Citius, Altius, Fortius: How can actuaries reinvent themselves?

1.Where is the Actuarial Profession now?

Our current reach and attributes

Let’s take stock of where we currently are as a profession: predominantly contributing in the traditional fields of life insurance, general insurance, superannuation, health insurance and investments, with a growing presence in banking, private equity etc; as well as predictive analytics and risk management.

The Four Faces of the Actuary

Let us introduce you to a framework to analyse the role of actuaries within traditional fields. The Four Faces of the Actuary framework hypothesises that a senior actuary deals with four elements in their role – Steward, Operator, Catalyst and Strategist, as illustrated below:

The most effective Chief Actuaries and actuarial function we have seen are well balanced across these four areas, with skews depending on their personal preferences and the organisation they work in.

2. What trends are impacting us, our industries, and the environment in which we work?

Current trends and disruptors

The world we live in is constantly evolving. There are trends and disruptors emerging, affecting the environment in which actuaries work. These result in either a challenge to overcome or a potential opportunity to seize.

We can already see changes in (1) Technology such as smart technologies affecting underwriting eg contact lenses which can detect glucose levels, telematics, smart pills (ingestible sensors that can detect what is going on in your body); (2) Social impact such as antibiotic resistant viruses, actuarially managing welfare programs, longevity and income in retirement (Cambridge gerontologist Aubrey de Grey claims the first person to live to age 1000 is already alive today); (3) Customer such as customer-centricity (shift from product focus to customer focus) and connected societies facilitating customer relationships; (4) External environment such as cybercrime, tech giants disrupting traditional insurers, offshoring components of actuarial services; and (5) Sharing economy such as enabling P2P exchanges through the use of technology eg Uber, Facebook, Alibaba, Airbnb.

Something interesting is happening; business models are changing. How can we change with them?

Did you know?[1]

Our profession is not stagnant, and this has started to be recognised on a global level. If we do not adapt to the world changing around us, we will eventually lose our grip on both our core and non-core roles. Conversely, if we do adapt, then our reach grows. And the areas and industries over which we have an influence will grow commensurately.

3. Where do we want the Actuarial Profession to be?

Our future vision

We think that there are two ways in which the profession can progress: Redefine and improve what we currently do, and/or break into new fields.

1. Redefine ourselves within our traditional roles

If we become more efficient in our typically bread and butter work, we can free up more time to share insights and think strategically, adding value from experience that can’t be captured with automation.

This vision is supported by recent Deloitte Chief Actuary research including a global survey of over 100 Chief Actuaries and next-in-lines, asking them how much time they currently spend on each of the Four Faces versus how much time they would ideally want to spend.

We found that these actuaries are spending more time on Steward and Operator roles, and aspire to contribute more as a Catalyst or a Strategist.

2. Expand our roles or apply our skills to new areas

There is an opportunity for us to break into new areas, either by applying our current skills (e.g. valuation techniques, risk management) in completely new business fields or by extending our roles in our current fields by learning new skills (e.g. predictive  analytics).

A vanguard of actuaries are already challenging preconceptions and working in non-traditional roles. Here are some examples:

Sports

Here is a world awash with statistics, which naturally attracts the actuarially-minded. John Dewan, an American actuary, created a sports statistics company called STATS and sold it to Fox Sports for $45m. Actuaries also have the potential to be involved in the valuation of football (or other sports) players when being bought and sold between teams (often for tens of millions of euros).

Adam Wechsler, an Australian actuary, says that actuarial techniques are now used in sports betting companies to help price betting games based on the odds of winning, as well as to profile their customers to help understand the types of bets they would likely make.

Private Equity

Private equity firms have engaged actuaries, such as Australian actuary Stephen Lynch, to assess the risks of companies asking for finance from the private equity world. While risk-assessment is natural for the actuary, the risks involved in private equity are different, e.g. uncertainty of sales, management, growth prospects. So an actuary going into this field will need to build knowledge to assess the risks appropriately.

Predictive Analytics

Ian Duncan, an American actuary, automated the manual estimates that doctors make on the future costs of high-cost claimants. Since then, he’s been involved with statisticians who understand the modelling but not the business context, and has become the business savvy bridge between his clients and the Predictive Analytics model.

Both the Canadian Actuarial Society and the US Society of Actuaries have recognised the potential in this largely untapped field and have started investing Predictive Analytics initiatives. The Australian Institute has also started a Data Analytics Working Group.

Microinsurance

Actuaries, following the lead of Denis Garand (a Canadian actuary), could do more to contribute to the social good by facilitating greater insurance coverage in countries where the population is under-insured. The challenges in this field are that there is often little or no appropriate experience data, and that the products use traditionally unusual sales and distribution channels. But to give you an idea of the opportunity, recently in Ghana, within 6 months, 1 million people bought cover through their mobile phones. It is the fundamentals of insurance (i.e. the law of large numbers) that are important when faced with these situations.

4. How are we going to get there?

Pathway to success

1. How do we redefine ourselves within our traditional roles?

The Chief Actuaries in our survey[2] told us that they want to be able to drive their actuarial activities rather than their activities driving them. They also want to stay alert to trends and disruptors affecting the industry in which they work.

One thing is clear from our research, is that performing the Steward and Operator role really well gives you the right to play in the Catalyst and Strategist roles. It is thus important to see the Steward and Operator roles as something that, if done efficiently, will unlock insights to help influence the organisation’s direction and strategy.

This requires that we take control of our work as Operators and Stewards:

As Operators we can look to (1) increase general process efficiencies, (2) make our actuarial processes more effective, (3) efficiently use the right people for the job. As Stewards we should aim to (1) improve our governance and controls, (2) expand the breadth of our market and industry knowledge.

We also need to start influencing change within organisations, as Strategists and Catalysts, and thinking more about how to use freed up time in a business context way to influence strategy and direction and inform the organisation’s strategic decision makers. We can achieve this by building on and more effectively advertising our education and experience, and increasing our exposure in the business environment.

2. How do we break into new fields?

Some suggestions we have garnered from pioneering non-traditional actuaries:

• Leveraging our networks may be the best way to find these new opportunities
• There are many countries with few or no actuaries and considerable under-insurance that would benefit from our insights and protection. For example, Nigeria has a population of 160 million yet only 1% are insured.
• We can be the bridge between technicians/statisticians and the business decision makers in solving their problems. Actuaries are trained in evaluating and managing risks and this sets us apart from other professionals.
• Non-traditional areas and soft skills need to be included in our actuarial education early on to develop these skills. Examples include setting assessments and exam questions from a wider mix of fields and non-traditional distribution channels, emphasising soft skills as early as Part I exams and in the Commercial Actuarial Practice course.
• We need to be risk takers, even if our profession has traditionally been risk-averse! Start creating initiatives around non-traditional fields and liaise with universities to encourage a wider breadth in their training culture.

5. Concluding remarks

Why do we need to reinvent ourselves?

In summary, the world is changing rapidly around us, providing both challenges and opportunities, and we need to keep up to date in order to remain relevant and take advantage of these opportunities, in traditional areas of contribution and new areas which have not been fully tapped.

With the 2016 Olympics approaching, we hope that our profession can be inspired by Bob Beamon’s historic achievement; let’s take a great leap forward and push the boundaries of what we can do.

[1] World Economic Forum, and Various estimates

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