Being Actuarial, Actuarially Sound, Or Just Plain Faking It…

Being an actuary has been a very enjoyable career for the last 16 years.  I have worked on many different projects from the smallest review of data to multi-billion-dollar litigations.  I have worked with the largest health insurance companies with millions of members to small self-funded groups with only a handful of employees.  All the while I have grown to respect the actuarial profession more and more.  Recently I have found it troubling to see and hear about things that are threatening our profession and the authenticity of work that is considered actuarially sound. Below are some unfortunate examples of events that threaten the reliability of our profession as actuaries:

1. A Sound Actuarial Model Does Not Guarantee Actuarially Sound Estimates – I have been in multiple conversations with prospective clients over the years that are wanting to purchase an actuarial model so that they can reduce their actuarial consultant costs. For example, they want to obtain an IBNR tool or model so that they can certify their own IBNR estimates.  The problem here is that just because you buy an actuarially sound model does not mean that you are going to get actuarially sound estimates.  We often talk about this as “Garbage in Garbage out”.  We at Axene Health Partners, can lease our best-in-class IBNR tool, but if it is not used properly it will not give estimates that are reliable or useful.  All models take judgement and it is this judgement (i.e., actuarial judgement) that makes an estimate actuarially sound or not.  Yes, the model did much of the calculations, but it does not give good estimates without human (especially actuarial) judgement appropriately applied.

2. Cookie Cutter Projects Do Not Always Work – I have seen advertisements for actuary-in-a-box and how these packages claim they will do almost anything you would need an actuary to do. This notion is troubling, but it is even more troubling when I hear actuaries looking at their own work in this manner.  I recently talked with a potential client that mentioned that they get a detailed 8-page report about their clients from an actuary for $350.  I found this very troubling not just because I cannot compete with those prices, but because I do not even know how you could properly peer review something for that price.  We at Axene Health partners put a high priority on completing our pre-release peer review (significant quality control). Even at our competitive billing rates it would be hard if not impossible to peer review this type of document in essentially an hour of time.  Doing it for that price is ridiculous, but it is happening on a regular basis.

3. Being Actuarial – Do a google search of “Actuarial” and you will find many actuarial consulting companies in the US and beyond. You will also find many companies that employ actuaries and or regularly use actuaries to do work.  The frightening thing I also noticed is that there are many companies in the market that talk of doing “actuarial work”, but do not employ or use qualified actuaries. Becoming an actuary is not something that just happens by choosing it one day and then all of a sudden you are an actuary.  There is a series of tests and education that prepare actuaries to do the work they do. In many cases it can take up to a decade to complete this certification. To become a qualified and certified actuary requires significant effort.  Perhaps the most important item other than exams are the ASOPs (Actuarial Standards of Practice). These valuable items help actuaries stay on course in what they are doing and gives advice and standards to what they need to do in order to complete quality work.  These are specific to certain tasks and help make sure high quality work is being completed. The actuarial profession has thrived in a self-governed fashion for many years.  Much of the key to this success has been the actuaries Code of Conduct and the ASOPs.

4. Some Actuaries Can Be Bought – I am not talking about a literal bag of money or briefcase full of dollar bills like in the movies, but some actuaries have the tendency to care more about the relationships with their clients, than actually telling their clients what they need to be told.  I must regularly tell clients news that I would rather not have to deliver, but at the same time I would rather tell them what they need to hear, rather than what they want to hear.  It may be a valuation of a company that is for sale, or a reserve estimate for a state regulator, sometimes news does not turn out how you would like it to. For a self-governing profession like our own we need to remember that our “word” is the most valuable asset we have.  If actuaries lose the trust relationship with our clients, we may never be able to gain it back.

5. Data Scientists, AI And Machine Learning – I have heard actuaries say that they are afraid of the new entrants into the market such as data scientists, AI and machine learning. Many feel this may lead to the extinction of actuaries as we know it today.  I do not agree with this notion and believe actuaries need to embrace new technology and find ways to integrate it into what we do. Data scientists may be able to teach us things about data we do not already know.  AI and machine learning are powerful, and instead of running and hiding, we should find ways to get involved and make the integration better.  I was often told growing up that “if you do not have a plan, you have a plan to fail” and for this reason I think making a plan to use these resources can protect and push forward the actuarial profession.

This article was not meant to be negative to actuaries or others, but rather be a reminder we need to keep our eyes open to what is going on around us and make sure we are not only protecting our names, but also our profession.  As actuaries, we need to watch out for individuals that don’t have the correct view of what actuaries do, and be ready to help correct misconceptions about how we can help and be an asset in the market.  We also need to remember to work within our own expertise and be ready to say “No” when we do not believe we are the right person for the job.  Actuaries, above all else, are problem solvers.  We all need to have an unquenchable desire to solve problems and not take tempting short cuts along the way that could hurt all of us (actuary or not).