The Future of Actuarial Science

In the rapidly evolving landscape of the 21st century, the role of actuaries is undergoing a significant transformation. Traditionally, actuaries have been the cornerstone of the financial sector, predominantly in insurance and pension industries, thanks to their expertise in risk assessment and management. However, with the advent of the fourth industrial revolution, marked by disruptive technologies like artificial intelligence (AI), blockchain, and big data, actuaries are finding themselves at a crossroads.

Actuaries are no longer confined to number crunching and risk calculations. The new era demands a shift towards strategic thinking and innovation. As businesses grapple with complex risks in an interconnected world, actuaries are increasingly expected to provide insights that go beyond traditional models. They are evolving into strategic advisors, influencing key business decisions.

The actuarial profession is not immune to the meta-trends shaping the global landscape. Automation and machine learning are redefining the very essence of actuarial tasks. For instance, AI algorithms can rapidly process and analyze vast amounts of data, a task that once took actuaries’ considerable time. Automation may streamline traditional actuarial tasks, but it also opens avenues for actuaries to engage in more complex, analytical, and strategic roles. Understanding these meta-trends is crucial for actuaries to stay relevant and contribute significantly in new realms.

In this new world, actuaries face diverse futures. It is important for us not to give just one ‘point estimate’ of the future we expect and rather to do scenario analysis by creating best case, worst case and best-estimate scenario to paint the future.

One path leads to a future where their role is greatly diminished, overshadowed by technological advancements. Another, more optimistic path sees actuaries at the helm of innovation, harnessing the power of technology to deliver groundbreaking insights. In the best-case scenario, actuaries adapt and thrive, leveraging their expertise in new, innovative ways. In contrast, a dystopian scenario might see the profession struggling to maintain relevance amid rapid technological advancements. These scenarios underscore the importance of adaptability and continuous learning for actuaries.

If we elaborate upon these scenarios in more detail:

• First utopia scenario; the flourishing future of exponential actuaries: In this visionary utopia, actuaries are not just crunching numbers in traditional fields but are revolutionizing various innovative sectors. They're diving into realms like ride-hailing services, autonomous technology, and blockchain, reshaping how we assess risks today. Actuaries are increasingly gravitating towards entrepreneurial ventures, especially in burgeoning fields like Insurtech. This shift is evident even in established insurance firms, which are now reevaluating their risk models due to emerging trends like preventive healthcare, Internet of Things (IoT), and cyber risks. The world's top insurance companies are forming specialized teams dedicated to innovation. Organizations such as the Society of Actuaries, the Institute and Faculty of Actuaries, and the Casualty Actuarial Society have evolved, offering actuaries more relevant and practical knowledge. Actuaries are enhancing their expertise through online courses, seminars, and volunteering, fostering a culture of open-source collaboration and data sharing. Old barriers and skepticism have dissipated, positioning actuaries as pioneers shaping the future. The actuary of tomorrow is vastly different from today's, equipped with advanced problem-solving and risk analysis skills, ready for the challenges ahead. Renowned risk management expert Nassim Nicholas Taleb's workshops, highly sought after by actuaries, emphasize the importance of simplicity in systems to maintain resilience. Actuaries are now at the forefront of interdisciplinary learning, tackling new fields like microinsurance and climate risk assessment with vigor.

• Second dystopia scenario; the atrophying future of risk-averse actuaries: In this dystopian scenario, actuaries have become increasingly risk-averse and insecure, overwhelmed by rapid technological advancements and the rise of data science. They're now relegated to mere compliance roles, with the more dynamic aspects of analytics and value creation taken over by data scientists, who engage actuaries only for their niche domain expertise. Professional societies such as SOA, IFoA, and CAS, instead of innovating, have become more exclusive and restrictive to safeguard the prestige of their certifications like FSA, FIA, FCAS. The actuarial profession, once a proud and secretive community, now faces a decline in stature. Elon Musk continues to be an inspiration for actuaries, but more as an aspirational figure rather than a role model to emulate actively. Disheartened by the lack of dynamism in their field, many actuaries are leaving for more stimulating analytical roles. Those who remain struggle to attract new talent and interest in actuarial studies. The focus has shifted from continual learning and skill development to merely obtaining professional titles. The retirement of experienced actuaries has left a significant gap in knowledge transfer, exacerbating the problem.

  • Insurers are now primarily backend underwriters, facing intense pressure on margins and costs. With shrinking actuarial budgets, achieving a fellowship in actuarial science is no longer seen as a desirable career path. Many opt for associate status before moving on to more engaging roles elsewhere.

  • Insurtechs are replacing actuaries with AI, and peer-to-peer models are proving more efficient in risk pricing than traditional actuarial methods. Blockchain technology further undermines the actuarial role by eliminating operational tasks they might have clung to. Not just actuaries, but also underwriters, operational staff, accountants, and sales agents, are seeing their roles diminish. The emphasis on belonging to a 'profession' rather than skill development is increasingly viewed as archaic. Any attempts at innovation are stymied by entrenched actuarial leadership.

  • Actuaries are perceived as a dwindling, skeptical group, further threatened by tech giants like GAFA (Google, Apple, Facebook, Amazon) and BATX (Baidu, Alibaba, Tencent, Xiaomi), who are making significant inroads into insurance and healthcare sectors. The remarkable success of companies like ZhongAn in insurance is a stark reminder of the changing landscape, pushing insurance penetration rates higher and leaving traditional actuaries and their methods behind.

• Third escalation scenario: By escalation we mean a continuous cycle where we rise up to the challenges, but then new challenges emerge and so on; somewhere in between the first two scenarios. In this scenario, while most actuaries struggle to make their mark in unconventional areas (though a minority do succeed and carve out a niche), they continue to dominate traditional fields like insurance and pensions. Here, they champion innovation, securing analytics roles within their conventional domains. In these spaces, data scientists and others remain on the fringes, as incumbent insurers and pension funds prefer actuaries' expertise. Holding a professional designation is important, but so is the ability to innovate and develop skillsets, helping actuaries maintain their niche status. A balanced, symbiotic relationship evolves between insurers and the external world, fostering a moderate exchange of ideas and practices. Actuaries may not have a figure like Elon Musk leading them, but they diligently work towards moderate, incremental innovations rather than rapid, disruptive changes. Managing these shifts in risk exposure is a challenging task, ensuring that actuaries and insurers remain engaged in this third scenario. Although current challenges may recede, new ones will emerge, bringing with them both opportunities and obstacles. This environment will spur the creation of innovative insurance products designed to meet these evolving challenges.

The key to success lies in adaptability and lifelong learning. Actuaries must stay abreast of technological trends, continuously updating their skills.

With great power comes great responsibility. As actuaries delve into these new technologies, ethical considerations become paramount and societal concerns. As they leverage new tools, it is crucial for actuaries to uphold ethical standards and consider the broader impact of their analyses and decisions. The integration of AI in actuarial work, for instance, raises questions around data privacy and the ethical use of predictive models. Actuaries must ensure that their work contributes positively to society, fostering trust and sustainability in the financial sector.

The actuary of the future is a blend of a traditional risk assessor and a modern strategic advisor, equipped with technological savvy and ethical integrity. They are not just number crunchers but visionaries who can foresee and navigate the complexities of a rapidly changing world. The future is bright for those in the actuarial profession who embrace change, adapt to new technologies, and uphold their commitment to ethical practices and societal well-being. The journey ahead is challenging but filled with unprecedented opportunities for growth and innovation.