hey there is aspiring actuaries, if we haven't met before my name is Michelle
this is Actuary elle and I currently work as a person lines pricing actuary for a
major property and casualty insurer in the province of Ontario Canada. Today I
thought I would address the question of why do actuaries work for insurance
companies and I'm going to take this from two angles
the first angle being: what is the existential reason that actuaries exist
at insurance companies? specifically property and casualty insurance
companies because that's my bread and butter that's what I know best and the
other angle being what's in it for the actuary? what makes this an interesting
job to have at an insurance company? From the insurance company's perspective if
I've said it once on this channel I'm going to say at 7,000 more times the big
problem with selling insurance is the timing. First the company sells the
insurance policy then the policyholder may or may not have a claim. The expenses
are not known upfront when the policy is sold and this means that there's a lot
of uncertainty associated with insurance policies we don't know if the person is
gonna have a claim, when they're gonna have the claim and how much that claim is
gonna cost us, so when you go on Google and you read some generic definition of
what an actuary does, "quantifying risk," this is the risk that we're trying to
quantify and there are two main roles within a property and casualty insurance
company that an actuary would take on these are the two actuarial fundamental
roles that someone would do. That's not to say that actuaries can't work in
other parts of the business but these are the two core functions the two
existential reasons why an insurance company would keep actuaries on their
payroll and that is one pricing what I do and two reserving neither is more
important than the other and they do kind of work in a cycle where reserves
will influence prices and prices will influence reserves. In smaller insurance
companies these would be done by the same actuary whereas at my company
because we are very large we have separate teams to do separate roles
Going back to the timeline, first sell policy, then maybe have the claim. This
means that as an insurance company, we can't just sell the policy
take the money in and say this money is all profit because we don't know how
much the expenses are going to be in the future. what we as actuaries have to do
is quantify how much we expect to have to pay in the future so that we can set
aside what are called reserves. my next video will actually be teaching a real
reserving technique to you guys so that you can see how actuaries will work to
try to project claims into the future to try to know how much money we have to
set aside for paying claims. Because insurance companies are a financial
institution and because insurance companies are fundamental to the
stability of an economy, I truly honestly do believe that, there's more than just a
layer of reserves to make sure that we have enough money to pay out our future
claim liabilities. there are lots of layers of provisions for adverse
developments, capital management oversight, reinsurance, which is insurance
bought by the insurance company just in case their primary insurance gets a
little too much, the secondary insurer will then come in and pay some of those
claims as well so there are a lot of layers to make sure that we have enough
money to pay out our claim liabilities but those IBNR reserves are the
base bread and butter foundation of how we know how we're doing financially. an
insurance company's financial statement is very dependent on how the actuary set
reserve levels. Give 10 actuaries the same data and you're gonna end up with
10 different estimates of where claim liabilities are gonna be. this is one of
the frustrating things I would say about being an actuary where you come from
this math University background where there's a right answer and a wrong
answer and then you get into the real world and you're trying to project the
future and there is no right answer and so what you can bring to the table is
not so much the one plus one equals two therefore I know how to get from one
plus one to two so I'm an actuary, it's being able to bring context to
everything that's going on, it's understanding how the business is
changing how everything is growing together that really makes you able to
understand how reserves should be set and on the flip side it's the pricing
actuaries job to make sure that we collect enough money from the policyholders
to pay out these future claims. A pricing actuary looks at insurance in two ways
on the one hand we look at the overall macro level of all the insurance
policies that we expect to sell and we say do we expect to collect enough money
in aggregate to support all the claims from this group of people? on the second
hand we say who is riskier? who is less risky? who do we expect to cost us more
money? who do we expect to cost us less money? and then how do we divide up that
money so if we know that in aggregate we need to collect a hundred million
dollars we say this person should be charged $1200 and this person should be
charged $800 I haven't been an actuary for very long but I also haven't seen a
lot of movement going on in the how things look in aggregate perspective
it's done using very core fundamental actuarial techniques looking at rate
level indications to try to determine what the future pricing level should be
where there's a lot of cool fun movement is in price segmentation and figuring
out who to charge five thousand dollars and who to charge five hundred dollars
back in the day it was probably done by I don't know throwing darts at a
dartboard and now people moved on to building GLM's and now people are moving
on even further to using machine learning techniques. at my company and I
know at other companies as well actuaries are working in partnership
with data scientists in R and Python. using these machine learning techniques
to determine who should be charged what price. I'm absolutely not an expert in
machine learning at all although it is on my to-do list to get more acquainted
with it but from what I understand the real lift is in a machine's abilities to
see interactions between the different variables. there's still a lot of human
input into what variables we should be using to determine the prices there's
still a lot of human input into what variables should have monotonic
constraints for example with a person's age you don't want them to go from a
price of 500 to 1200 to 200 to 600 to 800 you know we don't want prices to be
going up and down and up and down as someone ages but as machines we get
smarter I don't know what's gonna happen it's going to be a very interesting world for sure
so from the insurance company's perspective that's why we're there: to
figure out the right price to charge people and to make sure that we set
aside enough money so that we can pay off the claims and that way we can mush
it all together and say this is how much profit we made. From the actuarial
perspective, why do I love working for an insurance company? the first thing that I
love is the challenge of what we're trying to do. I am trying to come up with
prices for something that is going to happen in the future the world is
constantly evolving cars are changing technologies are changing the way that
people interact with the world is changing back at the end of 2018
cannabis became legal in Canada and there's a big hubbub in my company of
how is that going to impact claims do we have to raise our prices because we
expect more claims because more people are going to be driving under the
influence of cannabis which means that more people will be having car accidents
which means that we have to charge more money so many things are changing
constantly. I've always had a mini dream that I wanted to work for Disney it's a
really magical company and I wanted a little part of that magic and so one of
my hobbies is every few months I'll go on to the Disney careers website and
just see what kind of jobs they offer and there was one time a few years ago
where Disney posted a job for someone with exactly my experience level with
exactly my skill set I think the job title was something like
a pricing analyst and from the job description it seemed like they wanted
to price things at the Disney parks so like food and ticket sales and things like
that and there was part of me that said would I want to apply to this job? would I
want to work at Disney? this is exactly a job description that fits me and the
reason why I didn't apply for this is because even though it was a more
magical company it felt like I would be doing pricing work for a less
interesting product how much variation is there and how much you can charge for
a bag of popcorn versus how much variation is there for what you're going
to charge for car insurance for the ways that you determine why you're gonna make
people's prices higher or lower it's just an interesting challenge to try to
keep getting it right and you're going to get it wrong every
and then you're just gonna try to make it ever so slightly more right and then
it's gonna go wrong and then you're gonna bring it a little bit more right
and then it's gonna be wrong and then you're gonna bring it a little bit more
right and it's a fun challenge. another reason why I love working for an
insurance company is we have a saying on my team that is "there is no such thing
as an actuarial emergency" we are not dealing in life and death, we are not
dealing with war, we are not solving world hunger, we are dealing with money
and if we get things wrong we can cost the company millions of dollars we can
get things very wrong I mean there are checks and balances to make sure that we
don't get things very very wrong whether I get an analysis done today or I get it
done in two days it's not the end of the world. it is not an emergency
no one is going to die and because of that I get to work very regular hours. I
get to go to yoga after work every day. I get to take an hour lunch break every
day. I'm not gonna say that I never stress out about work but honestly for
the amount of money that I make and the amount of time that I spend there I'm
not complaining and I work with the most awesome people so even when I'm really
cranky and don't feel like doing work I'm just happy that I'm around my
coworkers because I love them and they make me happy. don't forget to subscribe
if you want to see my next video which is going to be a real reserving
technique that actuaries used to calculate reserves thumbs it up because
I'm back on YouTube after a long time and I'm a little bit self-conscious
about it thank you for calling byeeee