The changing landscape of actuarial practice
THE actuarial practice has not been a commonly understood field to the general population around the world, with many myths around it.
However, in South Africa and some African countries like Zimbabwe, Ghana, Kenya, and Nigeria, the actuarial profession has gained publicity and momentum over the years, with many actuarieshaving qualified through the system over the years, and making a real difference to business and society.
The pace to qualification has also accelerated in recent years, so has the role of actuaries in business and society.
The actuarial practice aims to use technical and business skills learned in Actuarial Statistics, Actuarial Mathematics, and Business subjects, and combining them with specialised business fields of insurance, pensions, investments, healthcare, enterprise risk management, and banking among others, alongside modeling tools such as data analytics, artificial intelligence and machine learning to solve real-world problems through the application of judgment.
Decades ago, actuarial calculations were manual, then came computers.
With the increase in computer power and digital technology, there came fields like data analytics, artificial intelligence, and machine learning.
Through all these phases of the industrial revolution and business transformation, some would have thought that actuarial practice is going to become irrelevant.
However, this is far from the truth. The actuarial profession has constantly adapted to remain relevant in new environments.
This remains the case and will continue for the foreseeable future.
The business landscape will change, but the actuarial profession should and will remain relevant as we constantly reinvent ourselves.
Actuaries should, therefore, remain proactive in adapting to emerging ways of doing things, new fields of actuarial practice, and new business dynamics, whilst keeping the core of actuarial practice intact.
To illustrate the expanding field of actuarial practice, let uslook at opportunities in specialised fields in the market, especially relating to emerging areas of actuarial practice such as banking, enterprise risk management, data analytics,and digital transformation where the skills of actuaries are already relevant.
Banking practice
The roles of actuaries in banking are expanding, and South Africa continues to lead. These roles typically relate to governance, strategy, and risk management. Risks range from credit risk, market risk, liquidity risk, operational risk, and other business risks. Each of these risks can be broken down further. For example, credit risk is a major area of work that can be broken down into loan origination and pricing strategies, monitoring of portfolio trends, capital adequacy assessment and reporting, and expected credit loss provisioning. Given actuaries’ quantitative abilities and understanding of business in the financial world, actuaries play a key role in these areas.
Banking practice for actuaries is gaining momentum around the world, with the Actuarial Society of South Africa(“ASSA”) now offering an international banking exam, having launched a local exam in 2015. The Institute and Faculty of Actuaries(“IFoA”) is also currently working with ASSA to launch a banking exam from 2022. Other actuarial associations around the world are thinking of the same. This is an illustration of how actuarial skills can be expanded to completely new fields, thus redefining the actuarial practice landscape.
Enterprise risk management
Actuaries in ERM can provide advice and guidance to management and boards of directors of financial and non-financial institutions in designing and implementing their ERM frameworks. The practice of ERM gained significant prominence in the aftermath of the 2008 global financial crisis, and now the Covid pandemic. Institutions of all shapes and sizes should take ERM as an integral component of overall business strategy. This should be engrained in the institution’s culture.
An ERM framework helps to answer relevant business questions about an institution’s risk appetite, business strategy, risk coverage, governance, policies, risk data, infrastructure, measurement, evaluation, control environment, response, and stress testing. With actuaries now heavily involved in ERM was previously the domain of other professions, this is another illustration of the changing landscape of actuarial practice.
Data analytics
In all these areas of actuarial practice, Actuaries should use, among other models, data analytics tools in solving problems. With data analytics, raw data is analysed to detect trends, answer questions, or draw conclusions from a large batch of data. Using various techniques such as artificial intelligence and machine learning, raw data is converted into a form that allows organisations to analyse important metrics and make business decisions through the application of judgement. The key phrase is “application of judgement”, an area in which actuaries are well trained.
The global actuarial profession has recently adopted data analytics into its professional qualification track, with several undergraduate university programmes also considering including data analytics into their programmes, illustrating, once again, how the actuarial practice landscape is changing.
Digital transformation
Actuaries should be developing capabilities to apply systems and technology in assisting institutions in their digital transformation journey. Digital transformation is the cultural, organisational, and operational change of an institution by integrating digital technologies, processes, and competencies across all levels and functions in a staged and strategic way. Actuaries should be able to leverage systems and technology to create value and new services for institutions through innovation, thus allowing institutions to acquire new capabilities to become future-ready, agile, and resilient in an increasingly digital economy. This is an area of potential actuarial practice that has not yet received much attention within the profession, but one that should gain momentum over the years.
Pursuing a career in actuary
For those who have just started or considering doing so, pursuing an actuarial career requires you to have an undergraduate or a master’s degree in statistics, mathematics, insurance, risk management, finance, or pure actuarial science, among others. You could also have any other degree with math and statistics as major components, but it will certainly be more difficult to complete the post-degree professional exams to attain one of the designations for an actuarial professional without a good mathematical background.
On completing professional actuarial exams, you are awarded a technical certification, an associate certification, or a fellow certification, with the fellow status being the highest level of actuarial qualification and the others being intermediate qualifications.
As indicated above, the beauty of actuarial practice is that it is constantly changing with new areas of practice being adopted, and new tools of work being recognised and utilised. One should not feel constrained following an actuarial career, as there is a wide range of areas where one can apply actuarial skills.
We have seen actuaries modeling the impact of climate change, for example, or the impact of pandemics. There are also one or two actuaries in telecoms, using their actuarial tricks to solve problems. With actuarial practice, the sky is the limit. You simply have to use your imagination to apply your actuarial skills, and then introduce others when you have figured it out.