Being an entrepreneur means finding our own ways to generate income, without the guarantees given by a permanent job.
Though in a sense, permanent employment is sort of vaguely defined too in the current world, as retrenchments have become common, and no job seems to be sacrosanct.
Being an entrepreneur involves a trade off between the uncertainty and the freedom and empowerment.
Now, what does being an Actuary add to this equation? What skills and thinking patterns from the actuarial realm can help towards entrepreneurship?
Here are some insights I have gotten so far.
Risk vs Return
Understanding risk qualitatively and quantitatively is a core attribute of an Actuary.
We determine what types of risk we can retain and what we need to mitigate or avoid. And without accepting a certain level of risk, we will not be able to get the returns we seek.
In the business world, there are various types of risks associated with the business we run - and they vary by type of business.
Capital-intensive businesses carry a higher financial risk. There is a reputational risk as well as the conduct of the business and individuals associated with our business reflect upon ourselves.
Liquidity risk needs to be monitored to ensure we have adequate revenue and cash reserves to manage costs, and ensure to scale costs carefully.
Strategic risks need to be considered too - there could be key people in the business or intellectual property that are essential to its sustainability.
Legal and Regulatory risks can break a business if not carefully monitored and managed.
We can use the "Probable Maximum Loss" concept, which is basically the worst case that is reasonably possible (not necessarily the absolute worst case where everything tanks), and think through how we can mitigate that.
Actuarial Control Cycle
The cycle of defining the problem, modelling solutions and monitoring results are very essential in running businesses. (See my earlier post on the actuarial control cycle)
Without understanding the problem or context in which we operate, we won't be able to offer the right solutions.
In some businesses we may build a solution, and in others we may distribute suitable solutions readily available.
We also need to keep a close eye monitoring the markets we serve to understand if the context has changed, if our solution needs to be updated, and gain other insights.
The Design Thinking framework is very useful in parallel, as it is better to go out with a Minimum Viable Product (MVP), test, and iterate, rather than spending a lot of time modelling what we think to be the perfect solution and lose precious time.
Diversification
Diversification is a cornerstone of insurance in many areas. Firstly, the very foundation of insurance relies on the law of large numbers, which makes insurance losses predictable (somewhat) with a sufficient scale.
Next, diversification between different types of customer segments, geographies, insurance types (eg life, health, motor insurance, annuities), distribution channels are widely employed by insurance conglomerates to provide a robust financial outcome. The logic is that when we have business from different areas that are not correlated, we will have (somewhat) independent revenue streams that in aggregate (total) should be consistent.
We can apply this concept to our business(es) in a few ways. First we can diversify our client markets across different segments and geographies.
Next, we can try to setup a few different businesses instead of focusing on just one. Admittedly this may dissipate the focus and cause us to build each business more slowly, but direction is often more important than speed, and we are building them for the long term.
Of course we may find that certain business verticals build up faster and more promisingly than others, then we can double down on those.
Demand and Supply
This is of course more on economics rather than purely actuarial, but it is important for actuaries too.
Ideally we want to operate in segments and regions where the supply is low and demand is high. Or we can differentiate our solutions to fit a niche segment with low supply and high demand.
This allows us to employ a "blue ocean" strategy where we can move strategically without getting into price wars and attract clients to us rather than spending too much time looking out.
Actuarial Judgment
Depending on who you ask, actuarial judgment is either a "sixth sense" of an actuary developed from deep experience, or an ability to make up numbers and assumptions from thin air and convince stakeholders they make sense. Or somewhere in between.
Whichever it is, the ability to connect the dots, creatively problem solve and think through strategies is a hallmark of an experienced actuary, and is where we contribute real value.
In the business world, we refer to this as business acumen, coming from deep business knowledge and experience.
In conclusion
There you go - who said that we actuaries are too square to be innovative entrepreneurs?
Kommentare