Actuarial Science

Facing Challenges as Opportunities 

Inês Carreira, Closer Consulting

In a fast-changing world, full of uncertainty and emerging risks, Actuarial Science is the crystal ball that gives companies a brief look into the future. This field is made up of skilled experts in measuring and managing the risk of future events, as well as predicting its potential financial impact. These experts, also known as actuaries, use their combined skills in mathematics, statistics, economics, data science, among others, to bring financial security to the business, identifying opportunities and better planning for the future.

Formally recognized in the 17th century, Actuarial Science has played an increasing and important role in many industries, especially in the insurance industry. Insurance companies are able to make money and stay in business by betting on risk – the risk that your car won’t be destroyed in a crash, the risk that your house won’t burn down or the risk that you won’t die before the expected time. And they rely on actuaries to assess all those risks and estimate how much money should be reserved to pay for all the current and future claims, as well as to determine how much should be charged for an insurance policy in order to compensate potential losses, while still making a profit and being competitive.

On top of uncertainty, insurers of the current era are facing more and complex challenges. With Digital Transformation, Artificial Intelligence, the rise of Big Data and Internet of Things, the creation and pricing of insurance products is now more complex and challenging than ever. Insurers need to adapt to the new era and find the optimal combination between profitability and competitivity, while satisfying the customer needs.

The job of the actuary is to look at these challenges as opportunities. The 21st-century actuaries are data-driven decision makers, able to embrace data science tools and use their actuarial knowledge and judgment to make accurate risk predictions and to efficiently design and price insurance policies. Being able to take value of all the available data has become an increasingly significant competitive advantage and actuaries play a key role in this matter. Taking advantage of the new technologies and data sources - like telematics -, help insurers better understand the costumer behavior and improve their pricing strategy by enabling the creation of more flexible and personalized products with premiums that best reflect the actual risk incurred.

Although actuaries are better known as the “insurance mathematicians”, the applications of actuarial science go beyond the insurance industry. Banking, investment management, pensions, climate change and even criminology are examples of other important applications of actuarial analysis.

More than calculating numbers, the actuary is a risk manager, a product manager, a financial planner, a data scientist, a business advisory. As Frank Redington once said, “the actuary who is only an actuary is not an actuary”.

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