Insurance AI & Analytics Summit USA

June 2018, Chicago, USA

From Insight to Impact

A new series on The Exponential Actuary of the Future

Forward to Part 4
Back to Part 2

 

The future of actuaries cannot be ascertained without looking at the macro "meta-trends" working in the larger scheme of things... In the third post of a new series on The Exponential Actuary of the Future, which outlines multiple scenarios for the future of the actuarial profession, we look at there future scenarios: the Utopia Scenario, the Dystopia Scenario and the Escalation Scenario.

 

Using Futurism to making future possibilities

At the core of Issac Asimov’s famous Foundation Triology is a man who, armed with supercomputers, reams of historical data, and an army of assistants, accurately foretells the future for centuries. Does that sound somewhat like traditional actuarial science?

There has been little cross-pollination between actuaries and futurists even though most of them inquire about the same complex domains and have much to learn from collaboration.

Futurists admit that the future of human systems, all complex systems in fact, are inherently uncertain and rather than assuming that such uncertainty does not exist, they deal with it head-on, in two ways. First, they forecast in the form of scenarios rather than predictions.

Secondly, futurists use the uncertainty inherent in human systems to motivate people to action. “The game is not up”, to paraphrase Sherlock Holmes. Things are not as neat and deductive as he would have us believe. Standard predictions are not action-oriented; once the prediction is made, what actions are there to take? However, one can use the uncertainty of human systems to influence trends and events to advantageously. This is the approach that we take here in positiing scenarios for the future of the actuarial profession.

Some core building blocks can be laid that will form the groundwork for our narrative on future scenarios. 

These mindmaps and building blocks are:

 

Present

Same Industry

Different Industry

same work

corporate managers

banking, risk management

different work

new regulations

trailblazers

 

Future

Same Industry

Different Industry

same work

regulatory/compliance burden

banking, risk management

different work

unicorn data scientists

trailblazers

 

  • Same work that actuaries do currently but this risks that they will become regulatory compliance burden only in the future.
  • Same work on different industries such as micro-insurance, banking, quantitative finance and risk management.
  • New work on same industries; actuaries have the potential to become the unicorn data sciencists by combining their domain expertise with machine-learning modeling. unicorn actuaries innovating in insurance/future. Actuaries can also innovate in other industries by specializing in AI and in evaluating changes in insureable exposures, risk, first principles etc, analytics, problem-solving, emerging risks analysis, and strategy-making.
  • All 4 scenarios face similar meta-trends but diverge on their reactions and game playing to make different outcomes. Meta trend; future of work, future of education, fourth industrial revolution of AI, tech singularity; STEEP outcomes social technological environmental economic and political. Our reactions will define us. Will we remain at the cutting edge? Or laggards? Or first movers? Last adopters?
  • There is also time... Sequentially: first stage waking-up to obtain new skills and industries; second stage transforming our skillsets and image completely; third augmentation - augmenting our skills with AI.
  • Reality is complex; higher-order effects, nonlinear effects; many paradigms like us as a professional collective, as individuals, as regionals etc. But the world is VUCA; volatile, uncertain, complex, ambiguous.
  • Cognitive dissonance will always remain between the vision and the execution, the cutting edge and the present; This should not frustrate us and vision leaps ahead of implementation quite easily. Some cutting-edge technologies are: unsupervised, reinforcement learning, spiking neural nets, quantum algorithms, topological data analysis, capsule networks, IOTA tangle, blockchain

Once we have a mind-map of core building blocks, we can build a narrative that is more interesting than simple explanations.

 

Scenario Building for emerging future of actuaries

Based on meta-trends and SWOT of actuaries (see the previous instalment), a number of scenarios can be constructed as possible for the future of actuaries.

  1. First utopia scenario: the flourishing future of exponential actuaries
  2. Second dystopia scenario: the atrophying future of risk-averse actuaries
  3. Third escalation scenario: somewhere in between the first two scenarios
  4. Fourth scenario: wild cards. Wild cards mean extreme ‘black swan’ events that renders all projections obsolete
  5. Any other scenario

We will not elaborate on ‘any other scenario’ and the fourth scenario of wild cards, instead elaborating in detail the first three scenarios.

 

 

First Utopia Scenario

First utopia scenario, the flourishing future of exponential actuaries: actuaries enter non-traditional areas and make their mark felt. Analytics for ride-hailing, autonomous vehicles, blockchain and a host of other innovations are being done by actuaries. More and more actuaries favor working or creating startups like Insurtechs. Change is profound even in incumbent insurers as they have realized now that their exposures have radically changed in nature (likewise, the focus has changed from curative to preventive, IoT devices, wearables, autonomous vehicles, cyber risk) and must be evaluated now in different manner than what used to be done before.

The biggest global insurers have their own elite teams focused on innovation. Professional societies like SOA, IFoA, CAS and others have modernized to deliver more practical value to actuaries. Studies are supplemented and augmented by MOOC courses, seminars, workshops and volunteering. The spirit of collaboration, opensource modeling and data is in the air now. Resistance from the status quo, from leaders from previous generations, and from skeptics has evaporated, and actuaries are the applied futurists creating the future now. The actuary of the future becomes virtually unrecognizable from the actuary of today. Their skillsets of problem-solving, analyzing risk, analytics and domain knowledge proved invaluable to adapt to the jobs and work of tomorrow. Nassim Nicholas Taleb (NNT) does workshops on risk management and the classes are always oversubscribed by actuaries in their Associateship Professionalism Course. 

Actuaries thrive in multi-disciplinary cross-learning across teams, conquering new domains like micro-insurance, Bima, risk shield etc.

Subject areas that actuaries now know are:

  • Analytics and data science for ride-hailing (Frank Chang FCAS is already a lead actuary at Uber). We will see actuaries in Airbnb, Tesla, SpaceX (Gregory Ryslik FCAS PHD was head of data science at Tesla too).

  • Actuaries develop skillsets in complexity science and systems thinking. Their models are not spreadsheets only but non-tabular models built from the ground up on better assumptions like agent-based modeling, network theory, chaos and fractal theory. Actuaries are still not full-stack developers or software engineers but have as much programming proficiency as data scientists do. Alan Mills FSA, ND is credited as being the pioneer Isaac Asimov of actuaries for his seminal work on SOA in 2010 “introduction to complexity science: an invitation for actuaries”, work on futurism and ‘simulating healthcare' report using agent based modeling.

  • Actuaries can apply machine-learning algorithms and deep learning now. Already there are many actuaries working in DataRobot that does automated machine-learning; Jeremy Achin is the CEO, who is a top kaggler and actuary too.

  • Whether it's blockchain or drones or new, emerging products, risks and opportunities, actuaries can keenly evaluate their risks and suggest preventive mechanisms to address them. They don’t any longer wait for years of credible data to emerge to start pricing because they know that changes happen too fast now.

  • Climate change, environmental focus, poverty alleviation and micro-finance and impact investment has become a major source of attention for actuaries to better their planet and its inhabitants. At the same time, a multitude of innovators and entrepreneurs around the world are experimenting with practical ways to reimagine capitalism so that it works for all levels of society, as well as for the planet. In our terms, their common goal is to create a self-organizing, naturally self-maintaining, highly adaptive Regenerative form of capitalism that produces lasting social and economic vitality for global civilization as a whole. The apocalypse anxiety over our challenges (automation, climate change ruining our planet, social inequalities breaking the social fabric) finally gave way to practical action.

  • Actuaries are working in startups to solve many leading problems; Even now, SPXII chatbot for insurance has an actuary, Discovery Vitality Life was founded by an actuary

  • Emerging risks and futurism are given serious time and attention by actuaries to forecast not just numbers now, but emerging risks and opportunities. Hyperloop, blockchain applications, crypto-currencies in investment, space hotels’ insurance, making swarm algorithms for drones and all others are evaluated using erudite training and natural language processing and text analytics like CBInsights does.

  • In this context, every insurer is an Insurtech; the future exponential insurer has finally arrived and is described in detail in this post “The Exponential Insurer of the Future”.

  • Actuaries bring solid ethics into artificial intelligence to avoid scandals like Facebook fake news, Cambridge Analytica etc; they work on cyber analytics; they have automated machine learning, blockchain and quantum computers, which means that distance between thought and execution is miniscule. Big data needs bigger ethics! Execution takes 100% of actuaries' time. More creative, higher-order skills are necessary now, like creative problem solving, producing actionable insights to present in a user-friendly manner to the stakeholders and polymath focus.

  • Actuaries have become Mars and Moons citizens and are applying analytics on how that environment changes the normal exposures of insurance.

  • Massive simulations are done now instead of spreadsheet models. Apollo Baidu system of simulations for autonomous vehicles, machine teaching, reinforcement learning, complexity science is all being applied now. Who knows we might even make ‘general AI’ algorithms too like the machine intelligence society tries to do.

Blossoming of diversity within actuaries will exist. Frank Redington was way ahead of his time when he observed that an actuary who is only an actuary is not an actuary. The master equation for specializations for the future actuary looks like this:

future Actuary= actuary + data scientist + complexity scientist+ + social scientist + futurist

Of course, one cannot be everything so there will be specializations within these like:

  • future actuary= actuary+ futurist
  • Future actuary= actuary +data scientist
  • Future actuary= actuary+ complexity scientist
  • Future actuary = actuary + social scientist
  • Future actuary= actuary+ social scientist+ data scientist
  • And so on, more permutations and combinations

All of these will have new areas of specialization like Insurtech, blockchain startups, climate change analytics, epidemic risk-modeling, emerging risks analysis and modeling and so on.

How is doing so many types of work now possible? It will be possible as data-janitorial work which used to take up the majority of actuaries' time has been automated away and silos have broken down. Actuaries stand on the giant shoulders of AI with blockchain and automated machine learning, leaving them free time to achieve their true potential.

 

 

Second dystopian scenario

Second dystopia scenario; the atrophying future of risk-averse actuaries: actuaries became more risk-averse and insecure than they were previously. Automation, threats from data science and the fast pace of change were all too much for them to assimilate. Actuaries are now seen as compliance burdens allocated to only regulatory compliance work; the rest of the analytics and value addition have been transferred to data scientists who collaborate with actuaries only when they require insights from domain skills of actuaries. Professional societies like SOA, IFoA, CAS failed to innovate and became even more selected and restrictive to preserve the value of their designations FSA, FIA, FCAS. An actuary retains the feel of being a ‘secret society’ member but the profession is significantly downgraded.

Elon Musk is still inspiring to actuaries, but only on passive basis and not with an intention to follow in his footsteps of creating the future. A number of disappointed actuaries leave the profession to join more exciting analytical positions and the remaining actuaries that maintain the status quo are struggling to attract talent and future students to study actuarial science. Only getting designation in front of your name matters, not continuous learning across your skillsets. The previous generation of actuaries with decades of domain skills and experience have retired without passing on these skills to the current actuaries, leaving a huge vacuum.

In this context, current insurers are now just back-end underwriters of risks and there is huge pressure on margins and costs. Actuarial budgets are downsized significantly. Becoming a fellow is not a good career choice for most now; most only become associates and then diversify to other more exciting platforms and roles.

Insurtechs replace actuaries with artificial intelligence. The peer-to-peer basis of tapping into collective wisdom means that the peer can price the risks better than the actuary. Blockchain eliminates any operational and clerical work that actuaries might cling onto to show their worth. Actuaries would not be alone; underwriters, operational staff, accountants, sales agents will likewise be downgraded as a profession. Belonging to a ‘profession’ in the first place, instead of focusing on skills, will be seen as an outdated mentality. Any move towards innovation will be strongly combated by the VP actuaries in suits by getting bogged down in the details. The blossoming of actuaries into more work streams never occurred.

Actuaries are seen as a skeptical-cynic dying breed, and the final blow might come from big tech like GAFA (Google, Apple facebook, Amazon) and BATX (Baidu, Alibaba, Tencent, Xiaomi) who are rapidly entering deeper into insurance and healthcare. Zhong An’s success in insurance is staggering and unbelievable; next time your CEO moans about challenges of insurance, inform him/her with statistics from Zhong An and its products, market impact and strategies. These future insurers have pushed the dismal insurance penetration rates in societies to almost everyone being insured.

 

 

Third escalation scenario

By escalation we mean a continuous cycle where we rise up to the challenges, but then new challenges emerge and so on. somewhere in between the first two scenarios: actuaries fail to launch themselvesinto non-traditional areas but still retain control over traditional areas like insurance and pension. Within these traditional employers, they push for greater innovation. They are able to secure analytics positioning on their traditional turf, and data scientists and others are still sidelined by incumbent insurers and pension funds. Designation matters but so do innovation and skillsets. Niche status is maintained. A symbiotic relationship is built between insurers and the outside world that moderates, give and takes. There is no Elon Musk of actuaries but they are still trying their best to keep things in moderation (no rapid change but incremental innovation is still done).

Organizing all these changes in exposure is no mean task and will keep the actuaries and insurers occupied in this third scenario. Current challenges will not be there but new ones will; there will be more opportunities but more challenges simultaneously. We will come up with new insurance products to meet those challenges.

An instance of change in exposure for motor insurance is explained here. Once we reach level 5 autonomy (no need for human driver completely) in self-driving cars we will likely see a radical drop in the frequency of accidents, as 94% of accidents are human caused. Severity will increase in amounts and complexity because:

a) it will become more difficult to decide which party to assign fault to. Was it the driver, the car manufacturer, or the municipal having bad roads?

b) enter hacking. Cyber exposure will become a reality.

c) there will be shift from personal motor insurance to commercial, like Tesla including the price of insurance in its cars to Asia.

It’s a simple notion at heart; as society does something new, the need for insurance still remains and the exposures change. For Martian insurance to become a reality we first have to reach Mars; as for 3D-printed body organs, these must become reality for insurers to assess the change in mortality they will effect. Change will be so radical and exponential that the actuary must become an applied futurist to be able to assess the changes in exposures and forecast what new emerging risks and opportunities will soon arise.

 

 

Meta-Trends

Some meta trends worth noting for all 3 scenarios:

  1. increase in inequality. Rural, developing countries, poor may not get access to autonomous vehicles or face their own unique challenges like very bad infrastructure, unwillingness of consumers to have driverless cars etc. The future will not be spread out evenly and will come much later in developing countries unless they leapfrog.
  2. the car is not just one unit but composed of wide array of IoT devices (LIDAR, cameras, radars, sensors). Soon machines will transact to machines independently using cryptocurrency like the IOTA 3) machine teaching. Every car will teach every other car in a hivemind to exponentially improve its performance and accuracy of driving.
  3. this is just for cars; autonomous ships, drones, rails like hyperloop (with or without boring tunnels) will radically change the exposure of insurable risk all over.

There are too many technologies in life sciences and healthcare to possibly discuss here; 3D printed organs, enhancing human longevity, drones, deep learning, topological data analysis, CRIPSR genetic engineering for curing all current diseases, health effects and insurance on the Moon and Mars and so on. Thousands of startups around Insurtech, Fintech, life sciences, bio-tech, to Big Tech of GAFA (Google Amazon Facebook Apple) and BATX (Baidu, Alibaba, Tencent, Xiaomi) are disrupting just about everything from healthcare to insurance to everything else. How do our current employers, insurers, fit in all this? And how many actuaries will be working for GAFA and BATX and startups instead of current incumbents?

Swiss Re recently insured a coral reef to counteract climate change; level 4 hurricane or greater will trigger payment to the local NGOs and government in the areas to rebuild the coral reef. This product is a "first of its kind" in tackling climate change directly by insurers and has the potential to lead to an explosion of similar products, as there is no shortage of valuable natural resources that can be covered like Mangrove Forests in South Asia, Tundra in Russia and so on.

IoT proliferation will usher in machines becoming sovereign economic units and create the machine economy. As Machine-to-Machine is exponentially increasing, we will soon see the reinvention of whole business models and customer relationships. Indeed, the applications will only be limited by the imagination of businesses. For detail, please see “Dawn of the Machine to Machine Age and its implications for Insurance.” Our insurance clients in the future might be sovereign intelligent machines, robots instead of only humans.

 

 

Survey

To finish off this section, what probabilities would you assign for these three scenarios?

 

Assessing Future of Actuaries

Scenarios Probabilities

First Utopia Scenario: the flourishing future of exponential actuaries

A%

Second dystopia scenario: the atrophying future of risk-averse actuaries

B%

Third escalation scenario: somewhere in between these two scenarios

C%

Some other scenario (please define and explain it)

D%

Total probabilities (A% + B% + C% + D%)

100%

Why do you assign these probabilities? Please explain!

 

This can actually become a survey for actuaries to answer online to gauge their current sentiments and outlook.

 

See also: Artificial Intelligence and the Actuary of the Future

 

 

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