Foundations in Rome
Actuarial history traces back to Ancient Rome, in fact the term “Actuary” originates from the Latin word “Actuarius,” denoting a public notary responsible for recording financial and legal transactions. While different from the modern profession, the use of data to manage risks and make informed decisions has remained a constant throughout history.
Known as Tabularii, these ‘professionals’ handled financial matters for governments, businesses and individuals. Tasks included record-keeping, account management and financial record maintenance. The information or data served to track transactions, calculate profits and losses and manage risks associated with various business activities.
By accumulating and analysing data over time, these ancient Romans established the practice of using data to uncover patterns, derive insights and make predictions. It was this meticulous record-keeping and data analysis that formed the basis for today’s emphasis on data-driven decision-making.
The arrival of Actuaries
The actuarial profession began in 17th-century England when the first life insurance companies were established. These companies faced challenges in setting premium rates due to their need to assess risks and estimate financial reserves for future obligations.
To tackle these challenges, insurers started recruiting individuals with expertise in mathematics, statistics and data analysis, who are considered the pioneers of the modern-day actuaries we know today.
Actuaries adopted advanced mathematical and statistical techniques to analyse data and assess risks, responding to the growing complexity of insurance challenges and the availability of improved data. They focused on better-defined ontologies such as mortality rates, morbidity rates and other risk factors, establishing themselves as recognised experts in using data and statistics for informed decision-making in the light of uncertainty.
In modern times, the relationship between actuaries and data has become even more crucial with the advent of advanced computing and storage technologies providing the means to collect vast quantities of data. Actuaries now have access to more data than ever before, with the quality of the data continually improving.
Into the Future
The field of actuarial data science is continually evolving. Here are some potential ways in which an actuary’s relationship with data could be redefined in the future in light of advancements in technologies and the increasing complexity of the problems we aim to solve:
Enhanced Data-Driven Decision-Making
With the availability of larger and higher-quality data sets, actuaries will rely more on data-driven decision-making processes. This will involve leveraging advanced data analytics techniques, such as machine learning, to analyse vast amounts of data and extract insights to inform strategic decisions, risk management strategies and product development.
Increased Emphasis on Predictive Analytics
As data quality improves, actuaries will increasingly use predictive analytics to forecast future events and outcomes. This could involve developing more sophisticated predictive models that consider a wider range of data variables, and utilising advanced statistical techniques to make more accurate predictions. However, as accuracy vastly improves, we need to consider when risk management and the concept of risk pooling no longer become a concern, and what this could imply for the fairness experienced by customers.
Adoption of Artificial Intelligence and Automation
With advancements in artificial intelligence and automation, actuaries will incorporate these technologies into their workflows to streamline data analysis, automate routine tasks and enhance decision-making. This could involve utilising machine learning algorithms for data cleansing, data validation and data transformation, as well as leveraging robotic process automation (RPA) for data extraction and data manipulation.
Emphasis on Data Governance and Data Quality Management
As data becomes more abundant and diverse, it is likely that actuaries will play a greater role in data governance and data quality management. This will require the development of robust data governance frameworks, data validation processes and data quality controls, to ensure the integrity and reliability of the data used in actuarial analyses. Ensuring data quality and accuracy will be crucial to maintaining the credibility and reliability of actuarial results considering the ease with which vast amounts of data can be collected. As the saying goes, ‘garbage in, garbage out’.
Adaptation to Emerging Data Sources
Actuaries will need to adapt to the increasing availability of new types of data, such as data from wearable devices, social media and IoT devices. Actuaries will need to design new techniques and models to capture and analyse these emerging data sources, which will provide new insights into never-before-seen risks, customer behaviour and market trends.
Ethical Use of Data
With an increased focus on data ethics and privacy concerns, actuaries will need to navigate the ethical challenges associated with data use. This could mean developing ethical frameworks for data collection, analysis and use, as well as ensuring compliance with regulatory and legal requirements related to data privacy and ethics. Just because an actuary has access to a data set, it does not necessarily mean that it should be used. We only have to look at the wider issues around actuarial data collection and social media algorithms, and how it has impacted society at large.
Collaborative Approach to Data Analysis
Actuaries will need to increasingly collaborate with other professionals, such as data scientists, statisticians and technologists, to collectively analyse and interpret complex data sets. Collaborative approaches will involve interdisciplinary teams that work together to harness the power of data and leverage diverse expertise to address complex business and social problems.
One certainty is that actuaries will always have a reliance on data to drive informed decision-making. Recognising the importance of data quality and of adopting current and new analytical techniques are vital to ensuring that the insights derived remain relevant and valuable to insurers.
The importance of understanding your organisation’s data landscape and having a long-term data strategy is vital to ensuring that actuarial processes and actions do not become obsolete. If you need support on how to implement a data strategy that improves how you operate we can help you. Contact us.
