Actuary

Ultimate Guide for Actuaries

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Actuaries are part business professional, part fortune-teller: essentially a mathematician using numbers instead of a crystal ball to predict the future. These experts extract data from a variety of sources to create predictive models to manage financial risks for corporations.

This career is highly coveted but requires grit and a commitment to lifelong learning. Beyond earning a college degree, actuaries may spend up to 10 years achieving multiple certifications.

In this Guide for Actuaries, we will dig into the story of the actuary world and the professionals that we rely on.

What is an Actuary?

Businesses take daily risks, but it’s imperative that those risks are calculated. Actuaries analyze these risks using advanced math, such as statistics and financial theories.

Life, health, and auto insurance companies hire actuaries to predict an individual’s life expectancy, risk of an automobile accident, and the likelihood of contracting a chronic illness. These statistics determine individual rates and plans consumers are eligible for. A teenager is more likely to be involved in a motor vehicle accident, especially if a male, so their car insurance rates are significantly higher than a homeowner who has not had an accident in over a decade. Health insurance companies may charge a smoker up to 50% more than a non-tobacco user, due to a higher risk of lung diseases and other medical conditions.

Actuaries also work for the government, predicting funding needed to operate Medicaid and Medicare. The IRS hires policy and field actuaries. Popular employers for actuaries include Aetna, Liberty Mutual Insurance Group, New York Life Insurance Company, The Travelers Companies, and Humana.

Salary

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Actuaries are among the highest paid in the mathematical science sector. They earned a median annual salary of $108,350 or the equivalent of $52.09 per hour in 2019. The lowest 10% of actuaries earned $64,860, and the highest 10% earned $193,600. Actuaries employed in professional, scientific, and technical services were among the highest earners, with a median salary of $110,960, followed by those employed in finance and insurance, government, and managers of companies. Metropolitan cities, such as Boston, New York, and Philadelphia, offer some of the highest wages in this field.

According to U.S. News, actuaries are ranked 24th in Best Paying Jobs. In addition to an enticing paycheck, actuaries are ranked 11th among Best Business Jobs and 23rd for Best STEM Jobs. An actuary has also consistently been named a top-ranked career by the Wall Street Journal, CNN Money, Forbes, and the Jobs Rated Almanac.

Factors that contribute to actuaries being a highly alluring career include low stress upon completing exams, job security, high return on investment, and intellectually stimulating work. The majority of actuary positions are full-time, and some may exceed a 40-hour workweek. The opportunities for upward mobility have shown to be above average. Actuaries may also be hired as consultants for individuals or small insurance companies. Consultants tend to work longer hours and have more pressing deadlines, but have the opportunity to travel to meet with clients and have a more flexible schedule.

The Job

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Actuaries must be adept at using analytical software tools to predict uncertain future outcomes and estimate the likely associated costs. They typically work in an office setting and collaborate with accountants and insurance underwriters. Actuaries may also be called as witnesses in court to determine the value of material loss, such as medical bills, and non-material loss, such as loss of future wages.

Common specialties for actuaries include

  • health insurance,
  • life insurance,
  • property and casualty insurance,
  • pension and retirement benefits,
  • and enterprise risk.

Actuaries must compile and analyze demographic and statistical data when formulating insurance policies and establishing competitive premiums. Health and life insurance actuaries may examine data pertaining to risk factors such as age, race, and personal and family health history.

Property actuaries may evaluate crime statistics for a particular zip code or utilize flood mapping tools to predict flood zones, resulting in higher property insurance rates for those living in areas with high crime rates or are historically known for flooding. Actuaries must ensure insurance companies have sufficient assets to cover potential disasters, accidents, and medical care.

Pension actuaries work with corporations to offer a portfolio of retirement benefit options, such as 401(k)s, and explain the various plans to employees. Enterprise risk actuaries predict changes in the economy and the effect these changes will have on companies.

What is the history of Actuarial Science?

The beginnings of actuarial science can be traced back to members of early civilized communities who contributed to a joint fund to cover the expenses of burials. However, in the late 17th century, a more sophisticated mathematical approach emerged to covering ones’ own personal risks.

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In London, in 1662, John Graunt established life expectancy patterns that could be used to predict the age an individual would die. In 1693, Edmond Halley expanded upon this theory and created a life table to show how much annuity a person should pay based on their age. The Society for Equitable Assurances on Lives and Survivorship was founded in 1762, and first coined the term actuary that same year.

Throughout the 18th and 19th centuries, many insurance companies were established, and actuaries used handwritten calculation charts to determine how much an individual owed. Stochastic models were developed in the 1930s and 1940s, which allowed actuaries to estimate losses related to random events.

The latter half of the 20th century drastically improved actuarial science with the addition of computers and modern financial theories. Technology has continued to evolve, and actuaries currently have access to a plethora of 21st-century analytical software tools.

How do students prepare to become an actuary?

Actuary roles require a very specific skill set, demonstrated primarily through passing exams. A minimum of a bachelor’s degree is required, but aspiring actuaries should be prepared to spend thousands of hours studying for certification exams. A prerequisite for entering this field is a passion and strong aptitude for complex mathematics. Beginning with high school, students should flex their brain muscles by loading up on Advanced Placement Calculus, Statistics, and Economics, as well as STEM-designated classes, computer science courses, and business electives.

Undergraduate

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Only 32 colleges in the world have been designated as a Center of Actuarial Excellence. If you are seeking a top-notch program, apply for schools with this premier distinguishment. Over 70 colleges around the nation offer undergraduate actuary preparation programs, either as a major, concentration, or emphasis.

Undergraduate students in pursuit of a career as an actuary can acquire superior analytical skills by earning a bachelor’s degree in Actuarial Science, Commerce, Economics, Engineering, Mathematics, or Statistics. Actuarial Science majors are typically housed within the Department of Mathematics or Statistics, but may also be in the School of Business. A minor in Accounting, Business Administration, Finance, International Business, or Management nicely complements the above majors and gives candidates a competitive edge.

The robust curriculum will offer an array of challenging courses in business, mathematics, and computer science, such as Applied Regression Analysis, Business Law, Corporate Finance, Economics, and Python Programming. Students should also become highly skilled at data analysis, financial modeling, pricing, statistical analysis, and Microsoft Excel.

Communication and Business Writing courses are also important because actuaries must be able to explain the technical processes they’ve completed to assess risk in a way that the individuals they collaborate with can comprehend. Students should also select courses that are project-based to gain practical, hands-on experience.

Graduate

Graduate programs for Actuarial Science, Applied Mathematics, and Financial Mathematics are open to students from a variety of academic disciplines, such as engineering, computer science, and business. All of these students must be able to readily apply mathematics in a business setting. Graduate students will complete advanced coursework in insurance, mathematical finance, and computer science.

One major benefit of earning a master’s degree in Actuarial Science is the built-in exam preparation, which helps students rapidly accelerate through the associate and fellow requirements. Graduates from a master’s program can also anticipate a higher earning potential. However, due to the long certification route, many students opt to obtain full-time employment after completing their undergraduate degree and earn their certificates on the company clock in lieu of getting a master’s degree.

Doctoral actuarial science programs prepare students for careers in research or to teach at the university level. Rigorous courses will be offered in Microinsurance, Behavioral Economics, and Predictive Modeling.

Education Format

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Online degrees are considered acceptable due to a larger emphasis on the pass rate of exams and the number of exams an individual has earned, rather than the degree itself. Students should verify with the university that their program satisfies the VEE course requirements to sit for professional actuary exams. Many online options offer an accelerated track, which is well-suited for career changers.

Certification

In order for actuaries to earn credentials as a certified professional, they will need to pass a series of certification exams offered through the Casualty Actuarial Society or the Society of Actuaries. Exams are offered in May and November. The CAS is geared towards individuals interested in property and casualty insurance, while the SOA is best suited for individuals interested in health, life, or retirement insurance.

In order to land an entry-level position, many companies require candidates to have already passed one or two exams. Companies will usually cover the expenses of the remaining exams, and with each additional exam passed, actuaries typically receive a raise or a bonus. The SOA recommends studying 100 hours for each hour of the exam, so another benefit offered by many companies is paid study time.

SOA Certification Paths

The Associate of the Society of Actuaries credential takes most students between four and seven years to earn and consists of required college coursework, multiple exams, an e-learning component, a project, and a professionalism seminar.

Students must have educational proof of completing Economics, Accounting and Finance, and Statistics. Required exams to complete this pathway include Financial Mathematics, Probability, Investment & Financial Markets, Long-Term Actuarial Mathematics, Short-Term Actuarial Mathematics, Statistics for Risk Modeling, and an exam/project for Predictive Analysis. The e-learning modules cover the Fundamentals of Actuarial Practice and test students’ knowledge with an interim assessment and final assessment. The final requirement for becoming an Associate is a half-day professionalism seminar.

The elite designation of Fellow features six distinct tracks:

  • Corporate Finance and ERM
  • General Insurance
  • Group and Health Insurance
  • Individual Life and Annuities
  • Retirement Benefits
  • Quantitative Finance and Investment

The rigorous FSA credential takes an average of 1,700 hours of study time. The pass rate is typically between 35-55% of candidates, so candidates who achieve this status are among the upper echelon of actuaries and are highly recruited for global leadership positions.

CAS Certification Paths

The first step for candidates pursuing CAS certification is to complete the foundation requirements, which consists of three exams: Probability, Financial Mathematics, and Financial Economics. Students must also complete Validation by Education Experience courses in Accounting, Finance, and Economics.

The Associate route includes online courses in Risk Management and Insurance Operations, Insurance Accounting, Coverage Analysis, Insurance Law, and Insurance Regulations. Exams that must be passed to achieve this credential include Modern Actuarial Statistics, Basic Techniques for Ratemaking and Estimating Claims Liability, and Regulation and Financial Reporting. Associate candidates also complete a course on professionalism.

The Fellowship route consists of three additional exams: Estimation of Policy Liabilities, Insurance Company Valuation, and ERM, Advanced Ratemaking, and Financial Risk and Rate of Return.

Organizational Involvement

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Membership in a professional organization can help actuaries meet professional development goals, organize certification study groups, and gain expertise in other actuarial science areas.

The SOA is a great organization for college students and new actuaries to join. They offer services to help actuaries launch their dream careers, including a job database, scholarships, and exam discounts and reimbursements.

Actuaries can also join the American Society of Pension Actuaries, Casualty Actuary Society, Conference of Consulting Actuaries, and the American Academy of Actuaries. The AAA is based in Washington, D.C., a hotspot for actuaries, and offers public policy webinars covering casualty, cross-practice, health, life, and pension practice areas. Members can also gain hands-on experience and learn from fellow colleagues by serving on one of the numerous committees dedicated to auditing, personnel and compensation, litigation review, and many others.

College students should also join Gamma Iota Sigma, the national fraternity for risk management, insurance, and actuarial science students. Many colleges also offer a student-run actuarial science club, featuring workshops, networking opportunities, and job shadow programs.

Experience

Entry-level actuary positions generally don’t require work experience. Still, students who complete an internship will be more attractive candidates and have a better idea of which career track they are interested in pursuing. Internship opportunities are available through insurance companies, such as Allstate, Aflac, Blue Cross Blue Shield, and State Farm. Spots are generally snatched up by students who have already passed a certification exam or two.

Students should attempt to complete internships within two different industries to become more well-rounded and to meet professional contacts. Interns usually work on a team with more experienced employees collecting statistical data and entering it into spreadsheets. Because insurance companies are the primary employer of actuaries, it can also be helpful to obtain an entry-level part-time job with an insurance company during college to become familiar with insurance lingo and to build your resume.

New actuaries typically begin their careers as assistants and are assigned a mentor. Larger corporations may also have a training rotation where new employees learn multiple actuary facets early in their career, before settling into their specialty.

Upon gaining additional certifications and on-the-job training, approximately 20% of actuaries advance to chief actuaries or actuarial managers. Another path to advancement, though less common, is to become a consulting actuary. Actuaries are also prepared for careers as auditors, budget analysts, cost estimators, economists, and financial analysts.

Continuing Education

A minimum of 30 hours of professional development courses must be completed annually by actuaries certified through the CAS or SOA. These courses offer prime opportunities to acquire new technology skills, which are constantly changing. Continuing education credits may be completed through in-person training or via webinars.

What are the future trends in actuarial science?

The year 2020 has seen an unprecedented shift to work from home positions, and luckily actuaries can easily perform all of their work tasks remotely. Client interfacing can be achieved through video conferencing platforms such as Zoom, e-mails, and phone calls. This flexibility allows for greater job security during uncertain times, as well as a more harmonious work-life balance.

office

The unpredictable future of business has actually created a greater need for actuaries because companies must evaluate their risk-taking behaviors under a microscope to ensure they stay afloat. Even as companies undergo drastic budget cuts, actuaries are rarely laid off, due to the significant need for their unique ability to forecast the financial future and the difficulty of replacing them when the economy does turn back around.

Many car insurance companies have reconfigured their prices due to coronavirus, since more people are working from home and driving less. However, actuaries must analyze driving habits and accident percentages to still ensure the insurance companies will come out on top of the accidents that do occur when adjusting premiums.

New Jobs

As of 2018, over 70% of actuary positions were for insurance companies, but corporations, beyond insurance firms, are realizing the need for risk analysis. With the growing big data trend, a surge of actuary roles will be created in the energy, e-commerce, manufacturing, marketing, and product development industries. Travel has generally been very minimal, but as companies expand their operations in foreign countries, actuaries may see an increase in international business trips.

Technology Impacts

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Most actuary work is currently performed on a computer. Actuaries must stay current on evolving technology and will be most successful if they are proficient in financial analysis software, database user interface and query software, and analytical or scientific software. Artificial Intelligence, blockchain, and InsurTech are also changing the world of actuarial science.

Wearable technology, such as fitness trackers, have been used by insurance companies, including United Healthcare and John Hancock, to set premiums based on physical activity level. Policyholders who meet certain health metrics, such as minimum step count, receive discounts on their insurance plans. This trend will likely become much more commonplace in the near future, as a reward for preventative healthcare. Blood glucose monitoring and heart rate variability are two other measures that can be tracked by wearable devices to predict health outcomes.

Smart technology in vehicles will also be used to capture driving habits, such as speeding, running red lights or stop signs, and other risky behaviors to help car insurance companies customize insurance plans to incentivize safe drivers. Also, car insurance premiums will be impacted by autonomous vehicles. Car manufacturers or software companies may be liable for accidents of driverless cars, as opposed to the individual who owns the vehicle.

As more individuals use apps to handle financial transactions and invest in Bitcoins, actuaries must adjust some of their practices to remain relevant in the financial industry. Actuaries are also delving into predicting the percentage of cyber-attacks in the future to prevent catastrophic events from happening.

Next Steps

If you are searching for a high-paying business career that allows you to apply your math skills, now is a great time to become an actuary. From 2019-2029, the Bureau for Labor Statistics projects employment opportunities for actuaries to increase by 18%, which is substantially higher than most careers. The 4,900 new positions anticipated over this 10-year span can be attributed to a demand for assessing new risks in order to evaluate and update insurance policies and financial products.

Actuary positions are nearly recession-proof because as long as people live in homes, drive cars, and get sick, actuaries will be needed to crunch numbers to interpret that data. Since the road to becoming an actuary can take four to 10 years, it’s best to get started on this career track as soon as possible. If you want to pursue this career, your next step after finishing this Guide for Actuaries, is finding where you fit on the education route and plan your next move.

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