The Actuary's Guide to Independent Consulting

June 11, 2024

Estimated reading time: 8 minutes

In the dynamic world of finance and insurance, actuaries play a critical role in assessing risk, setting premiums, and ensuring the financial stability of organizations. Traditionally, actuaries have been employed by insurance companies, pension funds, and consulting firms. However, there is a growing trend towards independent actuarial consulting, where professionals offer their expertise on a freelance or contract basis as ongoing advisors and subject matter experts. This shift presents unique opportunities and challenges, both for the actuaries themselves and for the organizations that engage their services.

The actuarial profession has undergone significant transformations over the past few decades. Advances in technology, changes in regulatory environments, and evolving market demands have all influenced the way actuaries work. Historically, actuarial consulting was dominated by large firms that provided comprehensive services to clients. These firms employed teams of actuaries to handle complex projects, often involving long-term contracts.

In recent years, the rise of the gig economy and the increasing acceptance of remote work (especially after COVID19 pandemic) has paved the way for independent actuarial consultants. These professionals leverage their specialized skills to offer tailored solutions on a project-by-project basis. This model is particularly appealing to small and medium-sized enterprises (SMEs) such as non-top 10 insurers with small budgets that may not require full-time actuarial services but still need expert advice to navigate risk management challenges. Each project can be negotiated individually due to our flexible approach. If the scope of work is clear and the client is only interested in a specific project, we can complete just that project and charge accordingly. Or if the client needs more generic and broad services, they can engage on part-time basis on fixed monthly fees for a yearly contract or hourly fees paid upon month end and so on.

Independent actuarial consulting provides professionals in the actuarial field with an alternative career path outside of traditional employment at an insurance company or consulting firm. As independent consultants, actuaries have the flexibility to choose their own clients, projects, and hours while leveraging their expertise in insurance, risk management, data analysis, and financial modeling.


Mitigating risks that come with independent consulting

Having variable earnings comes with its risks, as bills still need to be paid to meet personal and family financial obligations. Based on our experience, we have a few suggestions to address this.

  • First, we should personally set aside some reserve funds to smoothen out our earnings over time. With those reserves, we can take money out during lean periods and fund back the reserve during times of above-average earning.

  • Second, it’s important to keep our cost base low. This is a huge differentiator but a quicksand in modern times because we usually increase our lifestyle at par with our job’s financial capacity and then say we can’t leave our job because that would devastate our lifestyle. The goal should be to live far below our earning capacity whether we work on a full-time job or do independent consulting.

  • Third, personal finance is as important as optimizing investments for our insurer clients. Investing 80%-100% of our savings in stocks might yield high returns but can also erode our principal and provide poor returns. Additionally, this can lead to less liquidity, as we may not want to sell at a loss. The same applies to real estate investments. Therefore, it's prudent to allocate a smaller percentage of our emergency savings to stocks, real estate, and other high-risk investments. This way, we can endure poor performance while keeping the remaining 80% in highly liquid bonds that provide a fixed monthly return. This fixed return can act as a low salary, helping us pay our bills on time. The long-term goal should be to have enough savings, that these monthly returns can replace our monthly average earning or salary. Life doesn’t always work out the way we expect so it’s also necessary for us to first have enough savings to last 1 year of our expenses before taking the plunge to leaving day job for independent consulting.

By following these principles, we can mitigate the negative consequences of variable earnings and focus on its strengths. Variable pay often offers higher growth potential and better compensation compared to fixed pay. While well-established brands offer projects with a scope that independent consultants might find challenging to tackle alone, the larger revenue pie must be divided among more people. Employees are an investment tool similar to stocks, and their revenue multiplier is notably high in actuarial circles. Typically, to justify a salary of USD 1,000, an employee is expected to generate USD 10,000-20,000 for the employer. Employers are excessively prudent because an employee’s salary is a fixed cost that must be paid regardless of the company's profitability.


Key benefits of independent consulting

The key benefits of independent actuarial consulting include being one's own boss, increased earning potential, a more flexible schedule, and the ability to be highly selective about clients and types of work. Being one’s own boss doesn’t mean that we are free from facing difficult situations because we do not have any bosses. Its just that direct clients replace the boss interface now. If we are seeking investment, we will likely see that investors sometimes are more tough to handle than bosses. As long as one has to earn money from someone else, one has to compromise and face difficult deliverables and deadlines. This is an important caveat, as many fresh graduates start dummy startups out of a desire to avoid traditional employment, believing that being a founder is the only acceptable path. If Mark Zuckerberg can do it why can’t we? This is a naive attitude because we are focusing on survivorship bias here by seeing 1-in-billion example of success and not seeing the millions who failed for one Mark to arise from among them to succeed. The more realistic approach is to first learn at other’s expense by doing a good job, building a solid track-record and existing relationships with key industry players as well as having enough savings to serve as reserve buffer for the future independent consulting to survive upon. That is why most of the successful founders are in their late 30s, 40s and even 50s rather than fresh out of university. Being ‘cool’, having high ego, bucking upon from one latest trend to the other to earn cool tags of being an ‘entrepreneur’ without a pre-existing track-record is a very likely way to ruin one’s career in our view.

Moving on, top independent actuarial consultants can command premium rates due to their expertise and the high-stakes nature of their work. Those exploring independent consulting often start by moonlighting with side projects while still employed full-time (they will need to check their company’s rules on this). This allows them to build up client relationships and a portfolio before making the leap to consulting full-time as a way to test the markets out. Having an established network of contacts is crucial, as much of the work comes through referrals and word of mouth.

One key advantage of independent consulting that is often overlooked is the significantly lower barrier to entry compared to for example starting an Insurtech company, which typically requires raising millions of dollars. In consulting, you only need to reliably replace your day job earnings. This low barrier to entry is a major differentiator. You can begin by building a small pool of clients and use that income to sustain yourself while gradually scaling up. This bootstrapped approach eliminates the need for outside investors, allowing you to maintain full ownership and avoid meeting their demanding targets.

Common types of actuarial consulting engagements include:

  • Actuarial model implementations

  • Model conversions

  • IFRS17

  • US GAAP LDT

  • Reserving

  • Pricing

  • Rate and product filings

  • Financial Conditions Reporting (FCR)

  • Reinsurance optimization

  • Pension and gratuity IAS19 valuations

  • Asset liability modeling

  • Capital modeling

  • Pricing and product development

  • Litigation and expert witness services

  • Due diligence for mergers and acquisitions

  • Audits and appraisals

  • Enterprise Risk Management (ERM) implementations

To be a successful independent actuarial consultant, professionals need stellar technical skills combined with strong business acumen, communication abilities, and project management expertise. It's critical to be able to translate complex mathematical and actuarial concepts into language that clients can understand.


Commercial Considerations

In addition to deep actuarial knowledge, consultants need to be adept at managing the business side of running an independent practice. This involves marketing and sales, negotiating contracts, invoicing, taxes, insurance, and other administrative responsibilities that employees don't typically deal with. While the work can be lucrative, actuarial consulting also tends to involve intense periods of long hours and travel to meet tight client deadlines. Payments can be delayed due to various reasons and some people can also default on payments and independent consultant has little power on what to do in that case as recovering money from unwilling party is a long drawn out and expensive procedure in the first place. Some projects that were coming can suddenly disappear. Sometimes, a client might say, "We expected XYZ, and you only met those expectations partially, so we will pay you only 50% of the original rate." There are so many things to quote here. We call these ‘101 miscellaneous problems’ that is part and parcel with independent consulting. If someone cannot manage the flexibility needed to cope with these challenges, we suggest sticking to a traditional day job, where they can rely on receiving a fixed salary at the end of each month.

However, many consultants appreciate the tradeoff of having increased control over their schedule during slower periods. Independent consulting allows actuaries to continuously expand their skills across a diverse range of clients and industries, preventing them from becoming overspecialized. Top consultants are able to be highly selective about the type of work they take on based on their interests.

Another plus point with independent consulting, especially for today’s generation is the potential for digital nomad lifestyle which is impossible in a traditional job. The traditional job has commuting and we all know how draining of time and energy that is because all major cities in the world now have extreme traffic conditions and large distances to cover now on a daily basis. With independent consulting, you can be in multiple cities or countries, live wherever, however, for as long as you want and can gain worldwide exposure depending upon your luck and relationships. In recognition of this increasing trend, many countries have started offering flexible living arrangements and this trend is only poised to increase further. For example, Portugal’s digital nomad visa, Bali and UAE’s freelancing visa and so on.

From an employer’s standpoint, hiring an independent consultant can be more cost-effective than maintaining an in-house team or engaging a large consulting firm. Clients only pay for the services they need, which can result in significant savings, particularly for smaller companies with limited budgets. It is important to recognize that different consultants target different segments, so "one person's trash is another person's treasure." The key is to optimize over time, focusing on what works and avoiding what doesn't based on experience. For example, if high-margin, low-volume work results in a 0% acceptance rate for your proposals, take this as feedback and adjust your strategy to focus on low-margin, high-volume work instead. Continuously experiment and learn how clients think, communicate effectively, and avoid actions or words that might put them off.


Conclusion

To summarize, actuarial independent consulting represents a significant shift in the way actuarial services are delivered. For actuaries, it offers the flexibility to work on diverse projects and the potential for entrepreneurial growth. For organizations, it provides access to specialized expertise and innovative solutions in a cost-effective manner. As the landscape of risk management continues to evolve, independent actuarial consultants will play a crucial role in helping organizations navigate the complexities of the future. By staying adaptable, embracing new technologies, and fostering collaborative networks, independent consultants can thrive in this dynamic and rewarding field. For those with an entrepreneurial spirit who thrive on variety and the ability to craft their own career path, actuarial independent consulting can be an exceptionally rewarding option. It represents a way for these professionals to fully leverage their training and expertise while achieving greater autonomy over their work and lifestyles.

Success in independent actuarial consulting often means being a jack of all trades and a master of a few. But what if you could achieve both? With this in mind, I designed the Life Actuarial Course, packing my 15 years of Life actuarial experience in one course. This course helps actuaries gain a comprehensive understanding of all aspects of Life actuarial work. It includes 5 hours of video content, free downloadable spreadsheet models, lifetime access, professional certificate, and opportunities to ask questions.

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