By KC Cho, Partner
Tolstoy said: “The sole meaning of life is to serve humanity.” But if he was to be a college counselor today, he probably wouldn’t suggest a Humanities major. Math and sciences are where the money’s at today. Starting salaries for Engineering (Petroleum, Nuclear, Chemical and Electrical) majors, for example, far exceed those of Humanities majors.
Once the often overlooked and underrated, Actuarial Science majors currently enjoy one of the most secure white-collared and well-paying jobs in America.
So, what is an Actuary?
You can ask that question to a thousand Actuaries, and you might get a thousand different answers. Simply put, Actuaries manage risk (mostly insurance) in a highly quantitative manner. In the day and life of an Actuary, you may find him or her doing the following:
- Pricing Universal Life products or developing hedging strategies for variable annuities;
- Calculating pension benefits for retirees;
- Assessing the financial losses of a natural catastrophe (hurricanes, hail, earthquakes, etc.);
- Partnering with business unit CROs to deliver process improvements for strengthening risk control environments while simultaneously generating efficiency gains;
- Implementing individual and small group pricing requirements of the Affordable Care Act;
- Performing rate-level indications and in-depth rating plan analyses for auto insurance; or
- Conducting loss cost analysis for large commercial risks in Workers’ Compensation, Auto Liability, General Liability and Medical Malpractice.
So, can anyone be an Actuary?
Actuaries typically major in Actuarial Science, Mathematics, Statistics or Economics. The true distinction is the sacrifice, dedication, commitment and superior mathematical skill set to complete a series of rigorous examinations offered by The Society of Actuaries (SOA) and the Casualty Actuarial Society (CAS). The typical “travel time” to attaining their respective designation(s) is roughly six to eight years. Typically, most employers will offer actuarial exam support, both financially and by providing paid study time.
So, why the ever-growing demand for actuarial talent?
It was once believed that Actuaries are needed specifically in bad times or in good. Today, Actuaries are needed constantly to manage the rapidly changing risk landscape—the changes keep coming. From a regulatory perspective, there was Sarbanes-Oxley and Frank-Dodd; now the ACA/Healthcare Reform and Solvency II will keep actuaries gainfully employed long into the future here in the U.S.
Another challenge the insurance world faces are the extreme shifts in demographics. We aren’t just talking about the impact of mortality tables on the aging population of baby boomers. In converse, the profession’s sustainability and growth will depend heavily on its ability to attract and retain Millennials, who are expected to comprise up to 75% of the workforce in 10 years.
Many will argue that there are other key drivers that will have a greater impact on the economy, employment and the insurance industry. No one can deny, however, the exponential impact of the advancement of technology on everything we touch and cannot touch. In the insurance world, one cannot ignore the insurmountable amount of data being captured and collected. This shift has led to the biggest disruption and explosion: big data and analytics, which also includes modeling (predictive, catastrophe and economic capital). Everyone is trying to make sense of the data, and the ability to do it more swiftly, comprehensively and accurately will provide an enormous competitive edge. Once there were two unavoidable things in life: death and taxes. Now you can add data to that list.
In summary, consultants love to talk about modernization, industrialization and transformational change while taking a holistic, enterprise and interdisciplinary approach to solving problems and challenges. Mostly everyone is doing that—already in some form, from GEICO to Google. Science without humanities lacks imagination, thus thwarting innovation. Diversity, including that of thought, is critical and necessary.
So as we look up from our smartphones and into the future through the windshield of our driverless car, which is insured by an insurance company that probably uses telematics, we ask ourselves: “What role will Actuaries play in the rapidly changing world of risk in the next decade?” They may not necessarily be leading the charge or even doing the heavy lifting, but they serve as the backbone of change. After all, who better to serve as the connector of ideas, people and analytics? He or she will probably be a Millennial, and most likely a double major who knows that Leo is more than just a sign.