February 2018

Insurtech and Innovation: a Conversation with Erik Wenzel

By Chris Greig

What will the actuarial profession look like in 50 years? Will actuarial exams still exist, and if so, will they matter? How soon will it be before actuaries compete with Artificial Intelligence (AI)? Is Insurtech really a disruption?

These and other “big topics” have been raised by Erik Wenzel, FSA, through an on-going series of LinkedIn posts that have garnered widespread attention and interest.

I was originally introduced to Erik over LinkedIn when his posts made it into my newsfeed. Some posts had hundreds of comments and were leading to interesting debates with actuaries, software engineers, and others. I found the posts to be thought-provoking and I am happy to transcribe for our readers a discussion I had with him.

Below is the transcript of a Q&A exchange between Erik and me on the future of the profession, Insurtech and innovation for actuaries in a digital age, along with two related posts.

Post #1:

10 Things an Actuary can do that an A.I. robot will not do before the year 2100:

  1. Negotiate the details of a reinsurance treaty.
  2. Communicate effectively to shareholders why reserves are changing.
  3. Set strategic risk appetites.
  4. Navigate the politics of a large organization.
  5. Develop domain expertise and industry thought-leadership through networking.
  6. Use professional judgment to avoid potential conflict of interest.
  7. Write a memorandum that documents the limitations and constraints of a complex modeling process.
  8. Meet with the human resources VP to communicate why a group is receiving a 30 percent increase in health premiums.
  9. Resolve the concerns of regulators related to a product filing.
  10. Use judgment to consider economic, demographic, and societal trends in setting assumptions.

Does anyone disagree?

Post #2

For actuaries, the riches are in the niches—

There are hundreds of niches, sub-niches, and domains to master:

FAS 299 Loss ratio index adjusted price hedging,

Catastrophe loss reversal tax reserve arbitrage,

Fixed deferred immediate variable annuity stochastic-on-stochastic back-testing

(These aren't real niches, but you get the point).

The domain expertise required to operate in a niche is a natural monopoly that ensures you will always be in high demand.

Within each niche you will find a handful of masters—learn from them.

Within each niche you will find a series of outdated practices—update them.

Within each niche you will find new opportunities—pursue them.

There are usually less than 100 actuaries in each niche. Some much less.

Own your niche(s)—it is the path to an extremely prosperous, interesting and rewarding actuarial career.

  1. Erik, thanks for doing this. Your posts on LinkedIn may be worthy of an entire article. What was the motivation for writing them and what has the response been like?

    My motivation for posting on LinkedIn is to convince actuaries that their time, energy and creativity could drive a greater good to society if they embraced technology to create a better insurance experience for consumers. Sometimes I’ve felt that actuaries have become so focused on exams and regulations that we fail to take a step back and find a “why” to our work that goes beyond a stable, predictable and well-paying career. I believe there are tremendous opportunities for actuaries who embrace Insurtech.

    The response to these posts has been astounding—over 500K views and 3K likes in October alone. Every day people reach out to me for career advice, questions and opportunities. It seems that I’ve tapped into something big—a global interest in how the work of actuaries will be affected by technology and data science. Of course, there have also been trolls, but overall the response has been positive.

  2. You describe yourself as an “Insurtech enthusiast and actuary.” When and how did you first get interested in Insurtech? And what is your involvement with Insurtech at the moment?

    Through books and podcasts. I was inspired by the mindset and culture of Silicon Valley, which was starkly different from the mindset I had developed as an actuary. This interest connected to the global Insurtech revolution that is currently rocking the industry.

    My involvement in Insurtech is mostly through my LinkedIn posts, which I write on my daily train commutes. Besides that, I have done some informal advising for two different Insurtech startups, I am co-organizer of the Chicago Insurtech Meetup, and have accepted a few opportunities to present on Insurtech. In my day job as a long-term care experience studies’ actuary, I am finding ways to “own my niche” by using technology and predictive analytics.

  3. What do you see as the biggest opportunity and challenge for actuaries with respect to Insurtech?

    The biggest opportunity will be to combine industry expertise, technology and soft skills to drive innovation and digital transformation in their niches.

    The greatest challenge will be to overcome complacency and step outside of a status quo system and mindset that has provided a sense of artificial protection from disruptive external forces.

  4. Referring to post #2, you talk about niches. I agree niches are great ways to build careers, reputations, companies, etc. How does Insurtech impact the opportunities for actuaries to find niches?

    Within every niche of insurance you will find those whose underserved needs can be met through technology. For example, Insurtech startup Lemonade has found a niche in providing simple, inexpensive and well-designed insurance that appeals to younger urban-dwellers. Another example is Clearcover, who offers low-cost car insurance by marketing to individuals at specific moments (e.g., just after purchasing a car) instead of relying on huge GEICO-like national advertising campaigns.

  5. Could “finding your niche” be considered a gateway to entrepreneurship?

    Tesla found its niche of environmentally-conscious luxury car buyers. Likewise, Insurtech startup HealthIQ, has found a niche selling discounted life insurance to vegans and athletes. Disruptive innovation usually starts in the underserved niches before it becomes mainstream. Because actuaries operate as domain experts within their niches, they are uniquely positioned to drive innovation.

  6. There continues to be a lot of venture capital funding into Insurtech. Is it too early to see what the eventual Insurtech landscape will look like once the dust settles? Will there be a few dominate players or many smaller players scattered across the entire value chain? Will actuaries be working at all of these companies?

    In the U.S., large carriers and startups will continue to work together to drive innovation across the value chain. I don’t see any one startup wreaking Uber-like disruption on the industry because industry expertise is a prerequisite to operate, and large carriers are the ones with the most industry expertise. I think several of the Insurtech startups will grow and thrive, but I think there will always be many small players. Up to now, actuaries have largely been absent from these startups because (1) most startups cannot afford actuaries and instead use data scientists and (2) there is not much interest from actuaries in working at startups. My hope is that experienced actuaries will team up with and advise these startups since both sides have a lot to offer one another.

    In China things have happened much differently than they have in the U.S. In China, the large tech companies, like Alibaba and Tencent, are driving Insurtech, largely due to a more relaxed regulatory environment. For example, Zhong An, the insurance arm of Alibaba, acquired 150 million new customers and 650 million new policies in its first 18 months using a primarily AI approach. I am not sure to what extent they are using actuaries, but I would imagine there are fewer than at the large U.S. carriers.

  7. I’m often reminded of a quote by Mark Cuban … it was something to the effect of “in software there are two groups of people … those who make it and everyone else.” The sentiment being there are a relatively small number of people who “really know” any piece of technology (the creators) and if you aren’t one of them, then you’re equal to everyone else who isn’t one of them. I find it interesting to think about this idea as it relates to our profession. In reference to post #1, the optimist could look at your list and think that it will be difficult to replace actuarial business acumen, critical thinking and decision-making skills with AI systems, but the pessimist could argue that such skills are not exclusive to actuaries. Actuaries may become part of the “everyone else” group. What are your thoughts?

    The skill unique to actuaries is to combine technical expertise with business acumen to execute strategy in an organization. Actuaries know the regulations—but they also understand the business, including both the risks and rewards of that business. Because insurance will always have risk, this risk will need to be understood and AI will become a powerful tool in managing that risk. In the new data economy, communication has become the most important skill an actuary can have.

  8. When you look at Insurtech and AI, clearly there is a large high-tech/Silicon Valley presence. Is it viable for actuaries to position themselves as engineers of these technologies or will they be “really smart users”?

    A few actuaries should be the engineers of these technologies. An example of this is “Spark Technologies” in Israel, where actuaries have created AI algorithms to perform sophisticated hypothesis testing for life insurers.

    Most actuaries need to become the “really smart users.” For example, there are several startups such as Domino Data Lab and DataRobot that provide more out-of-the-box machine learning abilities to actuaries who may not be well-versed in software such as R and Python.

  9. You’ve written a lot about innovation in general. What is the most important advice you would give to an actuarial student/young actuary who wants to drive technological change in her workplace? What should she avoid doing?

    Several young actuaries have reached out to me to express their frustration that their companies have been slow to adopt technology. If young actuaries have ideas of how their company can innovate, they should demonstrate that (1) the idea supports the company’s strategy, (2) the benefits outweigh the costs, and (3) they are willing to champion the idea and execute it. The wrong approach would be to expect senior management to blindly embrace every new technology.

  10. Thanks for taking the time to do this. I’m looking forward to reading more of your thoughts and questions on LinkedIn.

    Thanks for reaching out! 2017 has seen an explosion of Insurtech. If you are not following closely it is easy to miss what is happening. There is new activity every day and LinkedIn is the best source for content. I will continue posting my thoughts and I encourage others to join the conversation by commenting and posting.

About the Author

Chris Greig, ASA, CERA, ACIA, is the president of TPX Technologies Inc. He can be reached at chris@tpxtechnologies.com.