What do Actuaries Do?

For those who don't know, I've been an actuary with the Society of Actuaries since 1994. To get there I had to take 11 difficult exams over 5 years, and continue to pay over $500 a year in dues. One question that actuaries have to answer over and over from the general public is, "What do actuaries do?" Few people know it even is a profession.

The long answer is that actuaries crunch a lot of statistics to analyze complicated business problems. The most common use of that skill is to determine how much a company should charge, or pay, for insurance. Most famously, life insurance. In my ten years of legitimate actuarial work, I determined how much changes in the law affecting Social Security would cost or benefit the trust funds over a 10-year period.

I still identify myself as an actuary often, and even among college educated people usually get a blank stare, followed by the "what is that?" So I try to explain what I just wrote above, and usually I still get a blank stare. In that case, I fall back on "actuaries count dead people."

What brought this up is the latest actuarial' rel='nofollow' target='_blank'>http://campaign.r20.constantcontact.com/render?llr=ilw6y9cab&v=001KOjYle_zlG_UZ6hIQhSudSpLclzxTP5Nznmw0kKeAUyBCxr8GbRImhSimDkYW6gUxez6ZBDFS5_nMvfB9LkbO3sETc8Ql2nsk0k_BR9qPqHzLZ1_ZwIgqw%3D%3D]actuarial newsletter discussed how other actuaries answer the question.

Did you know what an actuary was before reading this? If not, did this post help?

Quote: Wizard

For those who don't know, I've been an actuary with the Society of Actuaries since 1994. To get there I had to take 11 difficult exams over 5 years, and continue to pay over $500 a year in dues. One question that actuaries have to answer over and over from the general public is, "What do actuaries do?" Few people know it even is a profession.

The long answer is that actuaries crunch a lot of statistics to analyze complicated business problems. The most common use of that skill is to determine how much a company should charge, or pay, for insurance. Most famously, life insurance. In my ten years of legitimate actuarial work, I determined how much changes in the law affecting Social Security would cost or benefit the trust funds over a 10-year period.

I still identify myself as an actuary often, and even among college educated people usually get a blank stare, followed by the "what is that?" So I try to explain what I just wrote above, and usually I still get a blank stare. In that case, I fall back on "actuaries count dead people."

What brought this up is the latest actuarial' rel='nofollow' target='_blank'>http://campaign.r20.constantcontact.com/render?llr=ilw6y9cab&v=001KOjYle_zlG_UZ6hIQhSudSpLclzxTP5Nznmw0kKeAUyBCxr8GbRImhSimDkYW6gUxez6ZBDFS5_nMvfB9LkbO3sETc8Ql2nsk0k_BR9qPqHzLZ1_ZwIgqw%3D%3D]actuarial newsletter discussed how other actuaries answer the question.

Did you know what an actuary was before reading this? If not, did this post help?

I knew most of it, but mostly because of reading the WoO site and your "Ask the Wizard" section. I think what would help people, it would me, is how an actuarty spends their day. Do assignments last just a day, or week, or longer? I would imagine a fair amount of the work is putting things in report form for decision makers in layman format. Do you work one project or several at a time? And, how real was the show "Numb3rs?"

Quote: Wizard

In my ten years of legitimate actuarial work, I determined how much changes in the law affecting Social Security would cost or benefit the trust funds over a 10-year period.

I'm sorry, I went to sleep while reading that sentence. Was that a problem for you when you had that job? Also, I thought actuaries had something to do with the bird exhibits at the zoo. I guess not.

I can't speak for all actuaries, but I think it would be safe to say they deal with a small number of projects, but those projects can be huge in nature. As a Northern Exposure (Rob Morrow was the star) fan, and a math geek, I gave the show Numb3rs a chance. However, I found the acting stiff, and the math not challenging enough. I admire the writers attempt to explain mathematical concepts to the general public, but it was always something I already knew. I'm not saying it is a bad show, but it didn't grab me the way NYPD Blue or Homicide did.

Quote: Wizard

I can't speak for all actuaries, but I think it would be safe to say they deal with a small number of projects, but those projects can be huge in nature. As a Northern Exposure (Rob Morrow was the star) fan, and a math geek, I gave the show Numb3rs a chance. However, I found the acting stiff, and the math not challenging enough. I admire the writers attempt to explain mathematical concepts to the general public, but it was always something I already knew. I'm not saying it is a bad show, but it didn't grab me the way NYPD Blue or Homicide did.

Sounds like you had the experience I had when a show about pest exterminators came on. I watched most of an episode and wondered why I was watching an old job at home? As a layman I liked the math in Numb3rs and read once that all those formulas they would be working on in the background were real and not gibberish.

They need to explain more math to people. You don't even want to know how math-challenged the common home mortgage customer is for example.

You are the man, Wizard. I figured that you knew what you were talking about in the Social Security debate.

Of course, I knew what an actuary was. What I am surprised that people don't realize is that actuarial, or any other, predictions that involve mutiple variables decrease in accuracy as the SQUARE of their time horizon increases. It's like firing an arrow at a moving target; small errors exponentiate, not merely sum together. In other words, a prediction that looks at fifty years in the future is going to be twenty-five times as inaccurate as one than looks at ten years in the future.

Before anyone quibbles, of COURSE I realize that the numbers aren't that set in stone; it's more of an abstract concept than a mathematical formula. Obviously, predictions of the near future are more accurate than predictions of the distant future; this is trivial. What I'm curious about is, has anyone ever done an actuarial study on the effectiveness of actuaries? Do actuaries themselves know when their predictions become no better than guesses? At what point do randomness and unforeseen circumstances drown all the data in white noise?

As an insurance example, I would imagine that dramatically increased life expectancies greatly increased life insurance companies' bottom lines, which in turn meant that they were overcharging for policies (by underestimating policyholders' life expectancies). In turn, that would have meant there was "cash on the table" for any new company wanting to enter the market and offer policies at more competitive rates. I don't know enough about the history of the industry to say, but it's an interesting question.

Quote: mkl654321

Of course, I knew what an actuary was.

I'm sure its an enclosure for birds, the Wiz is wrong.

"An actuary is a large enclosure for confining birds. Unlike cages, actuaries allow birds a larger living space where they can fly" Wikipedia

MKL: Outstanding!

Do you pat yourself on the back with one hand while typing with the other, or do you wait until you're done with the whole post?

Quote: AZDuffman

I knew most of it, but mostly because of reading the WoO site and your "Ask the Wizard" section.

Ditto. Plus the 'Who is the Wizard of Odds?' bio.

One of my oldest friends is an actuary for the state. We have always made fun of him because he can never explain what his job is. So we make up explanations. He's real sick of it, but what does he expect. He's an actuary.

Quote: mkl654321

What I'm curious about is, has anyone ever done an actuarial study on the effectiveness of actuaries? Do actuaries themselves know when their predictions become no better than guesses? At what point do randomness and unforeseen circumstances drown all the data in white noise?

I've never heard of such a study. Most actuarial studies are terribly boring.

As an insurance example, I would imagine that dramatically increased life expectancies greatly increased life insurance companies' bottom lines, which in turn meant that they were overcharging for policies (by underestimating policyholders' life expectancies). In turn, that would have meant there was "cash on the table" for any new company wanting to enter the market and offer policies at more competitive rates. I don't know enough about the history of the industry to say, but it's an interesting question.

Actuarial tables assume that life expectancy keeps going up. Any company that didn't assume that would get priced out of the market.

Quote: Wizard

I've never heard of such a study. Most actuarial studies are terribly boring.

Which would be more exciting, a convention of actuaries or a convention of morticians? I'm sorry, I just can't help it.

I have a friend who is an actuary, so I had a general idea of what the job entitled.

This friend recently explained that there are more than a few people that being an actuary meant she worked with dead people! They were serious about it!

"Oh, so you prepare bodies for burial and stuff? Sounds like a horrible job!"

I knew a girl once who was an actuary (a rather junior one, she just graduated from college, and had passed her first exam, or, maybe a few of them, I don't quite remember). So, I asked her what she did at work, and she told me about some tables, they had to fill with numbers by fitting other numbers into some complicated formulas. There were like five people working on the same table at the same time, and they would compare their results when they were done, and if they did not match exactly, all five would start over.
I asked her why not just use a computer, and she said "well, of course, there is a computer, it calculates the table too, and its output has to match what we calculated by hand". That's when I realized that I would never be an actuary :)

Quote: Wizard

I'm not saying it is a bad show, but it didn't grab me the way NYPD Blue or Homicide did.

Homicide is the best cop show, ever.

Wiz: Do you have to maintain some type of certification with the state?

Quote: EvenBob

Which would be more exciting, a convention of actuaries or a convention of morticians? I'm sorry, I just can't help it.

Morticians, and there can be little doubt. I think I would have a morbid interest in a morticians conference. Somebody told me recently that after somebody dies in a laying position he/she can sit up hours later. I find that fascinating.

Quote: Calder

Homicide is the best cop show, ever. Wiz: Do you have to maintain some type of certification with the state?

Yes, I agree about Homicide! Did you know I was an extra on Homicide once? I wrote about it here.

I don't work directly for the state of Nevada, nor do I need a special license here.

I shoulda known better, I remember reading that account earlier.

This could spark a new thread on the hottest female co-star. I'm confident I'm in the minority with a thing for Melissa Leo.

Quote: Calder

I'm confident I'm in the minority with a thing for Melissa Leo.

I would join you in that minority.

Holy cow!
And I thought I was the President, Vice President, and Treasurer of that fan club.

Quote: Calder

Holy cow!
And I thought I was the President, Vice President, and Treasurer of that fan club.

For the same reason about 90% of men prefer Mary Ann to Ginger, so would most pick Melissa Leo to the blonde detective (I forget her name), or any of the others. Melissa was approachable, down to earth, and liked doing things men like. I'm tempted to put up a poll, but I doubt many people know the show. It never did get great ratings.

Don't underestimate your demographic, Mr. Shackleford!

I'm for Ginger, and Melissa. Maybe I'm just a sucker for red-heads.

2009 edition

The Wall Street Journal rated The Best The Worst jobs in America. Actuary came out #2 behind mathematician

1. Mathematician
2. Actuary
3. Statistician
4. Biologist
5. Software Engineer

Despite the Monty Python song, the worst was lumberjack

200. Lumberjack
199. Dairy Farmer
198. Taxi Driver
197. Seaman
196. EMT

Actuaries have made #1 on such lists before. The profession is always near the top.

Quote: Wizard

Actuaries have made #1 on such lists before. The profession is always near the top.

Why?