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Actuary in a Non-Actuarial World

By Bryan Liu

Actuary of the Future, July 2021

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How often have you heard the following phrases in your everyday work?

“The increase in profit was driven by reserve release, a result of updated mortality multipliers as supported by the A/E analysis.”

or

“The capital ratio has increased because of a changing interest rate environment, primarily caused by increases in market risks, offsetting changes in the valuation margins.”

These sentences may make perfect sense to us, but it might as well be Martian for everyone else. As actuaries, we may sometimes fall into the practice of relying on our processes and theories. We can sometimes focus on the “what” and “how” of the processes we performed, focusing on the theories from our training and education. This may be less relevant than the “why” and the “so whats,” which matters more to our non-actuarial stakeholders.

Some of the biggest challenges actuaries face in their work relate to working with those outside the actuarial sphere. For many actuaries, it is oftentimes not our first instinct to explain concepts and terminologies that we have spent our entire career (and thousands of study hours) working on.

Actuarial work does not happen in a vacuum. From analytics to pricing, experience studies to asset liability management, our work has a direct impact across the insurance value chain. The insurance industry is made up of underwriters, lawyers, salespeople, accountants, investment professionals, and many other professionals. It has become increasingly crucial for actuaries to adapt, evolve, and strive in a non-actuarial world.

Throughout my career, I have been very fortunate to have worked with accountants, underwriters, management consultants and many others outside of the actuarial profession. These collaborative experiences provided me with opportunities to reassess my communication style, learn new ideas, and gain fresh perspectives.  

I hope to share some of my experiences, challenges, and lessons learnt as an actuarial consultant in a non-actuarial world.

Common Challenges

Whenever I worked with non-actuaries, there are three main challenges I face:

  1. Technical Terms,
  2. Concepts and Processes, and
  3. Perspective

Technical Terms

Technical terms exist for a reason. Each industry, each profession, each organization, will have its own set of specific terminologies. These terminologies allow people to communicate. From “Spider-2 Y Banana” for the Las Vegas Raiders to specific medical terms, it allows us to precisely describe a concept, situation, or plan. Actuaries are no different. Over time, our professional vocabularies are filled with actuarial terminologies.

Where we run into problems is when we make use of such terms in reports and presentations to others. When we rely too much on terminologies, it may cause confusion, misunderstanding, or even a breakdown in communication.

Concepts and Processes

Similar to specific terminologies, actuarial concepts are also something to pay attention to. Some actuarial concepts may seem straightforward or “matter of fact” to actuaries but that may not be the case for many others. Conversely, actuaries may also encounter legal or accounting concepts that prove challenging. The key is to ensure that any important concepts are explained and discussed to avoid confusion.

For example, a certain procedure to be carried out in an experience study might be something that is considered industry standard, but it will not make sense to someone without the context of appropriate experience. It is crucial to not just highlight the “how” and the “what,” but also the “why” of concepts and processes.

Perspective

More importantly, different professions also have different perspectives and understanding on a topic. Actuaries are often faced with the challenge of trying to bridge that understanding.

Using the topic of capital as an example:

  • Accountants and auditors may want to know how we can ensure the calculations are using the right policy data in calculating capital.
  • IT professionals would be more concerned about the specifications and categorization for these policy data sources.
  • Investment bankers may think about what the capital level can tell them about future dividend payments.
  • Salespeople may start thinking about how a new capital regime would change insurance price.

With different perspectives come different questions and considerations. In such situations, actuaries will be challenged with thinking from a different angle to answer these questions.

Lessons Learnt

As actuaries, we are uniquely positioned in the insurance world to work with different groups of people to solve a variety of problems. But this requires listening, understanding, and appropriate communication.

There are three things I keep in mind to facilitate collaboration with those outside the actuarial world:

  1. Stop and listen,
  2. speak the same language, and
  3. step in their shoes.

Stop and Listen

This is not to say we should not do the same with our actuarial colleagues. Listening is key for all forms of communications. When working with those outside of our profession, we may be less familiar with the nuances of a particular request or comment than we normally would with other actuaries. It is crucial to pay attention to understand a particular comment.

Different people also provide different perspectives. Actuaries naturally take a quantitative and risk management lens on most issues. This is no doubt valuable, but listening to an underwriting, legal, or sales perspective may help bring new ideas.

Speak the Same Language

It is always the best to speak the same language. Using too many technical terms, or referring to complex concepts, are not the best ways to present your work. When working with non-actuaries, it is best to steer away from jargon

When I was working on an audit engagement to provide actuarial support was when I learnt this first-hand. In this project, I was tasked to assess if a client’s experience setting processes and results are appropriate. In my final work product, I made references to different concepts and the SQL code that I had used. The problem with this was that I had not explained the concepts I used, nor clarified how the code was applied. In a way, I was speaking a different language. A better approach was perhaps to provide context to concepts and methodologies I had used, and annotations around SQL code applied. Providing further context and documentation would allow my analysis to make sense to anyone else regardless of their background.

Going back to our original examples of common phrases, instead of saying:

“The increase in profit was driven by reserve release, a result of updated mortality table multipliers as supported by the A/E analysis.”

We could say:

“There were less deaths than expected. We have revised our assumptions based on this new set of data, and will need to hold less reserves, which means higher profit.”

If we are trying to provide a high-level overview of why we have less reserves, there is not a need to bring up SOE or A/E ratios when we can simply say “less deaths than expected.” There will be an opportunity to add more color on A/E ratios, GLM, or other statistical techniques in the analysis when necessary.

As Albert Einstein once said, “If you can’t explain it simply enough, you don’t understand it well enough.”

Step in Their Shoes

The key is to see things from other people’s perspectives. It is important to recognize the distinctive quantitative view on risks that actuaries have, but the people we work with may have different objectives in mind.

When working with non-actuaries on a project, there are three questions we could ask:

  • What are their objectives?
  • How do I help achieve their objectives with my skillset?
  • How do I bring my own perspective to contribute to the end goal?

Several years ago, I worked with an investment professional to evaluate debt issued by an insurance company. With my actuarial background, my first thoughts were around the reserves and capital requirements for this insurer. Instead of jumping in with a 20-slide PowerPoint deck on capital requirements, I asked “How do we want to approach this investment analysis?” Having understood that the focus was on the downside risks around the business model of this insurer, I was able to use my insurance knowledge to answer the questions around the business model.  And with an understanding of the key focus, I was able to bring in my ideas on capital and reserving, but in a direction that made sense for the project.

At the same time, it is important to not just provide analysis that answers the other person’s questions, but structure it in a digestible manner. Using a PowerPoint presentation as an example, instead of having complex analysis in the first few slides, it makes more sense to first go over the key takeaways, and then covering the supporting analysis in the rest of the presentation. We want to not just answer the right questions, but also make sure our answers are understood.

Conclusion

From new financial reporting standards to climate change to emerging technologies, the insurance world is changing rapidly, and the lines between actuarial and non-actuarial work are becoming blurry. This presents all actuaries with opportunities to work with professionals outside of the actuarial field. This might be a “new normal,” but it is also an opportunity to learn from different ideas and new perspectives.


Bryan Liu, ASA, ACIA, is a senior consultant at Deloitte Canada’s Actuarial & Insurance Solutions Practice. Bryan is a council member of the Actuary of the Future Section, and actively volunteers with the SOA and CIA. He can be reached at bryan14387@gmail.com.