The industries below rely on the analytical and predictive power of Actuarial Science. You will typically find actuaries in key executive positions in these industries, where they run the critical functions of major businesses:
Traditional Actuarial Science Industries
Life insurance is similar to home or car insurance (general insurance): your life is covered by a policy for a fixed term. If you die whilst the policy is still in force, the insurance company pays out a lump sum of an amount agreed in the policy. If you live beyond the end of the policy term, the policy ends – there is no value left over. A life insurance policy only has value if there is a claim.
Life assurance is slightly different. It includes an investment provision, so if you live beyond the agreed term of your life insurance cover, the policy still pays out a value related to the conditions of your policy and the insurance company’s investment performance over the period that you have been paying premiums. Actuarial science is critically important at arriving at a fair and sustainable premium per individual.
The purpose of general insurance is to cover yourself against the loss of material possessions, like a house and its contents, to accidents like fire, theft and natural disasters. Essentially, the insurance policy holder pays an insurance company a monthly or annual premium that covers certain agreed-upon valuables. In return, the insurance company covers the risk of owning those valuables, paying to repair or replace the policyholder’s possessions in the case of damage.
As with life insurance, part of the actuary’s job is to calculate the premium that any individual should pay to ensure that the contents of the policy are covered to a fair value without endangering the sustainability of the business: a challenging job that has been the territory of actuarial science since long-term insurance began.
Like life and general insurance, health insurance is provided in the form of policy protection in exchange for the payment of a monthly or annual premium. Just as with these types of insurance, the individual selects a plan based on the type and amount of cover they need. That cover is to help protect the individual against high medical costs in the event of an accident or dreaded disease. Most medical insurance also covers much smaller events like doctor’s visits, screenings, medication and check ups.
Part of the actuary’s job is to factor in the discounts that the health insurance company negotiates with health professionals and organisations before arriving at a fair premium that the client is willing to pay. Briefly considering how different and unique individuals are, especially when it comes to health, gives you some idea of the complexity of this work.
A pension scheme is a method of investing for retirement. In most cases a company and an employee contribute towards a fund that is put into a long term investment. Upon retiring or leaving the company, the employee cashes in that pension and receives a payout related to the amount he/she and the employer have contributed to the fund over time.
Government pensions operate on a similar basis, with the individual’s contribution being the taxes that they have paid over their working life.
As with the insurance industry, the actuary’s involvement in the pensions sector is a regulatory requirement. Insurance companies and pension schemes must both provide regular actuarial reports to show their on-going financial health.
The chief aim of the investment industry is to make money for its investors: individuals, companies, pension schemes, corporations, charities and more that are looking to make financial gains by saving money over the long term. Essentially, the investment industry connects private and organisational investors with companies and governments who need capital. In return, the investor should earn interest and returns on the capital they invest. It is, in principle, a win-win arrangement. Unlike what is portrayed in the media, investment is not exclusively an act of buying stocks and shares.
Anyone who has a pension, a retirement annuity or life assurance policy is effectively investing. But, because of the volatility of markets over time, Actuarial Science skills of risk assessment and risk management are critical in maintaining healthy investment portfolios.
Contemporary Actuarial Science Industries
Given an actuary’s deep technical skill set and unrivalled abilities to solve complex business problems and manage enterprise risk they have moved quickly into many other industries and areas over the last few decades. More and more you will see actuaries entering these industries, taking up senior executive positions and introducing innovation and analytics into them.
Traditionally, banking was quite easily described as the business activity of looking after an individual or businesses’ money, then lending that money out for a profit. Over time, though, banking activities have become more diverse, including the provision of loans, like mortgages, and various services as a financial intermediary. ATMs, money transfers, debit and credit cards, even insurance – these are all part of the modern bank’s product portfolio.
The telecommunications industry has grown exponentially over recent decades. Essentially dealing in the technological connections between individuals and organisations, such companies have becoming critical to the efficiency of modern life. With the rapidly changing face of communication and the new rise of data interests above the traditional telephone call, successful businesses in this space need to be responsive and agile, dealing effectively in a space of high competition. Intelligent pricing of products and services is critical to such success, which is nowadays the role of the business actuary.
The pharmaceutical industry is one of the biggest in the world, internationally worth $300-$400 billion per year. The core business of this sector is the production and sale of drugs and pharmaceuticals as medication. Research and development costs are typically high, with the result that products generally sell for prices significantly in excess of production and distribution costs. This has raised increasing criticism of the industry and its pricing models, making it a tricky space for the product actuary.
Strategy consulting has many of the ‘dream job’ qualities of Actuarial Science, and there are many overlaps of in the practice of each, which is one of the reasons that many actuaries spend at least some part of the career in consulting. Business strategy consulting is usually conducted at a high level within the organisation, assisting CEOs and their executive colleagues in keeping their businesses profitable and competitive in increasingly challenging markets. In this environment decisive thinking is critical, which is why the actuary’s analytical skills and cool decision-making are so valuable.
Intelligent data analysis is one of the core skills taught in Actuarial Science, and is becoming increasingly sought after in a business world saturated with data. Being able to analyse large data banks to uncover patterns, trends, strengths and weaknesses is a rare ability highly prized by modern business executives. It is also highly relevant outside the office. The field of data science relates to may areas of modern life, and is growing where the paths of statistics, social science, design, computer science and information technology intersect. It is in this area that one will find some of the most visionary and broad-minded actuaries working today.