This is the first of what we hope to be many guest posts by other actuaries across the profession. As we’ve stated before, this blog is a place for actuaries to learn from others, to improve their craft, and to see additional perspectives (perhaps not even from their own industry) that can enhance their work.
As such, we’ll be featuring posts by actuaries in not only modeling, but pricing and reserving, and not just in the life & annuity space, but also including pensions and P&C perspectives as well.
We’re featuring the first of these today, by Jeff Samu, FSA, MAAA.
Disclaimer: Slope Software does not officially endorse Mr. Samu’s position nor his employer, nor should his post on this blog be viewed as an endorsement of Slope Software. The conclusions and opinions are his own and should be considered as such.
What Makes a Good Actuary
The actuarial profession is one of the most respected in the finance industry. Actuaries use data to assess risk and develop ways to manage that risk appropriately. Among the responsibilities that actuaries may have include developing new insurance products and setting prices on them; developing hedging strategies to mitigate risks for annuities; calculating reserves to ensure the company can fulfill its promises; analyzing data to develop assumptions; and coding software to project future experience.
In practice, actuaries are often generalized problem solvers. They excel at analyzing the data they have available to find the answer to business challenges. They tend to be jacks-of-all-trades: they are insurance experts, data analysts, designers, and coders.
With involvement in so many fields, what can an actuary do to be successful? Here are five traits that can help make an actuary more successful. Many of these traits are important for all professionals, but someone in an actuarial role may find them to be more important or more difficult to achieve.
Let’s start with the easiest one. Part of what makes the actuarial skillset so prized is intellectual curiosity. Most actuaries are genuinely interested in knowing more about how things work, whether that’s a product design, an IT system, or policyholder behavior. Their realm of expertise includes math and statistics, data science, financial engineering, and psychology. Actuaries are always looking to learn more about the world around them. The most successful actuaries apply that curiosity to broader fields: they learn how to be more successful as managers, coaches, or designers, and apply that to their work.
The actuary’s intellectual curiosity should be tempered by humility. As actuaries continually learn and grow, they develop knowledge in a wide range of fields. In some instances, that knowledge can breed arrogance. Such an actuary can think that only he is capable of solving a problem due to his specialized array of skills, and dismiss help from others. Such solutions tend to cater to that actuary’s particular style, ignoring his customers and dropping features that he feels are unimportant. These solutions are developed using programs that the actuary understands without regard to what the end user can use effectively. The end result is often difficult to understand, run, and maintain.
The most successful actuaries realize that they can’t do it all themselves. They recognize that other people are better than they are at certain tasks. They ask questions and listen to their partners’ concerns. They leverage experts in other areas of the company to succeed: finance, accounting, IT, compliance. Ultimately, they try to forge a solution that works well for everyone.
Tell your story
It’s easy for actuaries to become obsessed with data. They use data every day to perform calculations and understand the nature of their business. But analyzing data and reporting numbers is a small part of an actuary’s value. Behind every investigation is an underlying question. Some actuaries will follow directions and produce numbers by following some procedures, but won’t be able to answer that underlying question. Better actuaries will develop an understanding of the key drivers of the results, and be able to explain them fluently. The most successful actuaries will take that a step further: they can provide a clear explanation for the results, along with recommendations for actions to address the inherent risks.
Being able to tell a clear story is a key skill of successful actuaries. They know that their audience does not want to pore over hundreds of tables, hear about the hours of analysis that they performed, or try to understand confidence intervals. They know that simple messages can drive action far more effectively than arcane minutiae, and they are able to summarize their findings and proposals in just a few bullet points to drive meaningful change. It’s not easy to distill your ideas down like this, but the payoff is well worth the trouble.
Know when enough is enough
The core value of actuaries is their analytical mindset. Most actuaries are perfectly content spending hours poking around in spreadsheets, trying out different possibilities and testing models. They will make continued refinements to improve precision or increase expected accuracy. They will notice errors in the inputs or calculations, and work to correct them.
But it’s easy for an actuary to over-analyze. Sometimes, the nature of the problem is so intriguing that the actuary will keep trying to look at one more thing. Other times, the actuary may run a model over and over again to fix minor issues, or spend a lot of time optimizing a small process to run quickly and elegantly.
In truth, no calculation, model, or process is perfect. It’s more important for an actuary to know when it’s close enough. Instead of spending weeks trying to get that extra 0.1% of precision or efficiency, an actuary is better served by recognizing when additional work will not materially change the answer, and can safely move on.
It’s not done until it’s in production
One of the hardest things for an actuary to do is to truly put something in production. Actuaries are fantastic at prototyping: trying out calculations in spreadsheets or modeling platforms and tweaking things relentlessly until the results look “good”. An actuary learns by building, and will iterate over and over again to understand a concept more clearly. Most actuaries will look to create a model or build a process themselves to understand exactly what it is that they are looking for and how to get that information.
Unfortunately, the actuary’s work will often stay in its original form (typically an ad hoc spreadsheet). What was intended to be a one-time calculation or check will be requested again and again each quarter. It will steadily become more complex: the actuary will link data from other spreadsheets and add enhancements over time. Soon, the actuary will own a critical piece of reporting that only she knows how to run. She doesn’t have time to document it (and doesn’t feel the need to, since she understands the process and can run it herself) and each quarter new requests are made for some additional analysis. The process is not sustainable: no one else knows how to run or maintain it, so it can’t be transferred to anyone else. After a year or two, the process remains uncontrolled and barely supportable, being crushed under its own weight.
The most successful actuaries know that the initial development is just the first phase of implementation. They need to understand the end-to-end flow of information, from the admin system, assumptions, and scenarios all the way to the final product. They enlist the help of business partners and IT to stand up the infrastructure and controls needed for it to run cleanly every time and give them comfort that the outputs are reliable. They enforce standards and rules to ensure data integrity, preventing changes to upstream components without notification and review. They have separate environments for development, testing, and production, and have different people doing development and testing work. They have up-to-date process maps and documents so that others can understand what is being done in the process and how it is being maintained.
It takes a lot of work by a lot of people to get something into production. The actuary may think that the effort isn’t worth it. But without that work, the solution is incomplete, and the person who is forced to run a highly manual process time and again will soon understand the value of moving it into production.
None of these skills are innate, and anyone can get better with intentional practice. If you want to improve your skills, start by focusing on one of these and think about what opportunities you can create to help you get better at it. Write down your goal and keep track of your progress. Spend some time every week reflecting on the work you’ve done to try to achieve it, along with noting what things worked well and what things did not. Over time, you’ll develop new techniques that will help you achieve your success.
Jeffrey Samu, FSA, MAAA, is an actuarial engineer and agile product owner who has spent the last six years involved in actuarial transformation efforts. His previous work has included actuarial pricing, risk, valuation, and ALM roles. He is deeply interested in process design and is always looking for ways to make processes more efficient, even when it doesn’t look like it might work.