1 AUGUST 2012 | DEEPAK JOBANPUTRA
How do you describe what it is an actuary does? Over the years I have heard many differing and diverse answers to this seemingly simple question. It often challenges even the most experienced of actuaries. A close friend of mine says that if you ask an actuary any question the response will start with “it depends” followed by a whole host of assumptions and caveats. A little unfair you may remark, although some of us are proud of this and view it as a strength.
Answers can range from I work in insurance or pensions or the infamous ‘making financial sense of the future’ line right the way through to modelling, allowing this latter response to be conveniently misinterpreted as a harmless ruse to appear to be a ‘fashionista’. My personal answer is often ‘we make the world a better place’ followed by an explanation of how. I’d love to hear how you answer the question.
On a serious note, why is it so difficult to give a consistent, confident explanation of the role of an actuary? Part of the reason is that the role of an actuary is complex and in modern times has developed to become diverse. There is, however, opportunity and merit in promoting the role actuaries play in developing society.
We have a huge responsibility in providing solutions to the changing world and are uniquely placed to do so. Few professions combine the range of areas that we do, covering fields such as pensions provision, insuring risks from healthcare, protecting individuals and businesses across the globe and allowing growth and development.
Can you imagine the world without a developed insurance market? It would inhibit a lot of the risk-taking that has led to the innovation we have today. So, let us promote the good work we do and extend our reach, growing our footprint geographically and across industries.
The Actuary 2012 member’s survey will soon appear online, and we will be eliciting your views. Simply visit www.theactuary.com and complete the questionnaire. I would urge you to take part as this provides us with tremendous feedback that will help to develop and drive the changes that you would like to see to see within The Actuary.
Deepak Jobanputra firstname.lastname@example.org Comments
When people ask me, I tell them: We are similar to accountants, do professional exams to qualify etc. Accountants in their job add and subtract. As actuaries we also have to multiply and divide. 20/08/2012
Qamar Shazad, Actuarial Student
Epic article. Very true. Qamar, lank funny man! Definitely going to use that one. 20/08/2012
James Brusatori, Actuarial Consultant, Sanlam
We've also asked this question in The Actuary group on Linked In
- why not join the debate there too? 20/08/2012
The Actuary team
You pose the age-old question. In fact, you conflate two questions: (1) how to describe the role of actuaries in general, ie a generic description applicable to all (practising) actuaries and (2) how to describe the role of an individual actuary.
The second of these should be much easier for most actuaries, for example, “I calculate premium rates for the insurance company I work for” or “I advise employers on the financial management of their pension schemes.” But there will be exceptions: some individual actuaries have jobs that are difficult to describe.
It is the generic description which flummoxes us all, probably because there isn’t really a common theme to what actuaries do, only a common theme to what they know. But we aren’t unique in that respect. Try describing what accountants do. I don’t know what proportion of them work on the compilation of accounts (pure accounting). Of those whom I know, relatively few focus on that aspect of the work. They work in all sorts of areas in which an understanding of accounting is relevant, but not the end output.
Back in 2004, the Institute and Faculty needed to compose an answer to the (generic) question in order to frame part of its response to the Morris Review (for the benefit of those who joined the profession more recently, Morris was an independent review of the working of the actuarial profession commission by the Treasury following events at Equitable Life).
The response was as follows. And, no, it’s not short and pithy. It’s not an answer you’d want to give to someone who has asked, casually, “Actuary? What’s that?” I repeat it here, because it helps to explain why a simple generic description is so difficult to craft.
‘Many professions can be characterised at two levels: a technical skill and the use of that skill in a broader context. So, for example, the technical skill of accountants is the compilation and checking of a set of accounts. But the real value that accountants add is to be found in the financial management of a business, which is rather broader and more complex than the “score keeping” skills.
Likewise, the technical skill of a lawyer is knowledge of the law. The real value lies, however, in a variety of ways in which that knowledge is combined with another skill to great effect, for example in trial advocacy.
So, whilst the technical skill of an actuary lies in the construction of financial models, the talent lies in the ability to combine the technical skill with an in-depth training in problem-solving to manage long-term financial vehicles. [Although actuaries and accountants have “finance” in common, the similarities end there: the actuarial field is typically narrower than the range of businesses in which accountants operate, but very few accountants are comfortable operating models over the time-frames that actuaries work with.]
The skills that actuaries use as inputs to a problem include:
- experience in distilling a problem down to manageable proportions (for example, using large quantities of data, while appreciating the limitations of that data)
- judgment in determining appropriate assumptions for projecting future scenarios
- analysis of trade-offs between risk and reward, or between short and long term.
The outputs from an actuary’s work include:
- a strategy for accepting (certain) risks, and managing them, rather than avoiding them
- the fair and appropriate exercise of discretion between different groups, for example distributing surplus equitably between different cohorts of with-profit policyholders or different generations of members in a pension scheme.’
If I had to answer the question in no more than 10 words, I would draw on the penultimate bullet point above and offer:
“Actuaries identify how to manage risks, rather than avoiding them.”
I know, I know. It’s not very good!
21/08/2012 Simon Carne – Business Consulting
My answer to the question is that an actuary is a financial scientist. 23/08/2012
Steve Mills, Associate, Financial Services Authority
My generation of actuaries have done untold harm by using the buffer inherent in with profits business and triennial reviews on DB schemes to duck decisions. They were never wrong because they never expressed a view. We made financial sense of the past and sat on the fence regarding the future. New actuaries should try to analyse the past to make informed predictions of likely future outcomes.
Icki Iqbal, Retired