Inspiring New Ways of Thinking With Actuarial Innovation

Chinese Version

With the rapid advancement of artificial intelligence (AI) technology, the topic of innovation has garnered widespread attention. The actuarial community, including the Society of Actuaries (SOA), is actively engaging in vibrant discussions on how to navigate the evolving challenges. As a steadfast advocate for actuarial innovation, the SOA consistently has been at the forefront of embracing new ideas and championing the spirit of creativity. Beyond hosting the annual Young Actuary Innovation Competition—a platform for emerging actuarial talents to showcase their innovative ideas—the SOA integrates innovation into its strategic planning and daily operations across multiple facets, including research, education, member services, content development and presentations.

The Entrepreneurial & Innovation Section (E&I Section) within the SOA fosters and supports innovation and entrepreneurship among actuaries. In this article, the Section’s secretary, James Xu, FSA, FCIA, MAAA, FNZSA, interviews the chair of the E&I Section, Henry Chen, FSA, FCIA, MAAA.

Chen, who is a senior manager of Actuarial Consulting at Ernst & Young LLP (US), provides insights on nurturing the spirit of innovation within the actuarial domain and shares his vision for the future. He boasts over a decade of experience in consulting and corporate roles within the insurance industry, and his expertise spans technical domains, including actuarial transformation, where he has played a pivotal role in aiding numerous insurance companies to navigate and implement large-scale actuarial transformation projects, devising effective strategies to address associated challenges.

Chen embarked on his journey with the SOA’s E&I Section in 2021, assuming the role of vice-chair from 2022 to 2023 and subsequently stepping into the position of chair in October 2023. But his involvement with the SOA extends beyond the E&I Section. He previously contributed as a council member of the SOA Technology Section and has engaged in various volunteer capacities. His roles have included serving as the chairperson of the Actuarial Innovation and Technology Research Steering Committee at the SOA Research Institute, being a member of the SOA Volunteer Awards Committee and participating as a speaker and moderator at SOA annual conferences and workshops, among others.

Could you give us a brief introduction to the E&I Section?

The SOA’s E&I Section is dedicated to fostering innovation and entrepreneurship within the actuarial profession. Our core mission is to serve as a conduit for dialogue and education among actuaries passionate about innovation, entrepreneurship and the pursuit of novel methodologies and techniques in actuarial practice.

Our vision is to elevate the actuarial profession to new echelons by leveraging actuarial innovation and entrepreneurship to tackle complex challenges, thereby generating enhanced value for both the industry and society at large.

What new roles do you see for actuaries in the future?

I often discuss with colleagues the evolving landscape of the actuarial profession and the SOA’s initiatives. Here are roles and opportunities that we see emerging for actuaries in the future:

• Data scientists and analysts: With the rise of big data, AI and machine learning, actuaries are well-positioned to evolve into data scientists who can manage, analyze and extract valuable insights from vast datasets to inform business decisions.
• Technology innovators: As the E&I Section promotes the use of emerging technologies like AI, blockchain and Internet of Things (IoT), actuaries could become leaders in developing and implementing innovative technological solutions within the insurance industry and beyond.
• Strategic business advisers: Actuaries have the opportunity to expand their traditional roles to become strategic advisers, using their analytical skills to help businesses navigate complex risk landscapes, optimize operations and drive strategic growth.
• Entrepreneurs and startup founders: The E&I Section’s focus on entrepreneurship encourages actuaries to found startups or lead entrepreneurial projects, especially in the FinTech, InsurTech and health tech sectors.
• Cross-industry specialists: As actuaries engage in cross-disciplinary collaboration, they can take on roles that blend actuarial science with other fields, such as health care, climate change and cybersecurity, providing holistic solutions to new and emerging risks.
• Global market analysts: With the Chinese market’s dynamic role and the global perspective fostered by the E&I Section, actuaries can become specialists in international market dynamics, helping companies navigate global risks and opportunities.
• Educators and thought leaders: As the profession evolves, there will be a growing need for actuaries to serve as educators, trainers and thought leaders, sharing their expertise and guiding the next generation of professionals.

These roles reflect a broader, more dynamic future for actuaries driven by innovation, technology and a global perspective.

How do you see areas for actuarial innovation evolving?

Actuarial innovation is evolving in several key directions, reflecting both technological advancements and changing market needs. Here are some of the significant trends and areas where I see actuarial innovation continuing to evolve:

• Advanced data analytics and machine learning: Actuaries increasingly are leveraging sophisticated data analytics and machine learning models to enhance predictive accuracy in risk assessment, pricing and reserving. These tools enable actuaries to analyze complex datasets more effectively, identify patterns and make more informed decisions.
• AI integration: AI is transforming the actuarial field by automating routine tasks, enhancing decision-making processes and enabling more personalized insurance products and services. AI also can help in fraud detection and claims processing, making operations more efficient.
• Risk modeling for emerging risks: As new risks like cyber threats, climate change and pandemics emerge, actuaries are at the forefront of developing new models to quantify and manage these risks. This involves integrating nontraditional data sources and creating innovative risk management frameworks.
• Product innovation and personalization: The rise of InsurTech has enabled the creation of tailored insurance products based on individual behaviors and preferences. Actuaries are crucial in designing these products, using data to craft coverage that better meets customer needs while optimizing pricing.
• Health care analytics: With the health care industry undergoing rapid changes, actuaries are essential in analyzing health care data to improve patient outcomes, manage costs and develop new health insurance models that accommodate evolving care paradigms.
• Sustainable and ethical practices: Actuaries increasingly are involved in incorporating sustainability and ethical considerations into their work, especially in the context of environmental, social and governance (ESG) factors. This includes assessing the long-term impacts of investments and insurance products on society and the environment.
• Regulatory and compliance innovation: As regulations evolve, especially in response to new technologies and risks, actuaries are key in developing innovative compliance solutions that ensure industry practices align with regulatory standards while maintaining efficiency and competitiveness.
• Global market dynamics: Actuaries are expanding their roles to understand and navigate global market dynamics, particularly in rapidly developing markets like China. This involves adapting models and practices to different regulatory environments and consumer behaviors.

These evolving areas reflect the dynamic nature of the actuarial profession and its adaptability in addressing new challenges and opportunities through innovation.

What are some new practice area developments?

The actuarial profession is expanding into several new practice areas as it adapts to changing technologies, societal needs and economic trends. Here are some significant developments in new practice areas for actuaries:

• Climate risk and sustainability: Actuaries increasingly are involved in assessing and managing the financial implications of climate change and environmental risks. This includes modeling the impact of severe weather events on insurance claims, developing strategies for sustainable investments and advising on climate-related risk management for businesses and governments.
• Cybersecurity and data privacy: With the rise in cyber threats and data breaches, actuaries are crucial in quantifying cyber risks, pricing cyber insurance products and developing frameworks for managing data privacy and security risks. This area requires a deep understanding of both the technical aspects of cybersecurity and the potential financial impacts of breaches.
• Health technology and telemedicine: The integration of technology into health care, including the use of telemedicine, wearable devices and AI for diagnostic purposes, creates new opportunities for actuaries. Actuaries can work on pricing and risk assessment for new health insurance products, analyze health data to improve patient care and develop models to predict health care costs in this evolving landscape.
• Behavioral economics and consumer behavior: Actuaries are using insights from behavioral economics to understand how consumers make decisions about insurance and financial products. This helps in designing more effective products and communication strategies that align with how people assess risks and make decisions.
• Pension innovation and retirement solutions: As populations age and traditional pension systems face pressures, actuaries are at the forefront of developing innovative retirement solutions. This includes creating new types of annuities, advising on pension risk transfers and developing models to ensure the sustainability of retirement systems.
• Emerging markets and global insurance development: Actuaries are playing a key role in developing insurance products and risk management strategies for emerging markets where insurance penetration is growing rapidly. This involves adapting actuarial models to local conditions and regulatory environments and understanding the unique risk profiles of these markets.
• InsurTech and digital transformation: The digital transformation of the insurance industry through InsurTech startups and initiatives has created new areas for actuarial practice. Actuaries are involved in developing and validating models for digital platforms, working on data-driven underwriting processes and exploring innovative distribution channels.
• Ethics and fairness in algorithmic decision-making: As algorithms and AI play a larger role in insurance and financial services, actuaries increasingly are focused on ensuring that these systems are transparent, fair and ethical. This includes assessing algorithmic biases, ensuring compliance with regulatory standards and developing frameworks for ethical AI use in actuarial work.

These developments reflect the expanding scope of actuarial work as the profession continues to adapt to new challenges and leverage opportunities across diverse sectors and regions.

What are the opportunities and challenges to entrepreneurial growth in the field?

In the actuarial profession, entrepreneurial growth presents both significant opportunities and notable challenges, reflecting the evolving landscape of the industry and the broader economic environment. Figure 1 details some opportunities and challenges that I see.

Despite these challenges, the actuarial profession is well-positioned to lead and thrive in entrepreneurial ventures, especially as the demand for innovative solutions continues to grow in the insurance and financial sectors. By leveraging the opportunities and effectively navigating the challenges, actuaries can contribute significantly to the entrepreneurial landscape within our field.

How are innovations generally understood and applied in actuarial work? Can you give us some examples of one-time novel methodologies and techniques that have become widely accepted in actuarial practice?

In the actuarial domain, innovation is often recognized as enhancing risk management via new methodologies, techniques, products or services. This involves leveraging cutting-edge data analytics, AI, machine learning and broader tech innovations to enhance the accuracy, efficiency and scope of actuarial models. Furthermore, actuarial innovation also includes the creation of novel insurance products, refinement of pricing strategies, optimization of asset-liability management approaches and exploration of new markets and customer segments.

What are the challenges to promoting innovation generally in the field? What are the opportunities?

A primary challenge involves increasing awareness of the importance of innovation. It’s crucial to underscore the value of innovation both for individual career progression and the broader advancement of the industry. Additionally, the inherent risk-averse nature of the actuarial profession may impede the acceptance of new approaches, methodologies and innovations.

However, the landscape is also ripe with opportunities. Actuaries possess strong technical backgrounds and extensive industry experience, which are valuable assets for driving innovation in the industry. As technological advancements continue and market demands evolve, there are increased possibilities for the actuarial profession to adopt new technologies and engage in cross-industry collaboration. For example, actuaries can apply their expertise to new scenarios, creating new solutions and business models.

As someone with a Chinese ethnic background, what’s your opinion on how the E&I and other SOA sections can help Chinese actuaries?

With China’s evolving role and increasing prominence in the global economy, actuaries in various industries, such as insurance, are presented with unique opportunities and challenges. The SOA sections, including the E&I Section, serve all SOA members, including those practicing in China. Section knowledge- and experience-sharing, global networking, innovation and entrepreneurship upskilling, and cross-cultural communication and learning are all readily accessible to Chinese actuaries—and quite helpful.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

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