How actuaries shape insurance strategy

As the insurance industry rapidly modernises, actuaries are becoming integral in shaping and executing strategic growth plans. With a focus on enhancing risk management, leveraging advanced technologies like AI, and optimising decision-making processes, actuaries are driving innovation across the landscape. Their expertise is crucial in adapting to industry changes and achieving long-term business objectives, underscoring their pivotal role in the future of insurance strategy.

FinTech Global‘s Harry Slade sat down with Earnix‘s Director of Strategy, Aaron Wright, FCAS, CPCU, to open up on the shifting role of actuaries, and their importance in driving an insurer’s strategy.

According to the Institute and Faculty of Actuaries, an actuary is a highly skilled professional who specialises in assessing and managing financial risks using mathematical and statistical methods.

By evaluating the probability and potential financial impact of future events, actuaries help businesses and governments make informed decisions and plan effectively for the future.

Their expertise in risk management is crucial for developing strategies that address uncertainties and optimise outcomes.

Earnix’s Wright explained the impact that actuarial perspective is making on Earnix’s operations on a day-to-day basis.

“Actuaries play a central role in shaping our company’s overall strategic direction. My experience as an actuary and an insurance executive gives me the opportunity to bring key business perspectives into our strategic discussions,” stated Wright. “This perspective plays a key role both in setting our strategic direction and prioritising our day-to-day work. Keeping an eye on the future through the lens of our customers continues to pay dividends,” he continued.

Inside the actuarial skillset

Possessing a unique blend of mathematical precision, analytical thinking, and communication skills, actuaries use these abilities to model and forecast various scenarios, which informs high-level strategic decisions and contributes to effective risk management.

Their work impacts legislation, business practices, and individual lives by providing insights that drive policy and operational choices.

When commenting on the key skills an actuary can hold, Wright remarked, “I believe that the most powerful skills an actuary can develop are the ability to effectively communicate complex topics and learning agility. These two skills allow actuaries to utilise their analytical training in new and innovative environments while imparting the knowledge they gain for the benefit of the company.”

However, there is a noticeable lag in advanced skills such as data analytics, with only a baseline level of proficiency reported. PWC claims that, 43% of businesses which respondents to their survey expressed a strong interest in developing competencies in advanced data analytics, revealing a significant gap between current skills and emerging needs in their actuaries.

As the actuarial profession evolves to encompass new and non-traditional areas, there has been an increasing demand for more specialised skills. Key areas of demand include data scientists (85%), business analysts (67%), data engineers (66%), and actuarial platform engineers (63%).

To address these evolving needs, the importance of upskilling has become paramount. But other companies are recruiting skilled professionals from outside the actuarial realm to meet the need for highly-skilled professionals.

This comes as the importance of actuaries in an insurers operation reach an all-time high.

Bringing true business value

The role of the chief actuary is evolving massively in the modern world, long gone are the days where they were simply number-crunchers, instead they are viewed as a jack-of-all trades and often tasked, in the most-forward-thinking of firms, with charting the strategic direction of the company and bringing true business value.

According to Deloitte, a forward-thinking chief actuary understands the necessity of modernising their organisation to address shifting stakeholder expectations while maintaining cost control.

This significant transformation should be approached with a comprehensive, enterprise-wide perspective.

It involves examining the actuarial function’s operations, delivery methods, location of work, and governance structures to develop an advanced actuarial operating mode

Earnix has recently been grappling with the idea of integrating AI and data science into their actuarial offerings.

These tools are packed with potential and, in many ways, provide remarkable value. However, they may not be the one-size-fits-all solution that some in the sector might suggest.

This is where actuarial expertise truly shines, helping companies avoid chasing trends and fads just because they happen to be popular at the moment, to the detriment of the consumer.

Wright explained his own experience in this domain, stating, “There has been a lot of hype around AI and data science. This is a great way to bring attention to these powerful tools, but it can also be a distraction. Actuarial expertise helps separate the hype from reality to bring true business value. At Earnix, we continue to prioritise our customer’s business value when incorporating AI into our product. This is greatly enhanced by a deep understanding of how our customers operate.”

Challenges with collaboration

Fostering collaboration between actuaries and technology teams can be a complex endeavour, often fraught with challenges rooted in the contrasting nature of their work and expertise.

Actuaries, who are trained in risk assessment, statistical modelling, and regulatory compliance, tend to approach problems with a cautious, methodical mindset.

Their work demands precision and adherence to established methodologies, as even small errors can have significant financial repercussions.

In contrast, technology teams often embrace more agile, iterative approaches. Their focus is on innovation, efficiency, and scalability, which sometimes leads to a clash in expectations when the two groups are required to collaborate on projects.

One of the primary hurdles in fostering this collaboration is cultural. Actuaries typically prioritise accuracy and a deep understanding of risk, while tech teams may value speed and flexibility.

This difference in approach can create tension when both groups are working toward the same goal but have divergent ideas on how to get there.

Moreover, the potential issues don’t just stop there, Wright explained, “There are often communication barriers between actuaries and technology teams.  I have experienced this within an insurance carrier and at an InsurTech. I would categorise these challenges into two basic buckets:

“Technical Jargon: Both actuaries and technology teams have their own jargon that is standard. This jargon may not be familiar and could lead to confusion and misunderstandings.

“Background and Perspectives: There are some concepts that don’t need to be elaborated on when you are communicating within a group of people with a similar background. For example, when discussing loss development, an actuary may not focus on the method of loss aggregation since it would be commonly understood, but this detail would be very important when setting requirements for their technology team,” he explained.

To maximise your resources, and get the best out of your insurance strategy, managing the two departments and creating a harmonious environment is absolutely vital.

To achieve this, cultivating a harmonious relationship is paramount, this can be achieved by “building a good working relationship with your technology partners. This kind of transparent and communicative relationship helps foster a culture where asking questions and requesting feedback is expected and appreciated,” according to Wright. “Additionally, it helps you establish common jargon and know when to just use plain language instead,” he remarked.

The dawn of the actuarial revolution

As actuaries emerge as strategic leaders, driving innovation through advanced risk management and integration of AI technologies. Their ability to balance traditional actuarial expertise with modern business needs has become essential in shaping a company’s direction.

By enhancing collaboration between actuarial and tech teams and fostering clear communication, companies can optimise their resources and achieve long-term business objectives.

As they grow in significance, companies will soon be forced to go all-in on an actuarial approach as the actuarial revolution dawns.

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