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Integrating Actuarial Theory with Practice

All this stuff we learn for actuarial exams are useless once we pass them! There is no use for these concepts at work, it's all so different!


I have heard this lamentation from numerous actuarial students, practicing actuaries etc.

But is it actually true?


What a waste it would be, if 6-10+ years of hard work, countless sacrifices, tears, joy etc all just culminates into a bunch of letters that just gets us jobs, business and recognition....

Isn't knowledge priceless? Is there no value to the actual knowledge we gain?


My experience is that not only is this knowledge valuable, it can and should be put into practice deliberately. And when we do that, we can go deeper in our applications in the actuarial field.


Let's go deep before we go wide.


I have been teaching actuarial subjects for the past 6+ years. Of course the joy of teaching itself is its own reward, but it has also enabled me to break into non-traditional practice areas, and to apply my knowledge strategically to provide unique value to my employers and clients.


However, I have found this to be a somewhat lonely journey. There are few actuaries and students of this mindset, I hope we grow in numbers.


But fundamentally I'm of the opinion that more can be done in our actuarial education to visibly grow the connection between theory and practice.


Here are some suggestions:


Update the actuarial syllabus to embrace modern applications and tools.


The core actuarial subjects we learn in our actuarial education are math intensive, which is as it should be. However, the bedrock of actuarial education is quite old, and the much of the formulae and approaches we learn come from a time when computers were not around or at best just newly invented.


Hence these formulae provided an efficient practical way of doing insurance calculations at that time. Yes actuaries actually did math by hand at work up to 30 years ago (I have seen actuarial sheets from the 80's and 90's with their workings).


But the modern actuarial practice is made possible by powerful machines and programs now. We have to provide the connections to practice.


Life insurance calculations are done using powerful actuarial software which themselves are getting more and more advanced.


Probability theory, models, etc are best deployed in Monte Carlo simulation approaches which is practical for General Insurance and Health capital modelling.


Credibility theory has been advanced by Bayesian and other predictive techniques.


By updating our syllabus to reflect modern approaches, we generate more interest from students and prepare them to hit the ground running when they start working (currently the learning curve is pretty steep and takes 6-12 months).


Incorporate practical actuarial experience into the actuarial qualification pathway


Currently the actuarial qualification is purely exam focused, which doesn't reflect the economic needs from actuaries.


We should consider incorporating practical work requirements into the Associateship pathway, and reports from candidates demonstrating how they are connecting theory from the exams to practice.


Democratise Actuarial Education


Actuarial undergraduate and masters degrees have mushroomed tremendously over the last 15 years, and the IFoA's approach of allowing numerous exemptions is ramping that up further.


But honestly, as an actuarial employer, do I prefer a candidate with an actuarial degree? No I do not.

Why?

The economic reality is that I need more generalists rather than specialists. I need team members with different strengths to me, different backgrounds etc. I need actuarial team members with knowledge in computer science, accounting, finance, cybersecurity, etc.


The proliferation of actuarial degrees means that my talent pool are all specialised in actuarial degrees - something I have and have enough experience to teach my team members about, but we lack diversity! (Diversity has better chances of bringing in business)


This may not be true of all countries. Indian & Pakistani actuaries tend to have non-actuarial degrees and pass actuarial exams on their own.


Fellowship exams are specialist exams that have a lot of practical knowledge, but tend to be focused on particular geographies (US, Canada, UK etc). This makes sense in the current way the systems are structured with centralised credentials etc.


What if we allow each country (with checks and balances) to design its own Fellowship pathway, or at least one exam?


And how do we design Fellowship pathways for non-traditional practitioners?


Make the cost of examinations and education less prohibitive


The total cost of exam fees alone from the first exam to the last Fellowship exam may exceed USD10,000 (if you don't fail at all!!) on the SOA pathway, and other actuarial accreditation pathways are also expensive, denominated in USD, GBP or AUD.

And this doesn't include the cost of materials and coaching products to learn for the exams!


International discounts are generally quite low at this time.


These costs may be fine for students in US, Canada, UK, Australia and other rich(er) countries, but it is prohibitively expensive for international students and many employers too.


As a result, many students are not pursuing the actuarial pathway or are giving up after failing one exam.


Only traditional actuarial employers who are in insurance, banks, consulting etc who are familiar with the value actuaries bring to their domain will pay for exams and the education.

This results in actuarial students exploring non-traditional pathways dropping out from pursuing actuarial qualifications (a huge loss to the student and the profession!)


As a result many math oriented potential actuaries who could have contributed to the advancement of our profession are dropping out!


There are systemic issues to be addressed in our actuarial education pathways in order to update it to modern times, keep students interested & motivated, improve the quality of actuarial graduates entering the workforce and to develop budding actuarial thought leaders who can advance our profession.


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