The Evolving Role of the Actuary
Preliminary Study Findings
The role of the actuary is evolving. Actuaries play a pivotal role in insurance through the unique combination of regulatory and industry expertise, quantitative skills, and analytical capabilities. Insurers’ actuarial teams are involved with everything from product development to pricing to compliance to research and development, and in recent years they have taken on new and exciting roles and challenges both within insurance and outside of their traditional field. But diversification of the actuary’s role isn’t only coming from within.
Significant changes to technology, regulation, markets, customer behaviour, the environment and other global trends are heavily influencing the role actuaries can play. These changes, including the impact of COVID-19 and the growing influence of data science, will continue to shape the role in the immediate and distant future.
The role of the actuary is shaped by the inner workings of the insurance industry and the broader realm of risk mitigation. By gaining a better understanding of how the role of the actuary is evolving, we better understand how new technologies, data capabilities, and analytics could impact the way actuaries and the companies they work for prepare themselves to address future challenges.
To understand the extent of this evolution better, there are two key questions worth considering that we are looking to answer in our ‘Evolving Role of the Actuary’ study:
1. How has the role of the actuary changed in response to new circumstances over recent years?
2. In what way is the role of the actuary likely to continue to evolve in the years to come? Montoux and Actuartech Preliminary Study
Actuartech and Montoux have partnered on a research study entitled ‘The Evolving Role of the Actuary’ to dig into the heart of what the modern actuary looks like, the challenges and opportunities facing the profession today, and what the actuaries of tomorrow could look like.
The study is exploring themes around training, COVID-19, and data science as well as looking to the future role of the actuary in order to provide insight on the areas where actuaries are likely to play a role in the future, including the tools and skills required to do so. As part of the ongoing study, actuaries and other industry professionals are invited to take part in a short survey.
We’re excited to share with you the preliminary results from the ongoing survey ahead of our in-depth industry study, which will be published via The Actuary. These preliminary findings include responses from 70 respondents from around the world.
SECTION 1: THE EVOLVING ROLE OF THE ACTUARY
“There have been multiple technology driven changes that have helped us automate various repetitive tasks, thus leaving quality time to be spent on analysis and helping with an organisation’s strategic decision making.” Survey Respondent
By investigating the evolving role of the actuary, we wanted to better understand the value actuaries add within their roles today.
Respondents commented on the importance and value-add of their technical and professional expertise coupled with their foundational analytical skill set, which is increasingly finding new influence and credibility within organisational strategy and decision making. As companies accelerate and diversify how they use data and incorporate more sophisticated analytical techniques, actuaries have found themselves as a logical resource to rely on when companies make strategic decisions.
The majority of our respondents agreed or strongly agreed that the actuarial role has changed in the past five years. Specific themes arose to explain the various ways in which respondents believe the actuarial role has changed in the past five years:
- Increases in data and advanced analytical techniques are forcing actuaries to upskill, rapidly resulting in more specific data science capabilities needing to be incorporated into the role.
- The challenge of responding to regulation is becoming more involved, complex, and varied as regulators tighten compliance requirements with regards to the use and access to customer data, for example
- Actuarial roles and opportunities are expanding more rapidly beyond the typical insurance domain to areas like banking, investment, assets, and risk management.
- The focus of the actuary’s role is shifting towards the management and governance of bigger and more complex systems with increasingly complex modelling requirements.
- The actuary is becoming more technology-driven, business-oriented, and collaborative.
- As before, knowledge, experience, and expertise are valuable components of the role, in addition to the ability to perform specific calculations.
The actuary has the ability to combine subject matter expertise with analytical rigour in order to be an expert advisor, both within and outside of traditional insurance roles. New data, technologies and modern analytical techniques are already shaping the actuarial profession and opening up new frontiers of value. Strengthening non-technical training as well as improving actuarial technologies and tooling is a task for the industry as well as insurers to confront.
Below we have included a selection of our survey findings related to questions regarding ‘The Evolving Role of the Actuary’:
- Over 85 percent of respondents agree or strongly agree that the formal, technical training that actuaries go through prepared them well for an actuarial career. Interestingly, the responses to this question were consistent irrespective of geography.
- 40 percent of survey respondents didn’t agree that the non-technical training process actuaries go through prepared them for an actuarial career. Less than half of survey respondents agree that the tools and technologies available to actuaries have kept pace with actuaries’ evolving needs.
Less than half of survey respondents agree that the tools and technologies available to actuaries have kept pace with actuaries’ evolving needs. Common themes that explain why many believe tools and technologies have not kept up are:
- Overuse or emphasis on traditional actuarial cash flow modelling tools and spreadsheets
- Computing infrastructure that is not designed to deal with the manipulation of large data sets
- Current, modern analytical tools are available, but organisations aren’t necessarily adopting them
SECTION 2: THE IMPACT OF DATA SCIENCE
“Data Science is really just a buzz term for statistical methods that are enabled by development of new algorithms and software able to deal with big data. The tools can help, but are pretty useless if you don’t understand the business.” Survey Respondent
According to our survey results, many actuaries are starting to embrace the value of data science, either through formal training, personal up-skilling or by way of applying data science techniques to their roles. As more organisations build and expand their data science teams, particularly within insurance, more opportunities for collaboration between data scientists and actuaries arise.
Efforts to support cross-training and integration between data science and actuarial functions can help unlock the full potential of these two disciplines. Certain parts of the industry are already investing in cross-training for this reason.
In response to the question, ‘what value does data science add to actuaries roles’ respondents mentioned:
- Data science can improve speed, accuracy, and ease when performing risk estimation, analyses, assessments, and the running of processes.
- Data science, together with the actuaries’ skill set, provides opportunities to expand into non-traditional roles within and outside of the insurance industry.
- Data science can help to provide a different perspective when problem solving
- Data science can address future challenges and help actuaries develop new, innovative technologies and solutions
- “Data science is a modern way to explain what actuaries have always done” i.e. in order to apply judgement to insights gained from data to make business decisions.
The combination of data science and actuarial skills is already improving the impact and relevance of actuarial analyses, helping provide new solutions and empowering leadership teams to make better, data-driven decisions. Collaboration between data scientists and actuaries within insurers and non-insurers will continue to be instrumental in making this happen.
Nearly 60 percent of survey respondents have been presented with a challenge that could be solved by applying data science techniques. Examples include:
- Analysis and management of large insurance data sets with data science applied to store, sort, and analyse data
- Increasing use and sophistication of price sensitivity modelling and how this impacts customer behaviour
Drawing insights from unstructured data In response to a question on the ethical responsibilities actuaries have with regards to data, our respondents suggested a number of considerations, including the following:
- Security - Respondents suggested actuaries need to ensure user consent is always obtained.
- Role in society - Respondents suggested actuaries need to ensure that no discrimination against marginalised populations occur; that biases are understood and corrected.
- Ethical responsibility - Respondents suggested actuaries need to ensure data is used in a domain-appropriate way.
- Use of data and algorithms - Respondents suggested actuaries need to ensure data limitations are made clear; understand the origin of data; understand how to correctly use and validate results obtained from machine learning.
SECTION 3: THE FUTURE ROLE OF THE ACTUARY
”Tools and technologies can help us to focus on areas other than those of just turning the handle when calculating numbers. I think back in the day, building a model was just to put in random data and see what would come out, but if we can move a little bit further from that and start interpreting data in a different way, and be able to project forward and understand what could happen - it’s forward looking instead of backwards looking.” Survey Respondent
Our survey respondents suggested actuaries could prepare themselves for future changes impacting their roles by learning new skills, proactively collaborating with other professionals, and venturing into new areas.
The survey explores views on the roles that actuaries are likely to play in the years to come and the actions actuaries could take to remain relevant and continue to provide value within and outside of the insurance industry.
We asked respondents ‘what roles actuaries are likely to have in the years to come.’
Traditional roles are likely to incorporate elements of data science, in respect of:
- Risk management
- Big data analysis
- Product design
- Business Strategy
- Data and analytics, coupled with business intelligence
- Experience analysis
Pricing Non-traditional roles are likely to start to include actuaries, through:
- Insurtech product development and leadership
- Design and development of technology solutions
- Expansion into other areas including sustainability and climate change analysis
- Design and development of efficiencies within operations
Actuaries looking to prepare themselves for future changes impacting their roles can do so by learning new skills, pro-actively collaborating with other professionals, and venturing into new areas. By embracing new skills, technologies, and collaborative opportunities, actuaries are uniquely positioned to help insurers and non-insurers anticipate and mitigate future risks and challenges.
Our respondents rely more heavily on self-driven learning than on industry body resources or employer-driven learning to stay up to date with skills required for their role.
In response to the question ‘how can actuaries prepare themselves for future changes impacting their roles,’ respondents noted:
- Never stop learning; continue to improve existing skills and learn new ones
- Embrace data science training
- Be open minded about considering new roles in industries that actuaries wouldn’t typically consider
- Stay on top of ethical challenges and best practices, for example understanding the actuary’s ethical responsibilities with regards to data, model development, and deployment
- Adopt a more agile approach to working
- Constantly reflect on the impact of current trends on your own training journey
SECTION 4: THE IMPACT OF COVID-19
“[COVID-19 means] every aspect of the business model will be questioned going forward. Rather than the slow moves the industry has been making, we are forced to decide which parts of the current operating model will or won’t be part of the new norm.” Survey Respondent
The impact of COVID-19 on organisations will likely result in an increased focus on the adoption of new technologies. Investing in the development of digital capabilities will become essential in all industries, particularly in those that have historically been slow and resistant to change, like insurance.
A selection of survey findings related to ‘The Impact of COVID-19’ on organisations and actuaries’:
- Over 75 percent of survey respondents believe COVID-19 will have a lasting impact on the insurance industry, including a review of policy terms and conditions, virtual operating models, or the automation of manual processes.
-Over 88 percent of respondents agree or strongly agree that, due to COVID-19, their organisation’s reliance on and use of technology will increase in the future.
While over 85 percent of survey respondents feel their organisation was well prepared from a software and technology standpoint to retain business continuity during COVID-19, many respondents commented that the impact of COVID-19 on their organisation will likely result in an increased focus on:
1. Adoption of new technologies
2. Cost management and expense control
3. New business growth
Exploring the evolution of the role of the actuary has implications that extend beyond the role itself. Actuarial training provides actuaries with a unique skill set with regards to assessing risk. This includes how to prepare for it, manage it, quantify it, and how to ensure companies, communities, and individuals are protected for the many different forms it can take. Understanding how changes to new technologies, data science, shifting market factors, the environment, and the health of the broader global community influence the actuaries’ role help us better understand the impact actuaries have on risk preparedness across industries.
But there is another factor to consider as well. In addition to painting a picture of what the modern actuary looks like and how the role of the actuary is likely to evolve in the years to come, our study highlights the need to answer the open question:
In what way will regulation, professional bodies, and the insurance industry as a whole impact the actuarial role and enable the actuary to evolve and deliver more value going forward?
Through progressive efforts in things like the development and interpretation of regulation, technology, and leadership opportunities, actuaries can continue to deliver value in innovative ways.
We will explore this in greater depth in our detailed ‘The Evolving Role of the Actuary’ study.
We hope you enjoyed these preliminary findings. We’re looking forward to sharing the complete study with you soon, which will provide you with robust survey results, in-depth interviews with actuaries from around the world, as well as insights and recommendations for how the industry can support actuaries and the value they provide into the future.
Some of the themes highlighted in this summary were also explored in a virtual panel discussion on the evolving role of the actuary. The on-demand version of this webinar can be accessed here.
Findings from the full study can be downloaded here.