The Evolution of the Actuarial Profession

 Progress is impossible without change”- George Bernard Shaw

The actuarial profession hasn’t always been the same. However, throughout history,​ actuaries have been involved in a variety of work not restricted to the insurance sector. Actuaries have worked in insurance, banking, finance, enterprise risk management and even casinos. The profession has gone through revolutionary changes since the 1980s owing to the union of actuarial models with financial theory and the advent of the Internet and high-speed computers.

 

The Roots of Modern Actuarial Science-

 The insurance market in London existed by 1500, mainly for marine insurance. While the earliest life insurance policy was issued in 1583, there is no well known documentation of any actuarial table used during that period. Actuarial science was formally introduced to the world in 1693 when Edmond Halley published the First Life Table and described the method of using such a table to calculate the price of a life annuity.

Edmond Halley’s Life Table of the population of the city of Breslau (1693)

 

At its onset, one of the key features of actuarial science was to appropriately price insurance products and to help insurance companies decide on the capital reserves they should hold to cover potential claims. Insurance companies which did not implement this scientific method found themselves short of money when they needed it. Therefore, the key factor that hiked the demand of actuaries was their understanding of uncertainty and the complex methodology they used to tackle this uncertainty.

In order to support actuaries and protect public interest, actuarial organizations were formed around the world for laying down guidelines and ethical standards, The Institute of Actuaries, formed in London on 8th​ ​ July 1848, was the first actuarial professional organization in the world. It merged with the Faculty of Actuaries in 2010 to form The Institute and Faculty of Actuaries (IFoA).

The Digital Age 

Imagine solving complex mathematical calculations involving enumeration of complicated insurance premiums without the help of a computer or a calculator. That’s what it was like for actuaries before the digital age. The modelling and forecasting ability of an actuary improved manifold once computers were introduced.  This facilitated the introduction of complex financial products and paved a way for complex modelling procedures. During this period, Actuaries also started to use stochastic models instead of deterministic models to predict risks. In the late 1980s and early 1990s, efforts were made to include financial theory and stochastic models* into established actuarial models.

*Stochastic models differ from deterministic models in the sense that deterministic models do not include the sense of randomness. With same initial conditions, a deterministic model will always give the same results, while a stochastic model is likely to always give different results

 

The Modern Actuary 

The role of an actuary has evolved from that of a professional who predicts, quantifies and mitigates risk to that of a business strategist who combines all these specialized skills to make important business decisions. Many of the cumbersome calculations that​ had to be done manually are now being done by computers. Moreover, Artificial Intelligence has entered the domain, automating many of the things an actuary does.

This must not be looked at with eyes of distrust. As the President of the IFoA, Tan Suee Chieh, has said, it is better to be an agent of change instead of being a recipient of change.

The advent of AI in actuarial science divulged new domains. Actuaries have diversified from being SMEs to comprehensive business professionals with expert understanding of data science and machine learning. As a result, knowledge from other disciplines and industries can now be used in actuarial analyses.

The modern actuary focuses on the real-world impact of a decision by finding practical and innovative solutions to the emerging business needs. He or she is up to date on the latest changes in the industry and the advancements in technology and data so that they can continue to deliver innovative and effective business solutions.

The Way Forward

·​ The COVID-19 pandemic has taught us that uncertainties can always take place,​ and when they do, we should be prepared for them.

·​ The future will have humans and machines working together side-by-side by the​ means of AI, Automation, Machine Learning and Data Science.

All these will lead to the actuaries having a more significant and strategic role in their organizations, embracing issues such as business strategy and data science while working alongside their respective SMEs. They are poised to serve as the organization’s bridge between technology and strategy.

The need of the hour is for actuaries to have a deeper understanding of business and augment it with their fluency with numbers. In addition, expanding horizons into various spheres such as products and finance along with applying traditional skills of risk management and compliance to solve real world business decisions will give the required propulsion to the new-world actuaries. 

References –

https://www.directknowledge.com/actuarial-science-history/ https://www.actuaries.org.uk/system/files/documents/pdf/seminar_2007_Lewin.pdf

https://www2.deloitte.com/global/en/pages/human-capital/articles/rise-of-exponential-act uary.html#:~:text=The%20Exponential%20ActuaryTM%20will,data%20steward%20and %20model%20builder.&text=Blending%20technical%20expertise%20and%20business, highest%20levels%20of%20the%20company.​

Theory and Practice of Insurance by J. François Outreville

http://www.scorgloballifeamericas.com/en-us/knowledgecenter/changing-actuarial-rolessean-hayward https://www.thebusinessofrisk.com/?p=1800#sthash.e4rcWTlE.80BHJOi8.dpbs https://www.soa.org/about/historical-background/ https://www.linkedin.com/pulse/modern-actuary-tim-fleming/