Insurance has perpetually existed at the intersection of enduring human roles and constantly evolving technology. This dynamic interplay continually reshapes and challenges traditional job roles. Among these roles, none may be as central to the entire insurance industry as that of the actuary. By comprehending how Artificial Intelligence (AI) will redefine the actuarial function, insurers can gain significant insights into the future landscape of employment within the sector.
The Actuary Job
An actuary is a professional in the business world specializing in the quantification and control of risk and uncertainty. Actuaries employ statistical modeling to evaluate risks. However, unlike roles involving statistical modeling for financial risk assessment, the actuarial profession is not accessible to anyone possessing proficiency in mathematics, statistics, and computer skills. Instead, it is a highly regarded profession that demands stringent professional certifications.
- It demands a substantial investment in education. Completing all the required exams typically spans a period of 6 to 10 years. However, one can initiate an actuarial career by successfully passing the initial two exams and subsequently pursuing additional exams while gaining practical experience as an actuarial assistant.
- The compensation is lucrative. Experienced fellows can command annual incomes ranging from $150,000 to $250,000, with numerous actuaries earning even higher salaries.
- There are not many actuaries. While estimates differ, there are approximately 10,000 actuaries in the United States, which is comparatively low when compared to other professions.
AI has Arrived
Glance through your newsfeed, and a notable fact emerges: AI has made its presence felt in the insurance industry. Whether it’s the utilization of natural-language processing and chatbots for claims settlement or the integration of big data and algorithms in the actuarial back-office, AI appears to be impacting nearly every facet of the long-standing insurance sector. AI is centered on the creation of computer programs capable of self-improvement and adaptation in response to new data exposure.
A few key benefits while adapting AI based algorithms:
- Expense savings: When fewer actuaries are needed, processes become more efficient, allowing underwriters to easily expand their portfolios. This increased efficiency results in significant cost savings. The funds that were previously allocated for acquisition expenses, such as actuarial salaries used for risk assessment, can then be redirected towards enhancing claims staff and resources.
- Time speed of analysis: When the algorithm handles the submission information, it can enhance the speed of transaction processing and analysis, ultimately leading to quicker turnaround times for underwriters in terms of coverage and risk assessment.
- Scale: The characteristics of AI algorithms enable insurers and reinsurers to achieve greater scalability and expansion. This increased scale offers a range of advantages, including cost reduction and improved expense ratios.
Data is the Game-Changer
Below are the main domains for Actuaries to model:
- Property & Casualty
- Life Insurance
- Health Insurance
Diverse as they may be, the realms of insurance share a common thread: their dependency on data. It is within this sphere of data that we witness the impending wave of disruption. In the insurance landscape, a groundbreaking shift is underway, propelled by the influx of data from emerging sources. Telematics, for instance, is revolutionizing property and motor insurance within the P&C domain, while wearable technologies are making inroads into the Life and Health sector.
Unlike static models, which form the foundation of many organizational processes, the real world operates on dynamic, real-time models. In reality, dynamic forces constantly shape events, rendering static models less effective in navigating the intricacies of our ever-evolving world. This transformation underscores the significance of adapting organizational processes to align with the dynamic nature of real-world data, as it paves the way for innovation and progress within the insurance industry.
Will AI Replace or Augment the Actuarial Sector?
The actuarial sector is poised for significant AI-driven transformation, primarily due to its historical focus on model construction—an area that aligns closely with the capabilities of machine learning, a subset of AI. Machine learning excels in automating, iterating, and optimizing the very function of model-building, making it particularly well-suited for revolutionizing actuarial practices.
In the future, the success stories in the insurance industry will involve combining the outputs of AI tools with traditional actuarial judgment, incorporating assumptions, and implementing necessary checks and balances. This collaboration between actuaries and machines will result in superior pricing and product offerings compared to what either could achieve independently. It will enable insurers to adapt and enhance their existing portfolios while taking advantage of emerging opportunities. Having access to more data and tools will be advantageous for actuaries as they aim to pinpoint not just predictive risk factors but the most influential ones, giving them a competitive edge in offering the best prices and products.
Consider auto telematics as an example, where risk assessment can be accomplished through a variety of valid models, each addressing different aspects such as braking behavior and phone usage. Each data source naturally comes with its unique acquisition costs and regulatory considerations, all of which need careful evaluation. In the realm of personal lines, regulators are increasingly focused on preventing algorithmic discrimination. Therefore, actuaries of the future must not only possess a deep understanding of these nuances but also excel in communicating how various risk factors influence customer ratings effectively.
Are You Ready for the Actuary of the Future?
Significant stakes are associated with insurance companies’ investments in AI, and actuaries will play a pivotal role in shaping the underlying business cases. In the era where data is likened to the new oil, actuaries assume the role of primary refiners. They are responsible for selecting from a vast reservoir of ‘raw’ data and employing an array of data processing tools to craft a competitive edge. What one person deems a valuable resource can serve another in entirely different ways, all while striving to achieve cost-efficiency.