Journeying ahead of the curve beyond the traditional actuarial roles

When we talk about the future or innovation, it would be a mistake to assume that it follows a linear path and is available to everyone. This is because there is a lot of inequality here in how the impact from technology trickles down to various segments of the society. As William Gibson says that “the future is already here, it is just not very evenly distributed”

So like insurers, we can also segment actuaries into three broad categories: those who are ahead of the curve, those who are at the mean of the curve, and those who are behind the curve. Here, we talk about the category of those who are ahead of the curve.

As an example is better than a concept, let’s consider some examples of non-traditional roles. Big tech and Insurtech are fruitful areasfor actuaries due to their innovative approaches in technology and insurance.

Some instances are actuaries working for specific companies like Tesla, Waymo, Uber, Root, DoorDash, Grab, Paypal, Lyft, Lemonade, Trov and the likes. Other examples are actuaries working in non-traditional industries like HR analytics, alternative reinsurance arrangements, alternative finance like cat bonds and Insurance Linked Securities (ILS), climate change modeling, banking, quantum insurance, behavioral finance, complexity science, sociology of risk, philosophy of insurance, quantitative finance, cyber security analytics, econophysics (intersection of physics and economics), for real estate mega companies, for construction and electricity vendors.

Some further specific examples are:

  • Director of Analytics for Clinical Intelligence helping hospitals to analyse their data to improve the quality of care offered, business processes and revenue

  • Founder of an insurance research and advisory company offering subscription research, customised analysis by client request, and insurance education1,3

  • Actuarial manager for Hertz hire car company that self-insures for general and auto liability and also workers compensation in some areas3

  • Chairman and CEO of a minor league baseball team analysing baseball statistics, communicating effectively with non-technical people including helping players improve their game1,3

  • Software Engineer applying predictive analytics to enhance internet of things (IoT) related products

  • Strategy manager for Expedia travel agent applying business intelligence to boost online sales of optional travel insurance. Also working with insurers to develop travel insurance products to meet the needs of worldwide customers1,4

  • Data scientist supporting and developing products and services that help track and anticipate the social and economic repercussions of infectious diseases1,4

  • Director of Insurance and Safety Analytics for Uber Technologies1,4

  • Chief actuary for Google covering their corporate risk, credit card product for advertisers and other quantitative risk projects such as insurance and liability research for self-driving cars, predictive modelling for fraud and vendor risk, demand modelling, and operational research14

Chief Innovation Officer for a start-up specialist actuarial company offering insurers and pension funds advice, tender management and sourcing models for their insurance risk pools.

We can also apply the same traditional work in a new light. As many of us know, the IBNR chain ladder is a common tool. However, it is essentially a form of cohort analysis. This can be applied to uncover various insights from data, ranging from fraud levels to revenue-based trends like customer churn and lifetime value.

The most famous example of applying this IBNR triangulation chain ladder to fraud analysis instead of reserving is that of Roelof Botha who is an actuary and had applied it as CFO of Paypal way back:

“Soon after joining, I built a bottom up financial model to help understand the drivers of the business. It turned out to be a good model that was very representative of the company's situation and gave us visibility in being able to forecast. As I was building the model I was trying to reconcile actual results compared to expectations. I discovered that one piece of the model, which worked out fraud losses, was divergent. Identity theft was rife at the time and we were losing millions of dollars a month from this activity.

The view that was taken by the accountants mismatched the losses and the exposure to which they related. I applied the chain ladder technique to our fraud losses to try to understand their cumulative distribution function. I was trying to work out how long it takes on average for fraud to be notified. I realised that our losses were much larger than we had believed. I quantified the size of the problem and spurred engineers to build frameworks for fraud control. We caught the problem early and saved the company from bankruptcy. It was an interesting experience to apply actuarial techniques in a very different context”.

A meta-trend that we are seeing is solving problems through merging of different fields together; physics like thermodynamics and quantum with actuarial and computing; quantum with biology; weather sciences modeling with actuarial; climate change with actuarial; behavioral science which merges psychology and sociology and if we apply it in insurance then with actuarial; social policy and economics like healthcare economics and pension economics.

But this begs the question that why have we not seen any merging of actuarial skillset with Space industry so far? As most actuaries grew up following Star Trek and Star Wars and dreams of working at NASA, merging our skillsets with space industry in some way would be a dream of a lifetime to work upon for any actuary.

Actuarial training is a robust foundation for roles outside the traditional sphere. It equips professionals with a blend of skills in mathematics, statistics, and financial theory, which are highly transferable to various industries. The actuarial expertise in risk assessment and management is particularly valuable in technology and data analytics fields, where data-driven decision-making is paramount. Additionally, the rigorous examination process instills a discipline that is beneficial for any complex problem-solving environment.

But perhaps the most useful element is that actuarial science brings in a wide variety of other fields into its domain. We get to study quantitative finance, insurance, finance, risk, economics, accounting, statistics, and other areas so we get a mentality of cross-collaboration early on.

In non-traditional fields, actuaries are often tasked with pioneering new analytical methods, leading cross-functional teams, and driving strategic initiatives. Their work extends beyond the confines of insurance and pension calculations to impact broader business decisions and strategies where financial modeling and risk evaluation are critical.

Thriving in new roles necessitates overcoming several challenges. Actuaries must adapt to different corporate cultures and learn industry-specific knowledge that was not part of their formal training. They must also demonstrate the relevance of their skills to stakeholders who may be unfamiliar with actuarial science. Networking within the industry, continuous learning, and the ability to communicate complex concepts in simpler terms are essential for success.

The experiences of actuaries in non-traditional roles offer valuable lessons for the next generation. One of the key learnings is the importance of versatility and adaptability. Aspiring actuaries should cultivate a diverse skill set that includes proficiency in programming languages, business acumen, and soft skills like leadership and communication. It's also crucial to maintain a mindset of continuous learning and to be open to opportunities that lie outside one’s comfort zone.

The new frontier for actuaries is expansive and filled with potential. By leveraging their unique skill set, actuaries can assume leadership roles in various sectors, from technology startups to global financial institutions. The challenges of working in non-traditional fields are counterbalanced by the opportunity to innovate and drive change.

As the profession continues to evolve, actuaries will undoubtedly play a pivotal role in shaping the business landscape of tomorrow. Who knows by 2030s we might start seeing actuarial applications in space industry as we start colonizing and mining on Mars, Moon and asteroids with 3D printed Exoskeletons donned by miners.

Till then, live long and prosper, friends 🖖!