Why your organisation could benefit from an actuary

Insight Life Solutions

Imagine you are the CEO of a company. Let’s say your business is middle to large sized. It could even be a small business which has a decent customer base and is starting to gain traction in its industry. As any other type of business, you are either providing a service or selling a product.

If it’s 2015 (which it is) and you have a strategic mind-set concerning your business (which we trust you do), you have probably harnessed the power of collecting information about your customers so that you can tailor your marketing to appropriately target your customers.
If you are a particularly ambitious CEO, you probably want to build a sustainable business, one that will stand the test of time and evolve into an even more formidable business.

We live in a world defined by uncertainty. Almost every event is probabilistic in nature. In any business, you are playing against some odd or another.

Today almost every business owner needs an accountant and at some point will require legal advice. But very few businesses have considered the benefit of having an actuary on call to address the above matters.
This is probably because most people do not know what can actuary is trained to do. Those who do have an idea assume that actuaries are the people who calculate the probability of death for insurance companies.

If you google ‘Actuary, definition’ you will come across the following:
“ac•tu•ar•y /ˈak(t)SHəˌwerē/ noun: actuary; plural noun: actuaries, a person who compiles and analyzes statistics and uses them to calculate insurance risks and premiums.”
This is a very narrow view of what actuaries do and is only a small part of the story.

The next option available via google is from Wikipedia:
“An actuary is a business professional who deals with the measurement and management of risk and uncertainty.”
Slightly better.

So back to you, the CEO. You don’t want to just see what the accounts look like today. You also want to project into the future and understand how to get there. You want a long-term view of where the organisation is going. You want to understand the risks which the business faces, their source and their magnitude, and how best to mitigate them. All this within the context of the level of risk you can comfortably carry within the organisation.

Enter actuary.
Let’s look at a few industries which have embraced the power of actuaries (outside of the “traditional” actuarial spheres of influence in insurance) – healthcare, banking, oil and mining.
Actuaries have stepped in from business analysts to Chief Risk Officeres (CROs). They have added value across these industries wherever possible, which is characteristic of the personality types which often become actuaries – self-starters and highly driven (required to get through the myriad of gruelling exams in the first place). It is hardly surprising that they then deliver value quite independently and very quickly.
Within the banking sector, particularly in South Africa, actuaries have become a near necessity, often spear-heading the credit and analytics departments and hence having extensive oversight when it comes to overall risk management. This has been further supported by the introduction of regulation, on the back of the 2008/2009 economic crisis, to tighten risk control measures within the financial sector. It is interesting to note that this trend is not similar in all countries, with South African banks leading the pack in recruiting small armies of actuarial staff. Banks within the UK and Australia have been aggressively recruiting ‘risk professional’s’ as well, which includes a few actuaries.

The healthcare sector, now a main-stream area of practice for actuaries, was foreign territory for the profession less than two decades ago. The value which actuaries have added here has grown significantly over the past two decades with actuaries now the key human resources to price for medical insurance products, reserve for liabilities, advise medical providers in terms of pricing, develop healthcare insurance products, model national healthcare systems, predict the spread of pandemics…the list is endless.

Several oil and mining organisations have recognised the modelling capabilities and risk management prowess of actuaries and are now keen on having them on board. As their environments become more volatile, it is becoming more important for them to approach the future with caution and consider different scenarios playing out and what those impacts are on natural and financial resources.

Scenario testing. Sensitivity analysis. Suitcase phrases which many people throw around and throw many others off. But actuaries actually live and breathe these terms. Data is the life blood of the actuarial profession. And we are now living in the information age – it is an actuary’s perfect playground – there is an endless pool of data to explore – and we are equipped to do exactly that.

An often overlooked characteristic of the actuarial education and the characteristics embodied by most actuaries is their acute business acumen. Actuaries have often been relegated into the number-crunching corner but the organisations that have benefited the most from them have been steered from a strategic point of view by them as well. Many non-actuarial professionals have often remarked at how surprised they are at how business-savvy actuaries are. This does not come as a complete surprise given the stereotypes but if one considers the complete process of risk management, a thorough comprehension of the businesses mechanisms is paramount to adequately identify, quantify and mitigate the risks involved. Even the ones that are comfortable absorbing significant amounts of risk need to be identified and quantified in the first place.

It may even be safe to say that actuaries are in the business of risk, and there is no business that can afford to avoid risks.
It is clear that the full-time services of an actuary may not be required in every organisation (and may not be financially feasible) but the value-add of having an actuary run his or her mind across your organisation from time to time could provide opportunities which may not have emanated from any other part of the business.

Kudzai Chigiji

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