Career Crossroads: Part 2

Reflections on the professional development of an actuary Benjamin Chen

Read Part 1 of this article series for more thoughts on the expanding role of actuaries.

Chinese Version

After a powerful individual becomes an influential team leader and replicates business goals, does this mean everything is done, once and for all? Not really. Demand proliferation is exponential, and it quickly will surpass the team’s ability for linear expansion.

Creating More Work and Streamlining Processes

For example, I once helped a company analyze the value-generating capacity of its various branches. They had significant differences in surrender and occurrence rate experience. We compared the best- and worst-performing branches, observed their profit and value changes over the preceding 24 months and looked at the long-term impact of value trends. This is the essential work of the actuarial team, but the work objective changed from the head office to the branches. The gap between the two value curves got wider. The CEO kept writing in his notebook, and he concluded that this was the internal value transfer payment of the company.

The CEO requested that each branch be analyzed, and a value “borrowing and lending” ledger be created for the branches as the basis for scientific evaluation, allowing them to make their own management decisions by looking at the account book. After the meeting, the actuarial partner became worried—the workload suddenly increased 12-fold. Analyzing a small number of sample institutions would be fine, and it can still serve as a goal for the provider’s capabilities, but full-scale analysis is complex. Even if the team expands to meet such needs, it should be realized that this is just the starting point for demand proliferation.

In the future, branches may wish to break things down further or propose scenario testing that is instructive to them. The most feasible method for doing this is to turn professional work into tools to deal with the needs that require fast growth and simultaneous processing.

Let’s take a familiar example. In the past, when you went to a government agency to handle affairs, you had to go to different windows to deal with all kinds of materials, and each window provided specific results. Later, a more efficient one-window service was used. The window is a team’s division of labor, uniformly providing capabilities at the window—but you still need to wait for the call. Now, online processing is popular. Submit materials via the mini program and wait for the results (although some results can be obtained immediately). This is the type of change that new tools and paradigms bring to professional services, affecting the lives and work habits of all related personnel.

From Novelty to Mainstream

If similar tools exist and are placed in the hands of every institution to analyze and operate, the designer of this tool must be an actuary. Although it may sound distant for now, its popularity will transform the entire insurance industry. Throughout history, condensed rules show that any profession involving high demand will evolve into a popular tool. However, after everyone takes it for granted, those experts who brought the change also fade from view.

For example, who can name the inventor of the pocket watch? Or a famous time-teller from ancient times? The earliest time-telling experts determined the time based on the sun’s angle, relying on astronomy, geometry and trigonometry. Only a few people were capable of time-telling. It is said that they obtained some ratios using professional methods and converted them into time based on a table like an actuarial factor table. Later, the sundial—a more complicated time-telling system that was easier to read—appeared. It required a team to maintain, verify and constantly announce the results to the world—that is, to provide time. There was no longer an ancient factor table in the time-telling institution, but they collectively constituted the ability to tell time. Later, small clocks appeared, and as the manufacturing cost decreased, everyone could see the time whenever, wherever. The evolution of time telling went from few having the skills to do the task, to large industrial equipment taking over, to small universal tools that everyone could use.

Today, people are used to checking the time on their phones. I hope that one day actuaries can design smartphone applications that allow:

  • Consumers to subscribe to insurance products
  • Institutional operators to subscribe to various real-time indicator analyses
  • Investors to subscribe to multiple high-frequency value analyses

The Professional Development Path

Recently, a highly respected senior actuary came to our company to guide us, saying that the great responsibility of actuaries is to become actuaries who serve everyone. This is also what I thought. Therefore, in summary, if there are three peaks in the professional development path, they are:

  1. Becoming a domain expert
  2. Leading the team in that domain
  3. Transforming the domain through new tools and paradigms

Then, the corresponding career development is synchronous. Initially, actuaries will be positioned as the providers of specific professional results, such as reserves, values, premiums and so on. As a vestige of development, many insurance companies are conventionally divided in this way, reflecting actuarial science’s default positioning in the business. Then, actuaries will lead collaborative teams to meet more analysis needs in various scenarios, becoming providers of a specific ability. Finally, actuaries need to design new tools and paradigms, popularize professional skills to more stakeholders and make professional service supply no longer a bottleneck restricting the development of related industries and fields. This will be one of the ultimate goals of actuarial science.

Coming to the Chinese market through this path involves more real-life urgency. This is due to two reasons:

  1. Actuary density
  2. The digital nature of the insurance industry

Actuary density refers to the population ratio of actuaries—reversing the numerator and denominator gives the average number of people an actuary needs to serve. Without tools to popularize standard actuarial capabilities, the design, pricing, evaluation and management of any insurance product inevitably will require a significant amount of time and effort from actuaries. The differentiated insurance product supply and service individuals receive will undoubtedly be limited by actuary density.

Research has compiled statistics on the number of actuaries corresponding to the population aged 25-64—a core insurance purchasing group—in different markets. In some developed markets, such as the United States and South Africa, there are more than 50 actuaries per 1 million people in this demographic. In other developed markets, such as Japan and Italy, there are more than 30 actuaries per 1 million people. I couldn’t find data for China, but it can be estimated to be around three to five actuaries per 1 million people in this demographic, which makes the ratio one of the lowest in the world. It also corresponds to the shallow market level in the study. Previously, the market discussed the urgent need for 5,000 actuaries in China and a long-term demand for 20,000-30,000 actuaries.

However, actuarial training can be achieved only after a period of time, and bottlenecks may exist in the long run. When the target number of personnel cannot be increased quickly, better tools are needed to liberate existing actuaries, popularize their abilities and use them effectively. Otherwise, only actuaries can work hard to achieve the role of these tools. As the saying goes, “If people don’t make tools, they can only become tools and be used as tools.”

Actuarial Tools and Digitalization

The insurance industry will amplify the design and popularity of actuarial tools. It is generally believed that digital tools are more likely to be effective than physical tools because they can be replicated quickly. Coincidentally, the life insurance industry is a naturally digital industry.

The design, pricing, sale, purchase, assessment and analysis of insurance products can all be done digitally thanks to modernization. This is because the design and development of life insurance products are based on demographic statistics. Sales of insurance products are based on digital display and digital settlement. Management evaluation in later stages deals with numbers. There are no significant physical production materials in the entire process.

The recent uptick in remote work has shifted the workplace from physical (offline) to digital (online). In a digital environment, using digital tools to handle these tasks can process multiple demands simultaneously with negligible marginal processing costs and time that can be compressed as needed. It only requires a little more investment in equipment, which is much lower than labor costs.

In today’s environment, professional talent is scarce. And with increasing demand, scarcity will lead to doubling marginal costs. Therefore, the importance of digital tools for the insurance industry, which is naturally digitized, is self-evident.

In recent years, digitization has become the top priority for many insurance companies. Perhaps because of the gap in the density of actuaries, digital development in the Chinese insurance market already has taken the lead globally in some areas. At this time, looking at the general path of digital growth in other industries will have greater reference significance. These paths also can be divided into three stages.

  1. Digitization—marked by the birth and popularity of professional or office software suitable for individuals, such as Lotus spreadsheet software in the 1990s, the Microsoft Office suite and FoxPro universal database. The visual Windows operating system also played a role, and the popularity of modern actuarial models started at that time. They were built in databases, Excel, C programs and other actuarial software. The efficiency and reliability of providing model results have improved significantly.
  2. Automation—the input, output and basic operations of various professional systems began to form standards and were linked automatically. The internal operation processes of professional software became more fixed, convenient and intuitive, thereby reducing the threshold for use. The connections among professional systems also became simpler. More people’s work could be based on automatic processes, and the responses to demands became faster. The number of demands that can be addressed simultaneously has increased exponentially, and the professional output capability has been enhanced significantly. Many insurance companies’ actuarial departments in the current market are in the process of becoming more automated.
  3. Informatization—professional tools and automated processes are combined horizontally and vertically. With the support of data platforms and application interfaces, their services are becoming increasingly popular and accessible to tens of thousands of users. Ordinary users do not need to care about how the logic is coded or how the data flows—they only need to know what they have and want, which are the inputs and target results of tools and processes that form the “scenes” that people often talk about. If you pay attention, tools, software and applications today are rarely equipped with thick user manuals, and the usage threshold is almost zero.

The digitization scenes of many insurance companies are moving toward informatization. At this point, the industry essentially has completed the foundational work of creating a digital ecosystem with customer insights, marketing, product innovation, asset management, risk management, regulation and financing. But at the application and business operation level, it is limited by the lack of rich digital materials.

In scenarios supported by information tools, users can operate independently, obtain results and have experiences similar to the various online government service platforms mentioned earlier. Around these scenes, insurance companies have launched many projects in the past two years. There have been external ones, including the design and implementation of various online malls and sales support tools, and internal ones, such as the construction of different smart data screens of all sizes.

The visually appealing interface and animated numbers on the screen were exciting at the beginning of these projects. However, the users of these tools lost interest quickly: They only provided some premium and claim summaries that lacked in-depth analysis, which was superficial and unsatisfactory. At this point, people realized that richer data support was needed to obtain more analysis, which comes from the ability to deeply process data.

The actuarial function is the insurance company’s data processing engine. Most economically significant indicators are direct or indirect results of actuarial deep processing. Therefore, the next step in enhancing digital development effectiveness requires strong support from actuaries: The richness, timeliness and flexible interactive effects of data cannot be achieved by human work alone.

Under the overall design of actuarial, the tools and services on the information platform and the automated processes should provide back-end support. Without such platforms, tools and automated processes, the intelligent screens waiting for data will be like IMAX theaters—built with huge investments but lacking 3D films, so audiences watch 2D movies instead and naturally lose interest.

It is not difficult to see the gap between the actuarial function and the insurance industry in the digital development stage, where the former is still exploring the automation stage while the latter has reached the informatization stage, limiting the overall digitalization progress of the company to some extent.

Benjamin Chen, FSA, is founder and CEO of DeepLight Technology Ltd. in Shanghai.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2023 by the Society of Actuaries, Chicago, Illinois.