What is an Actuary

All actuaries often get asked the same question – “What is an actuary?” It is a straightforward question without a straightforward answer.

People generally know that actuaries work in the insurance industry but what is it that an actuary really does? If you have a life insurance policy, you’ll have to pay premiums regularly to your insurance company in exchange for the financial protection that the company is providing you. Have you ever wondered who calculates the amount of premium you have to pay?

Actuaries build and use mathematical models based on statistical data to calculate the appropriate amount of premiums to charge policyholders. This will require projections of how events will unfold in the future. In calculating the right amount of premiums, the actuary will need to project how large potential claims will be and when they will occur. Such projections are incorporated into the models to calculate the premium required. At the same time, judgement, business acumen and experience are required to understand and logically interpret the results of the model before finally coming up with a solution to the problem. Actuarial science is a combination of science and art!

Calculation of premiums is only one of the many contributions of actuaries to insurance companies. In addition to pricing decisions, actuaries are involved in designing insurance products, formulating investment strategies, determining reserves to be set up to meet future claims and recommending distribution of profits to shareholders after taking into account the insurance company’s future obligation to policyholders. Actuaries also estimate the amount of future claims by analysing past data or experience to assign probabilities to events such as death, sickness, disability, loss of property or even loss of business profits. Actuaries provide solutions to today’s insurance and financial problems that properly take into account the financial impact of future events. With the actuaries’ expert knowledge in financial matters, they are often key advisors to the Board of Directors.

An actuary’s job is not just boring desk-bound number crunching. Actuaries are faced with challenges of the ever-changing economic environment in which they have to constantly update their techniques of assessment and calculation. It is an intellectual challenge to analyse current trends and predict the future as we live in a world where the unexpected (e.g. the SARS outbreak, September 11 etc.) can happen.

Due to the demand for actuarial technical skills and knowledge, there are vast career options and opportunities for an actuary. Traditionally, actuaries worked only in the insurance industry. However, with the growing acknowledgement and recognition of actuarial skills today across the various financial sectors, the potential employment opportunities of an actuary have expanded to encompass banks, investment companies, security and commodity broker firms, regulators and even lecturing in the education sector. With such demand, there is an ever-increasing need for actuaries all around the world.

In Malaysia, most actuaries are still working in the traditional life and non-life insurance industry. However, based on trends worldwide and the rapid growth of the Malaysian financial industry, it is expected that more and more actuaries will ventured into the non-traditional areas as mentioned above.

For an actuary, being good in mathematics is a must. However, actuaries must also have good verbal and written communication skills, strong computer skills, time-management skills, as well as possess good judgement, imagination and clear logical thinking. They also should have a knack for problem-solving, be self-confident, and possess the ability to work under pressure. Sharpness, creativity, practicality coupled with good business sense are also some of the key personal attributes. An actuary who has devised a brilliant solution to complex problem must be able to explain his solution to non-actuaries!

By and large, the rewards are good. It is no secret that an actuary is one of the higher paid jobs. Of course, salaries can vary according to company policy and market forces of supply and demand. Actuaries have excellent promotion opportunities as they gain more experience and advancement to higher management levels will usually come rapidly with good job performance.

Summarising it all, don’t even think about being an actuary if one, you hate numbers and two, you don’t enjoy problem-solving! En route to full qualification, there are many hurdles to overcome (see section on “Route to Becoming an Actuary”). But for those who persevere and qualify, the rewards are well worth the effort and self-satisfaction plenty.

References
Ravinderen, K.E., “A day in the life of risky business”, The Malay Mail, pg. 15, November 12, 2001 .
Chen, Mary, “What does an actuary actually do?”, Sunday Mail, pg. 47, April 18, 2004 .