Can the Actuarial Profession Survive?

Having been in the actuarial profession for nearly 2 decades, working in 5 different countries and teaching hundreds of actuarial students, there are a few things I’ve observed:

1. Qualifying as an actuary is great…BUT it is no longer the golden ticket to freedom and security.

To continue to succeed, we can not afford to stay still. To thrive or even just to survive, we must continually be improving, both professionally and personally. We must master the art of learning.

‘Learning to learn’ efficiently and effectively is a key skill in this ultra-competitive world. Not just for passing actuarial exams, but for lifelong upskilling.

2. Opportunities and choices are everywhere.

We are overloaded with information and distraction. Focus is the new currency.

We need to improve our ability to cut through the noise, make optimal decisions, work efficiently, avoid distraction and learn to ‘hack’ the system – all whilst staying healthy and sane!

Psychology, technology, awareness, smart learning, leverage and a commitment to lifelong study are key tools in this battle.

3. Technology, InsurTech, big data, data science, blockchain, machine learning, AI, IoT, etc. All these things are changing the world, at an ever-increasing rate.

Actuaries should be keeping aware of, embracing and taking advantage of these opportunities.

4. We are all in the game of marketing and sales, whether we like it or not. To some extent, we need to be able to effectively sell our employer, our ideas and of course ourselves.

Actuaries are known for their introversion and hence this can often be a weak spot. But it can pay huge dividends if we overcome it.

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Actuaries & Blockchain

actuaries and blockchain

You’ve heard of blockchain, right? 

Of course you have! Blockchain appears to be everywhere these days and is receiving an increasing amount of attention in various media channels.

Thanks, partly, to the meteoric rise and partial fall of the volatile bitcoin crypto currency, which utilises blockchain as its underlying technology, blockchain has risen in prominence over the last couple of years. In many circles, it is now being heralded as another new technology that promises to change the world as we know it.

But promises are one thing, and reality is another. Will the current hype of blockchain really significantly change the financial world as we know it? Or is it another example of hype that will be forgotten about as we move on to the next big thing? I don’t believe so. In my humble opinion, blockchain is here to stay and actuaries should be paying very close attention. 

This article, directed at actuaries, will explain the basics of blockchain in very simple terms and we will then examine some UK/European-based use cases where blockchain is already being used or developed.


Blockchain is essentially a peer-to-peer data storage technology that aims to remove the need for intermediaries. The need for trusted third parties in transactions, often results in significant expense and time delays. But what exactly is this technology?

First the long-winded definition. Blockchain is described as:

a transparent replicated, secure, decentralised, incorruptible, immutable (still debatable), irrefutable, distributed ledger of economic transactions in a database utilising “blocks” that are time-stamped using cryptographic encryption.

Wow – lots of big words! Let’s take a big step back and try to keep things simple.

First, I want you to imagine the favourite tool of the junior actuary. Yes, the humble spreadsheet that we all know and love (or hate if you are a data scientist!). Well, it turns out that blockchain is kind of like an Excel spreadsheet. They share a lot in common. For example:

  1. Spreadsheet rows are analogous to blockchain blocks. A block is essentially a collection of data. In a similar fashion to a ledger spreadsheet having rows added, a blockchain has blocks of information added. It views each block as a legally valid record of a transaction and together they form a chain of blocks (i.e. a blockchain).
  2. Shared access (but with no central owner). In the same way a single Google spreadsheet can be shared and seen amongst all users, a blockchain is transparently distributed across a diffuse network of personal computers or servers (known as nodes) in a decentralised fashion. Any changes made will occur instantaneously within the entire network. Furthermore, this decentralised sharing also results in the blockchain being immutable thanks largely to consensus driven collaboration. The decentralised aspect of blockchain technology also means that transactions cannot be lost or manipulated.
  3. Locked spreadsheet cells = Secure blockchain. In a similar fashion to spreadsheet cells or rows being locked to avoid changes, the blockchain does not allow the editing of any information that is already there. Any changes must be made via the addition of a new block of information. This is important since it means that all historic changes are transparently recorded providing an audit trail that is available to the blockchain members.
  4. Password protection = blockchain hashing. Spreadsheets can be somewhat protected via a password system. In contrast, blockchains utilise cryptography and hashing to enhance security. Hashing involves taking an input value and then applying a mathematical algorithm to produce a cryptographic output of a fixed length. This hashing process enhances the security of the data as individuals attempting to reverse engineer cannot deduce the original input value.

So what does this all mean? Well, the advocates (of which there are many) of blockchain technology point to its ability to solve the issue of ‘trust’ across networks. Complete strangers are supposedly able to complete transactions with minimal ‘middle-man’ interaction (and hence friction payments) and without the risk of counterparty default.


Blockchain has been touted as having the potential to change many industries. The promised lands of change range from banking to finance to security to healthcare to marketing and even entertainment. As I said, there are some big promises being made with blockchain!

For actuaries, the main industry of interest is insurance. On the face of it, blockchain would appear to make enormous sense to use within the insurance world. Operational inefficiencies abound in insurance as manual claims handling and other frictions permeate throughout the chain. Insurance is built on a foundation of trust and given this foundation seems to have been somewhat shaken over the last few decades, many now view blockchain (also known as “the internet of trust”) potentially coming to the partial rescue.


Perhaps the main use of blockchain within insurance is the enabling of event-triggered smart contracts. Under such a contract, claims processing could be automated such that the policyholder does not have to make a claim and the insurer does not have to administer the claim. Verified inputs that are clear, objective and unambiguous (such as that from death registries, or official weather reports for example) would be recorded on the blockchain and if the conditions for paying out on the smart contract are met then the smart contract automatically pays out. Plain, simple, automated, cost-reducing and with the potential to largely counteract fraud and enhance customer satisfaction – what’s not to like about this grandiose blockchain theory?

To provide a tangible feel to the blockchain smart contract let’s now examine some UK/European-based insurance blockchain use cases that are currently in existence. Firstly, we will look at a marine blockchain insurance solution that has been developed by Ernst & Young (EY) in the UK along with Guardtime, A.P. Møller-Maersk, Microsoft, Willis Towers Watson, XL Catlin, MS Amlin and ACORD, and is now in commercial use. Secondly, we will discuss French multinational insurer, AXA’s recently launched flight delay insurance that runs off a blockchain platform. Thirdly, we examine a product being developed and built by the European-based Etherisc community.

Marine Insurance

Marine insurance covers a ship’s vessel, its container boxes and cargo as well as the various liabilities (e.g. pollution) that ship owners may incur. Marine insurance is notoriously lacking in transparency and expediency due to numerous intermediaries that are typically involved in the inefficient and costly purchase of cover. EY, Guardtime and several other insurance industry leaders recently launched “Insurwave”, described as the world’s first blockchain solution for marine insurance. The blockchain solution was designed to remove much of the inefficiencies the industry has historically experienced. The proof of concept was deemed to be a success and in May 2018 the product was commercially released.

The Insurwave platform uses distributed ledgers to store additional data points allowing for more sophisticated underwriting as well as smart technology contracts to reduce costs throughout the chain. According to the EY website the “technology will support more than half a million automated ledger transactions and help manage risk for more than 1,000 commercial vessels in the first year.” London-based EY global insurance leader, Shaun Crawford, is leading the project and had the following to say:

“The platform allows multinational companies to share vital data sets relating to the assets that are being shipping around the world with brokers, insurers and reinsurers in a secure, private network. InsurWave brings much needed technology to the industry and removes the need to maintain a paper trail while giving everyone in the value chain ‘a single version of the truth’ on a near real-time basis. If data on the ships changes, for example, or there are losses, everyone in the chain is notified”

When I recently spoke with Shaun he mentioned that they are now planning to build out their offering in both China and Singapore. More proof indeed that blockchain is here to stay.

Flight Delay Insurance

In 2017, French insurer, AXA, released a blockchain-based insurance product called ‘Fizzy’ that utilises smart contracts to pay out on flights that are delayed for a period of more than 2 hours. Flight delays are tracked in real time through global air databases and get recorded as fact on the blockchain eventually resulting in an automated payout for the policyholders, without the need for a claim filing or additional paperwork.

Whilst the scale of this project is admittedly small, when one considers the number of daily delayed flights across the globe and the policyholder hassle factor involved in claiming for a flight delay, it isn’t difficult to imagine why this type of insurance will increasingly appeal to many travellers who value simplicity and convenience. I know from my own experience that claiming for a risk on something like this is typically cumbersome, time-consuming and frustrating and I can certainly see the appeal from a customer point of view. Interestingly, whilst the insurance company may save on administrative costs, they will also need to consider the additional costs they bear from paying out on 100% of eligible claims, as many previous non-claiming policyholders are given automated payouts.

Hurricane Protection

Etherisc is described as a decentralized platform built for the insurance industry and since 2016 they have been building and developing various decentralized insurance apps on the Ethereum blockchain.

An example product developed by the Etherisc community is their hurricane protection solution which aims to protect low-income individuals and small business owners from the damage caused by hurricanes. According to their website automatic claims are paid out if wind speeds are recorded within 30 miles of the individual’s home or business. Again one can see how the input which clearly and objectively defines the payout (in this case wind speed) can be recorded on a public blockchain resulting in automation, reduced overheads and quick service. In fact Hurricane Guard’s website compares the 9-12 month regular insurance payout period to their envisaged (the product is not yet licensed) payout period of 24 hours as well as pointing to a much reduced premium, complete transparency and zero deductible.


Whilst blockchain is still very much in a developing stage, clearly it is already having an impact and could well be a technology that will rival the internet in terms of influence on business. Insurance companies seem particularly well-placed to benefit and it will be interesting to watch how things unfold over the next few years. Of course there are still many hurdles to overcome, including scaling the technology, regulation and obtaining consumer confidence.

Whatever your view on blockchain, I think it is safe to say that insurance is rapidly changing as we continue to enter the digital age where technology-based solutions increasingly permeate throughout businesses.

This article was first published in the US Society of Actuaries International Newsletter (issue 76, January 2019).

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The Extinct Actuary?

Extinct Actuary

I recently took part in a panel debate interview organised by Rick Huckstep from the Digitial Insurer. The write-up was titled: “Is the insurance Actuary an endangered species, or simply facing an evolutionary makeover?” and involved Geoff Keast (CEO of Montoux in North America) and Steven Mendel (Co-founder and CEO of Bought By Many).

Rick is one of my favourite InsurTech authors, so I knew he would do a good job of bringing up some interesting debate.

We covered many areas, and I’ve briefly summarised the top 13 key points below:
  1. As we enter the fourth industrial revolution and age of technology and automation, change is upon us. Many professions, including the 300 year old actuarial profession may be under threat.
  2. The digitial economy has led to an explosion of data. This data is emerging from many different sources and is also impacting the insurance industry (think IoT, Telematics, Wearables, etc).
  3. The non-actuarial “data scientist” is encroaching into actuarial work.
  4. Many actuaries are now adding machine learning to their toolkit and the actuarial profession is embracing this change.
  5. In the era of “data is the new oil”, actuaries may be able to use their skills to break into new non-traditional areas.
  6. Actuaries understand financial performance and policy-holder behaviour and hence they are the lifeblood of many insurance companies.
  7. We are likely to see a blending of actuarial and data science in the next five years.
  8. We are moving towards more dynamic pricing models as data increases in size and availability.
  9. New risks will emerge that will likely require actuarial expertise to understand (e.g. drone risk or liability from autonomous vehicles).
  10. We may see a shift towards growth outcomes (new business, customer retention, etc.) rather than the risk/compliance/ regulatory side of modelling.
  11. Automation may enhance the actuary’s work rather than leading to extinction. Assuming you are a forward thinking perpetual learning actuary!
  12. An actuary’s strong professional code of ethics provides an oversight which I think is particularly important for helping to ensure that we are using data ethically and responsibly.
  13. Being flexible and being able to adapt and grow is key for future actuaries.
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37 Lessons Actuarial Science Has Taught Me About Life

actuarial lessons
  1. Compound interest is powerful. Start saving early.
  2. Life is a series of likelihoods. Thinking in a probabilistic way will serve you well. 
  3. Risk is unavoidable. To succeed, you must learn to embrace it.
  4. Much of life is random. But thanks to the law of large numbers, doing something enough times can help you create your own luck.
  5. Salary is important, but meaningful work trumps your wage. 
  6. Focus on the things you can control. Let go of the things you can’t. 
  7. Don’t be afraid of uncertainty. A stochastic life is full of colour. 
  8. The self-help gurus that preach you can have it all in life are wrong. There’s an opportunity cost with every venture we embark on. 
  9. Be careful what advice you follow. Question everything. 
  10. The biggest risk in life is playing it too safe. 
  11. Take active control of your life. The proactive stallion beats the reactive rocking horse. 
  12. There are an infinite number of ways to perceive events. Don’t attach 100% probability to your initial interpretation.
  13. Don’t burn bridges. It’s better, in the long term, to stay cool and bite your tongue. 
  14. Don’t be tempted to chase money to the detriment of character. It nearly always turns out bad.
  15. Move. Sitting at a desk all day is bad.
  16. Health, family and friends come first. Work and study are important but not what life is about. 
  17. Beating procrastination is a daily battle. Nike’s mantra of “Just Do It” is a great antidote. 
  18. Things like smoking, being male, poor diet, lack of exercise and and stress equates to a lower expected lifetime. But that’s on average.
  19. Vilfredo Pareto was right. 80% of your success tends to come from 20% of your efforts.
  20. Not all “experts” are created equal. Letters and credentials doesn’t equate to omniscience. 
  21. Learn to say no, when appropriate. Everyone has an agenda. What’s best for you may not be on it.
  22. 90% right and done beats 100% right but unfinished.
  23. Lower your expectations. Happiness = Outcome/Expectations.
  24. Think long term. Particularly with regard to spending and health. The 1973 Stanford study kid who ate the marshmallow is now broke and obese.
  25. What looks like overnight success usually takes years of work.
  26. Consider your circle of friends as a state in a Markov chain. Guard transitions into the “circle of influence” state carefully.
  27. Thinking optimally and rationally, without bias, is a valuable skill. But surprisingly difficult to master.
  28. Failure in life is inevitable (e.g. actuarial exams!). But that’s not what counts. Getting up and readjusting your path is what is important.
  29. Never stop learning. For a successful actuarial career, exams are only the beginning.
  30. Never take the lift when there are stairs to climb. Small habits make a difference.
  31. Be careful with technology, especially addictive smartphones and social media. We are living in a grand-scale social experiment. 
  32. Challenge your comfort zone. But don’t forget to rest.
  33. Time spent with family, especially your kids, is much more important than achieving any work accolades.
  34. Always question the assumptions you make in life. We make faulty assumptions more often than we realise.
  35. Mistakes happen. Ask yourself “will this matter/will anyone care in 5 years time?”
  36. It’s better to choose the pain of discipline (e.g. studying) over the pain of regret (e.g. failing exams).
  37. As a 41-year-old I probably have about 500 months of my life left to live. Stay conscious of that every day.
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6 Thoughts on Future Strategies for the Actuarial Profession

I was recently contacted by another actuary – an IFoA council member – asking for my thoughts on strategies the IFoA should think about for the future.

I thought I’d share my response on here, and would love to hear what other actuaries think:

“…. Like many other professions, I truly believe that our profession is facing a critical time given the pace of change.

So what can the actuarial profession do to remain relevant well into the future? Here are a few of my personal thoughts:

1. Perpetual Learning

Going forward, I think, there needs to be a greater focus on “on demand learning/upskilling” and accessibility to resources as and when needed for learning on the job. Eg understanding and applying artificial intelligence, machine learning, blockchain, IoT, wearables, dealing with new emerging risks. The list goes on and is constantly evolving. I think the profession can and should continue to play a role in continuous ongoing learning after qualification. It increasingly seems that qualification is only the beginning and we need to be constantly learning and evolving as actuaries, to avoid getting left behind. Learning to learn and being flexible and having an ability to reinvent oneself are critical skills for the future. I believe the profession can help us stay nimble as well as fostering a culture of continuous ongoing lifelong learning. Otherwise, I believe, others (eg “data scientists”) that often have the more flexible mindset may continue to make inroads into traditional actuarial areas (eg pricing).

2. Innovation & Creativity

I would like to see a greater focus on innovation and creativity as well as more training in these areas. These skills are becoming increasingly important. The insurance world is now beginning to change and “catch up” with other sectors, in terms of technology adoption. We should be aiming to claim a slice of the InsurTech pie and not just seen as the regulator checkbox guys or technicians. Let’s learn to bring more of an agile mindset to our work. I think it will be increasingly important to be able to think like an entrepreneur. Building, testing, iterating. Let’s continually learn to take initiative and find unique solutions to the new emerging business problems.

3. Data Science

Data science, especially machine learning, is becoming more and more important as a tool for actuarial work. It’s great to see the profession doing a lot in this space. Can the actuarial qualification act as a more general route into a career as a data scientist? I think it possibly can. We have a unique position in this space due to our code of ethics and highly regarded professional qualification/recognised credentials. Hence, we have a unique advantage over many others claiming to be data scientists (given anyone can now say they are a data scientist!). The problem though is the opportunity cost of learning irrelevant material (for much of data science) to get the actuarial credential.

4. Professional Actuarial Judgement & Business Acumen

Related to the above – there’s a lot of talk about automation and people losing their jobs to robots. Whilst there is a certain amount of hype around this, I do believe automation will change the nature of many jobs in the future. Digital and automation is the future and we need to be part of that. Let’s, therefore, ensure that we continue to add value beyond the number crunching by having the skills to exercise professional judgment and business acumen whilst staying on top of developing trends.

5. Supply & Demand

I think the profession has a role to play here to help ensure this is managed carefully in different parts of the world. India, in particular, seems to be currently feeling the effects of an over-supply of new “aspiring actuaries” having difficulty getting on to the actuarial career ladder.

I believe we can collaborate more with other actuarial bodies to effectively build brand “actuary” (trusted advisors of risk). There will always be risk and especially today risk is everywhere and changing all the time. I would like to continue to see brand “actuary” as the trusted advisors in financial risk, but with more creativity and innovation. I believe one of the key positives of our profession is that it attracts really bright people. We should focus on continuing to make the profession attractive to the brightest and best.

Our new IFoA President, John Taylor, has talked about “growing the membership,” so I think it will be interesting to see what direction this takes.

6. Innovative Research

A greater focus on truly innovative research. We live in exponentially changing times. Let’s be at the forefront of change and bring a creative, innovative mindset to our work underpinned by relevant cutting-edge research.”

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Can InsurTech Rescue Insurance?

Is insurance broken and in need of rescue?

That was the question I recently asked myself whilst hiring a rental car to visit the infamous “White Line” mountain bike trail in beautiful Sedona, Arizona.

When I discovered the full Hertz insurance cover was going to cost me double the price of the actual car hire, I couldn’t help but relay my shock to the salesperson. She proceeded to tell me about their customers’ typical reaction to the accompanying insurance cover purchase and three things, from the conversation, stuck in my mind:

  1. Many of their customers opt not to take the liability cover even though it leaves them quite exposed.
  2. A surprisingly high percentage of customers ask for a refund on their insurance payments, at the end of the rental period, if they didn’t need to make a claim!
  3. Their customers are generally very distrustful of the insurance product they are buying. Customers are often unsure whether it will actually cover their needs if they have to make a claim.

To my mind, this random conversation captured 3 big problems the insurance industry currently faces:

Problem #1: Consumers often don’t value insurance

Insurance is quite an unusual product. Except for maybe a coffin and a fire extinguisher, it’s the only purchase I can think of, that you make but hope to never have to use.

Let’s face it. Buying insurance is usually an uninspiring ‘grudge purchase’ activity. Tedious paperwork, arcane questions, having to think about what can go wrong in your life. Is it any wonder that the experience is up there with a visit to the dentist? Of course, the reality is that should your home be destroyed in a storm or should you be involved in a car accident deemed to be your fault (especially with third-party injury) insurance can be the saving grace preventing potential financial ruin.

Problem #2: Consumers don’t always understand insurance

After going through the pains of considering the potential financial impact of personal tragedy, you are rewarded with the end product…a paper contract.

Not just any old paper contract, but a long-winded, very conditional and often confusing document. How exciting! Again, is it any wonder insurance customers can’t or don’t want to take the time to understand the precise nature of what some deem to be the world’s most boring product?

Problem #3: Consumers generally don’t trust insurance companies

To highlight the trust issue, I turn to the most popular definition of “insurance company” from the crowd-sourced urban dictionary:

“An affiliation of pirate-gamblers who accept bets called premiums. The dollar amounts of the premiums are non-negotiable but the amounts of the claim settlements, should the company lose the bet, are rarely delivered without argument.” Insurance Company (Urban Dictionary):

Whilst the quoted source may be a parody, I believe the underlying inclination signifies the typical level of distrust that consumers have of insurance.

Don’t get me wrong. I believe insurance plays a critical role in our lives and insurance companies can provide a great service as well as a very rewarding career path. But, when it comes to the general consumer view of insurance there seems to be an issue.

Ask 10 random people on the street to describe “insurance” in 3 words and you can be nearly sure at least one person will allude to issues of distrust

InsurTech to the rescue?

So what is the industry doing to solve these problems? It appears that the nimble insurance technology start-ups (InsurTechs) are playing a large part in leading the way in attempting to overcome these issues. Below, are three InsurTech companies focused on addressing these issues and arguably changing the insurance world for the better:

Solution # 1: Improved Value – METROMILE

Telematics has been around for a few years now. Particularly in Italy, the UK and the US.

Onboard car technology is used to monitor and potentially assess the driving behaviour of each individual driver. Thus moving insurance from a pooled pricing model to a more individual specific model. One where the underlying policyholder risk is more closely monitored.

These telematics technology devices (also known as a “black box”) are able to pick up a number of diverse driving metrics such as:

  • mileage
  • location
  • time of day
  • driving frequency
  • behaviour around hazardous zones
  • speed
  • rates of acceleration
  • braking habits

This information can then be considered in a more accurate and individualised pricing model. One that potentially allows the previously trapped (i.e pooled) policyholder to break free from his or her age or gender (non-EU) status etc and prove their worth as a safe driver that is a good risk and unlikely to have an accident and hence claim.

As well as young male drivers, low-mileage drivers also benefit and this is the market which Metromile have targetted.

The usage-based customisation of insurance certainly seems to be keeping their customers happy with policyholders reporting they feel like they are getting a fairer deal. After all, should a low mileage, safe driver really be subsidising a riskier high mileage driver just because they share common old-school rating factor characteristics?

Metromile have been forging ahead with this lifestyle app-based continuous digital engagement model since 2011. And they show no signs of slowing down. In late 2016 they raised US$192 million in funding through which they acquired a carrier enabling them to now underwrite their own policies.

Solution #2: Better Simplicity & Understanding – TROV

The Trov promise:

“As simple as Tinder and as beautiful as Airbnb”– Scott Walchek: CEO of Trov

Trov provide on-demand insurance for personal items that can be toggled on and off via a few simple taps from your phone. They aim to provide the mobile generation with easy protection which they can enjoy “without worrying about rigid policies and confusing fine print”.

In addition, Trov seems to be jumping on the personalised cover bandwagon – treating policyholders as individuals instead of an average risk within a cohort. Their flexible app gives customers the option to tweak their cover towards their own personal circumstances. As one customer put it: “Why pay for an expensive insurance plan designed to cover your worldly belongings when all you really care about is your mountain bike and your laptop”.

“Protect just the things you want – exactly when you want – entirely from your phone”– Trov Website

This simplicity and flexibility seems certain to appeal. I personally like the idea of being able to quickly and easily protect my mountain bike by getting temporary insurance for the times when I do actually take it out and use it. And if a claim is required, it’s all handled via an in-app chatbot. Insurance for the smartphone generation indeed!

Whilst I do wonder how they counter fraud (given the ability to so easily turn the cover on and off), as we are living in the age of convenience, it would seem that this model is sure to appeal beyond just tech-savvy millennials.

Solution #3: Enhanced Trust – LEMONADE

The poster child of InsurTech. Or at the very least the king of savvy InsurTech marketing. When they shout about paying a claim in 3 seconds, using AI not actuaries and bots not brokers it certainly makes one stand up and take notice. Lemonade began selling insurance nearly 2 years ago and have now amassed a sizeable level of funding and following. They promised to bring trust back into the insurance world – the way it should be and how it was in the beginning.

The tools of their trade: behavioural economics and artificial intelligence.

Their promise to the end customer: simplicity, convenience and affordability.

All done under the guidance of highly regarded chief behavioural officer, Dan Ariely.

But back to the trust issue. How is Lemonade approaching it? Their business model attempts to disrupt the cycle of distrust between insurer and insured. This is done by separating the pool of risk capital from the company’s own 20% flat fee. Essentially this model aims to remove the incentive for the insurer to minimise claim payouts on the basis that doing so will not affect their bottom line (the remaining 80% claim pot gets paid out to small peer groups under a ‘giveback’ scheme, after some unavoidable expenses such as reinsurance cover).

Basically, the deal is: Trust us to pay out your claim quickly, with minimal fuss and without any sneaky “catching you out in the fine print” shenanigans and we will trust you to only claim if it’s genuine.

“Knowing that every dollar denied to you in claims is a dollar more to your insurer, brings out the worst in us all… Since we don’t pocket unclaimed money, we can be trusted to pay claims fast and hassle-free. As for our customers, knowing fraud harms a cause they believe in, rather than an insurance company they don’t, brings out their better nature too. Everyone wins.” – Dan Ariely: Chief Behavioural Officer at Lemonade

The behavioural implication, with the removal of potential conflict, is that the enhanced 2-way trust will drastically reduce fraudulent claims. This, combined with the operational cost efficiency savings from AI and technology will allow the company to have happy customers and still make a sustainable profit.

At least that’s the theory.

Now, whilst I love what they are doing, I’m not entirely convinced their model is altogether different from some of the smaller mutuals. Especially those that still maintain some level of social bonds. Maybe I’m biased because they don’t seem to like actuaries, but I also wonder whether their pricing, underwriting and risk management will allow their loss ratios to stay low enough to not impact on their 20% flat fee over the long term. It takes some time for reality to test the theory, in insurance. So I, for one, will be watching the Lemonade space with interest.


So is insurance really broken and in need of fixing?

Firstly, let’s not forget what insurance is all about. In essence, insurance is about the pooling and sharing of risk. Swapping an uncertain, and potentially large, outgo for a small(er) more certain outgo (the premium). This is unlikely to change and insurance companies obviously already do this.

But, I do believe, there is a need to modernise, especially in relation to the customer experience. I don’t see InsurTech companies causing a complete revolution. But they are likely to play a big part in the ongoing insurance evolution.

What do you think? Does insurance need to evolve? Is InsurTech the answer to the customer experience issues? Are these InsurTechs all marketing talk and lacking substance? Will the asset rich insurance incumbents ultimately lead the way in the unfolding tech world evolution?

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Actuaries and Autonomous Vehicles

In 2017 I spent 6 months on a Fulbright scholarship, in the desert heat of Phoenix and Tempe at Arizona State University. This was also the location where Uber and Google’s Waymo decided to test their artificial intelligence powered driverless cars.

Sunny weather and flat, pot-hole free roads provided an ideal testing ground for this grandiose experiment. In addition, Arizona’s light touch regulatory approach meant that the state ushered in a tech boom where the cities of Phoenix and Tempe were flooded with autonomous vehicles

Watching and driving alongside these “computers on wheels” I was fascinated by how they interacted with their surroundings, seemingly just like any other vehicle. Aside from the large sensor on the roof they didn’t act or look much different from other vehicles navigating the city. My 3 kids, sitting in the back, would often joke that the robot car was coming for us. Yet they braked and accelerated smoothly, stopped at red lights and didn’t even honk at any of my bad driving behaviours.

Robots driving cars! If you had told me 10 years ago that I would be living and driving in a city alongside robotic cars I would have said it was pure science fiction. But it seems we are now indeed living in a different world. One that is leveraging technology, especially AI, to change our lives at an exponential rate. It feels like Moore’s law has run amok.

Just think, for a second, how driverless vehicles might change the world – reduced car ownership, car design radically changing towards comfort and luxury, more senior drivers, reduced taxi/bus/truck/delivery drivers, hospital and emergency services unburdened and huge improvements to rush hour traffic – to name just a few.

Of course, the diffusion of new innovation is in reality never linear and straightforward. For example, Uber’s self-driving cars have recently come under huge scrutiny following a tragic accident where a pedestrian was killed, whilst crossing a road, in Tempe.

Tragic as this was, I still believe that autonomous vehicles are much safer than human-controlled vehicles. Sure, the underlying AI neural nets may not be 100% robust to cope with all situations, but let’s not forget that 100 people die per day in the US in an auto accident with human drivers behind the wheel. At the time of writing, Waymo’s autonomous fleet has self-driven more than 5 million miles without a fatality. In my opinion, the researchers that are predicting vehicle autonomy will create a 90% reduction in accidents by 2050 are probably not far off the mark.

So what does this mean for actuaries? 

Naturally, the auto insurance world is going to get turned upside down as these vehicles become mainstream. Considering it’s estimated that more than 90% of road accidents today are a result of human error, personal car insurance will be redefined as risk shifts from vehicle users to vehicle manufacturers and software/hardware suppliers.

Attribution of liability will become a much more grey area as shown by AIG’s survey respondents when asked who would be “most liable” in crash scenarios involving driverless cars:

Source: AIG (The Future of Mobility and Shifting Risk)

As the inevitable driverless world takes over, many traditional auto-related risks will no longer be as prevalent. Risks such as those caused by reckless or distracted driving, speeding, running stop signs/red lights, unsafe lane changes, tailgating and road rage will be replaced by new emerging risks such as malfunctioning software and cybersecurity.

The migration and ensuing calculation of risk will be particularly challenging during the “chaotic middle” transition period where vehicle owners and the AI software share responsibility for the vehicle’s operation and any resulting liability.

Given the number of deaths attributed to vehicle accidents at present (over 1.2 million people die in road crashes each year, on average 3,300 deaths a day) mortality curves may also eventually be significantly affected. For example, the spike in mortality rates that we currently see around the late teens/early 20s (the “accident hump”) may start to flatten out.

Risk, and hence insurance, is the playground of actuaries so surely they will be at the forefront of untangling and understanding these uncertainties as the autonomous vehicle landscape unfolds.

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6 Reasons To Choose A Career In Insurance

“Is insurance boring?”
“Is insurance a good industry to work in?”
Source: Occasional Aspiring Actuaries.

Every year I give a number of talks to students interested in a career in Actuarial Science.

At times I’ve been asked questions, similar to the above, regarding the insurance industry.

I’ve summarised most of the points I usually touch on, in the infographic below.

Would you agree? Anything else to add?

Help me to sell a career in insurance to the next generation of actuaries!

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Actuary Vs Data Scientist

Many of my actuarial students are interested in data science.  They often want to know the main differences between actuaries and data scientists.

It is my belief that actuaries of the future will incorporate a lot more data science into their day to day jobs. Many actuaries should, therefore, be learning more about how to deal with extremely large datasets and how to use machine learning techniques and be able to, when necessary, move beyond more traditional statistical methodologies.

This infographic is my take on some of the key differences between the 2 fields at present. I think the differences will become more blurred over time.

This was originally posted on LinkedIn and generated some very interesting debate (155 comments).

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Adverse Selection: Friend or Foe?

As big data continues to increase, the insurance world seems to be moving towards more individualistic, granular pricing.

Consider ZhongAn, in China, for example. As an innovative digital insurer, utilising big data to its full extent, they are focused on micro-pricing premiums in a very personalised way. With more than 460 million customers acquired over the last 3 years, their digital and individual risk assessment approach seems to be working.

But is this move towards more individual risk-pricing a good thing from a societal point of view?

The insurance industry has traditionally claimed that not being able to accurately price insurance products, with regard to individual risk, will lead to the adverse selection spiral as the low-risk individuals in the pool reduce or forgo their insurance.

However, UK actuary, Guy Thomas, challenges this orthodox view by contesting that some adverse selection (and hence some restrictions on risk classification) is beneficial from a public policy perspective.

I have reviewed his, recently published, Loss Coverage book for The Actuary magazine.

Do you agree that some adverse selection (and hence restrictions on risk classification) may be beneficial for society as a whole? Or should insurers always be aiming for an “actuarially fair” premium?

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