries are known for their introversion and hence this can often be a weak spot. But it can pay huge dividends if we overcome it.

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insurance actuary
Future of The Profession, Insurtech

6 Reasons Why An Actuary Should Choose A Career In Insurance

“Should I become an insurance actuary?”

“Isn’t insurance boring?”
“Is insurance a good industry to work in longer term?”
Source: Occasional Aspiring Actuaries.

Every year I give a number of talks to students interested in a career in Actuarial Science.

At times I’ve been asked questions, similar to the above, regarding the insurance industry.

Contrary to popular belief, I happen to think that insurance is a great industry for people to work in.

Insurance is not perfect, but it does provide a valuable societal value and insurance is continuing to embed exciting technology solutions and improve as a service offering. And the insurance actuary is likely to play a key role in the insurance world for the foreseeable future. 

I’ve summarised most of the points I usually touch on, in the infographic below.

insurance actuary

Would you agree? Do you have anything else to add?

Help me to sell a career in insurance to the next generation of actuaries!

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The Last Actuary - Proactuary
Data Science, Future of The Profession, Technology

The Last Actuary

This essay was awarded an "Honourable Mention" in the Society of Actuaries' Actuarial Innovation and Technology Essay Competition in 2020. It has been republished here with kind permission from the Society of Actuaries. The original essay and other entries can be read in full here.

The Last Actuary

The church was packed.

Hundreds had gathered to pay their respects.

As the eulogy was being read out, my thoughts began to drift. My father was loved. Eccentric and slightly odd in his ways, but very intelligent and, most importantly, he always acted with complete integrity. Whether it was work, family or community related, he put integrity at the core of his approach. He partially thanked his chosen profession for instilling in him the importance of integrity in how he conducted his life.

These attributes had served him well, judging by the vast crowd of friends, family and former work colleagues that had gathered to say their last goodbye.

The church minister was humorously explaining to the silent crowd how my father had accurately predicted the exact week of his death—no doubt using the tools and expert judgement he had become so proficient in when he was working as an actuary.

Born in 1968, he had certainly had a good life, dying just 3 months shy of his 119th birthday. As the eulogy progressed, I became more and more intrigued about the profession that my father had made such an impact upon and that he had clearly loved.

When he finally retired, in 2038, the actuarial profession had also literally died a death.

I vividly recalled father speaking with passion at his retirement dinner. A poignant moment of his retirement speech, that remained with me, was when he was shaking his head, showing tangible regret and disappointment, as he talked nostalgically about his actuarial career.

He had discussed how times, and in particular the business world, had changed drastically. Eventually making his skills and profession obsolete.

Technology and data had been the driving forces of change and, as father used to say, these same drivers should have been what propelled his profession to greater heights and not towards oblivion.

But it wasn’t just the actuarial profession that had vanished. Paralegals had disappeared, doctors were pretty much gone. All victims of technology advancements and the merciless artificial intelligence (AI) algorithm. Even household maids were a thing of the past as robots took care of cooking, laundry, and other household chores.

The fuel behind AI was data, algorithms, and smart individuals. Father had, therefore, felt that actuaries were well placed to play a key role in the emerging paradigm. Particularly given the pressing need to consider the ethical and regulatory implications.

The New World

On my way home from the funeral I again began to think about the world we now lived in and the prophetic words father had uttered towards the end of his career.

My car was traveling at speed as I lay back in my seat and closed my eyes, safe in the knowledge that my autonomous vehicle would have me safely home at exactly 17.05. Technologists had finally overcome the moral and legal issues with self-driving cars and they were now of course ubiquitous bar the occasional hobbyist manual driver, that was confined to the 'leisure only' roads. It seemed strange to think of a time when the majority of people actually drove themselves from place to place and thus took on the potential liability of damaging someone else or their property.

Father, of course, had tried to warn his fellow actuaries that this new reality would have drastic repercussions for the many P&C actuaries. Risks and liabilities still remained, but they had shifted from the driver towards the manufacturers of the cars and their parts (e.g., sensors). As human input had all but disappeared from the driving experience, cutting out the 90% of risk previously caused by human error, risk and liability had also transferred to the producers of the software used to make the AI driven decisions as well as those responsible for building the transport routes and networks on which the driverless cars operated.

My father had been one of the more outspoken actuaries of his time, calling for widespread changes and a need to grasp the opportunities that were arising in the new digital and technology-focused world. If only they had listened to his advice, instead of laughing at his claims of the potential end of the profession, perhaps the actuarial profession would still be alive.

personal investment chatbot - Proactuary

As I arrived home and walked through my apartment door, my retina mail immediately downloaded via my permanent e-contact lenses. The e-letter was from my employer pension fund provider showing that my crypto and equity investments had passed the $5,000,000 mark and according to my personal investment chat-bot it was now time to start moving towards bonds to lower the fund volatility, given my planned retirement age of 86.

Scrolling further through the letter, using 2 successive blinks from my right eye, the sophisticated AI powered algorithms informed me that my expected death was still 112 with a 90% level of confidence.

I recalled father telling me how his first actuarial job involved calculating the liability for an employer's pension scheme where the employer made a promise to pay out a pension which was a fixed percentage of each individual's final salary. I wasn't sure if he was joking or not when he told me about this strange type of pension scheme, but a quick retina search revealed that these so-called "defined benefit" pension schemes had indeed existed and had kept many actuaries in work for a number of years. How times had changed!

My trail of thought was interrupted by my fiancé announcing that dinner was now ready. As I sat down to eat, the digital counter on the kitchen table automatically showed the exact amount of calories and breakdown of protein, fats and carbohydrates I was about to consume. Of course, this information would be automatically relayed to my insurer, Baidu, and a quick glance at the figures told me that my health premium score wouldn’t be adversely affected.

It had been a bad few days, since father’s death, as far as my real time health insurance premium was concerned. My usually well-organized diet had suffered and my implanted glucose sensor's historic data showed that I had been eating a lot of sugar heavy meals. As a result, my automatically calculated fasting glucose had crept over 100 mg/dL this morning, which had implications for my health insurance premium. But worst of all, my jewellery sensors had picked up the emotional stress response from having to drop everything and help with funeral arrangements whilst also dealing with the emotional shock that father was no longer with us. Despite his accurate predictions about his death and recent humorous quip that the trustees of his employer’s pension scheme would be “jumping with joy"  with the fact that another one of their scheme's liabilities was now extinguished, the news of his death still came as a blow, as if out of nowhere, and I could see the toll it was taking in cold hard stress figures.

A New Insurance Paradigm

Blockchain

All this health-related data was feeding directly into the autonomous blockchain enabled insurance company where the machine learning algorithms predicted my health risk with near 100% accuracy.

Ubiquitous blockchain proliferation had occurred. Not by 2025 as the hype had suggested, but by 2035 the exchange of value across the world was facilitated by the irrefutable and distributed technology.

actuaries and blockchain

Smart contracts were set up and utilized with ease which had led to a gain in trust in both the banking and insurance industries. Middle-men were a thing of the past. Unnecessary friction across nearly all services and transactions had now disappeared.

Adverse selection was also a thing of the past, as individual insurance risk predictions were now completely specific and accurate to each individual, ensuring that the insurers were not impacted by potential asymmetry of information.

Hence, bad risks were no longer being subsidized by the “good risks”. The traditional insurance pooling of risk no longer existed as every insured individual was accurately assessed on a completely personalized granular level. However, lack of pooling had created wider societal problems as the poor risks in society were now finding it very difficult to get the necessary cover.

Insurance companies had also changed in many other ways:

Baidu now had 90% of the global insurance provision market share, as they had leveraged off their advanced analytics and strong customer loyalty and engagement. Everything had moved from static to dynamic and real-time. From purchase and annual renewal to continuous offerings and interactions.

Data availability was ubiquitous with sensors everywhere feeding in voluminous data cheaply and easily for the sophisticated and automated algorithms to perform complex and extremely accurate calculations, which had moved beyond the realm of human understanding.

Wearables, social media, geolocation, weather and news were just some of the real-time data continuously feeding into insurer’s dynamic blockchain enabled data systems, where AI was doing the work previously done by actuaries.

A Shift to Prevention

My own insurance company acts not only as a financial security blanket but also a valued trusted advisor. The insights and health information it provides me on a daily basis has truly helped to overhaul my health behaviors and constantly nudge me in the right direction with alerts and monetary motivations.

The fact that all my coverage comes from a single provider, where I also get nearly all my other digital services, has meant that my customer experience is drastically efficient and simple. They even provide me with new unique bespoke personalized and dynamically priced products based on my changing needs.

Manual underwriting no longer exists. Claims processing is fast, accurate, cheap and efficient. Fraud is almost non-existent as the data and algorithms, delving into online social data can spot them with ease.

Everything is frictionless. The industry has shifted largely to one of prevention, risk monitoring and mitigation. I enjoy interacting with my insurer as they provide such valuable information that is provided in a clear simplified format. I truly trust that they will provide the necessary claims and/or advice should I need to call upon them at any point.

A World of Actuarial Opportunities

My father had foreseen these changes and viewed them as being catalysts and opportunities for actuaries to “move up the value chain” adding value in innovative creative ways, completely outside traditional actuarial work. His view had been that creativity, flexibility and the ability to innovate and reinvent oneself were going to be key skills for the future. He spoke about the need for actuaries to embrace technological changes

His message to actuaries of the future also included:

  • The need for actuaries to become more creative as new data sources and complex risks continued to appear and evolve.
  • The need for actuaries to evolve their mindsets so that perpetual ongoing learning was viewed as being very important for actuaries to not only thrive, but survive.
  • Barriers to entry will reduce in the future. Actuaries would no longer be protected, to the same extent, by credentials from exams and by regulatory work. Actuaries must ensure they are always adding value and remain focused on the needs of employers and their customers.
  • As part of being flexible and continuous innovators, actuaries must learn to work in diverse teams that often take an agile experimental approach to new problems which would involve failing fast and iterating as necessary.
  • As key members of these diverse agile problem-solving teams, actuaries would, at times, be expected to apply their specialist knowledge but they would also need to be able to act as generalists with an ability to see the bigger picture and to connect people and ideas.

Many of his fellow actuaries, unfortunately, thought he was being dramatic with such views. Actuaries don’t need creativity they claimed. Technology and AI is over-hyped they retorted. We are protected by impermeable barriers to entry they countered. However, risk and corporates had evolved and changed so quickly that father’s warning about creativity and flexibility being some of the most important attributes an actuary of the future could possess, did indeed seem prophetic. As he had forewarned, AI and technology had indeed penetrated every nook and cranny of business. Anything that could be easily automated had fallen prey to the majestic combination of AI and technology. Those that failed to embrace the fourth industrial revolution had indeed been left behind.

Hindsight, of course, as all actuaries know is a wonderful thing.

The Merciless AI Onslaught

As I brought up the the news on my e-retina I was greeted by some uplifting positive news. The new president of China and free leader of the world was speaking at an address and the support from the crowd was palpable.

Politics had moved on in leaps and bounds over the last decade and of course had changed immeasurably since the spectacular collapse of America, in 2032. President Wò sēn was everything a nation could hope for in a leader - completely altruistic, non-biased, 100% committed to the good of the people and more intelligent and rational than any president that had gone before him.

This was, of course, no surprise. President Wò sēn was after all an artificial intelligent robot. What began as a joke (“Watson For President”) in 2016 had set in motion the wheels towards the current reality. Surprisingly, the vast majority were embracing the new efficient world order where national decisions were based on terabytes of historic data, aided by quantum computers that had all but replaced traditional binary computers.

The results were difficult to argue against. World crime was now down 15%, healthcare costs were down significantly as chronic conditions were recognized at an early stage and patients had the means to understand their conditions and treat themselves much of the time.

Concluding Thoughts

I should finish by saying that I actually don't think that the actuarial profession will die a death. I believe there are too many talented and intelligent people in this profession for us to lose our relevance and for actuarial obsoletion to become a reality.

However, despite our many strengths, I do have the view that we are entering an era where the world of work will continue to change at a rapid rate. Increasing connections, technology, digital information and ideas are leading to exponential change throughout the world in many ways, whether we like it or not. To use a metaphorical quote from Malcolm X:

The future belongs to those who prepare for it today.

As a profession, whose very existence is based on the premise of being skilled at predicting the future and dealing with risk, let’s not fail in these regards, at this very important juncture.

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