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HOW ACTUARIES SEE THE WORLD WHAT IS AN ACTUARY? 2 PART SUPER-HERO. PART FORTUNE-TELLER. PART TRUSTED ADVISOR. ACTUARIES ARE EXPERTS IN: • Evaluating the likelihood of future events—using numbers, not crystal balls. • Designing creative ways to reduce the likelihood of undesirable events. • Decreasing the impact of undesirable events that do occur. 3 WHAT DO ACTUARIES DO? WE MANAGE RISK • Actuaries use a combination of strong analytical skills, business knowledge, and understanding of human behavior to manage today's complex risks facing our society. 4 WHAT DOES RISK HAVE TO DO WITH IT? 5 THE FUTURE IS UNCERTAIN AND FULL OF RISK. WHAT IS RISK? • Risk is the chance that an undesirable event will occur, but risk is also opportunity. That's where we come in. 6 YOUR TURN! Let’s play an insurance game! 7 HOMEOWNERS INSURANCE GAME: Round 1 The Setup: • You have $100 • You will buy a house for $60, leaving you with $40; not enough to replace your house if it is destroyed • You live in an very risky area, so the likelihood of your house being destroyed is once every six years • Do you want to buy insurance for $10? • If you buy insurance you will have your home replaced if a storm hits • If you do not buy insurance and a storm hits, you are out of the game 8 AUTO PRICING 101 HOMEOWNERS INSURANCE GAME: Round 1 BEFORE WE ROLL: OUTCOMES: • How many bought the insurance? • How many did not buy the insurance? • How many losses might we expect to see? • Roll the die and note the outcome. • How many losses did we actually observe? • How many homes did insurance replace? • Was anyone knocked out of the game? 9 AUTO PRICING 101 HOMEOWNERS INSURANCE GAME: Round 2 BEFORE WE ROLL: OUTCOMES: • Does anyone want to change their insurance buying decision? • How many bought the insurance? • How many did not buy the insurance? • How many losses might we expect to see? • Roll the die and note the outcome. • How many losses did we actually observe? • How many homes did insurance replace? • Was anyone knocked out of the game? 10 AUTO PRICING 101 HOMEOWNERS INSURANCE GAME: Discussion Is $10 a fair price for this insurance? • The insurance company needs to have enough money to pay for a $60 house when a storm comes. • How many times in 6 years does an insurance company expect to replace a house: 1 year in 6. • How much does it cost to replace a house: $60. 11 • How much money does an insurance company need to collect over 6 years to pay $60 once? • $60 • How much should the insurance company collect each year to make sure it has collected $60 over 6 years? • $10 AUTO PRICING 101 HOMEOWNERS INSURANCE GAME: Round 3 What happens if we change the rules? • Now a storm happens on rolls 3 and 4 • How many times in 6 years do we expect a loss? • Die rolls of 3 and 4 • 2 years in 6 • How much is a loss? • $60 • What is the insurance company’s expected loss over 6 years? • 2 x $60 = $120 • How much does the insurance company need to collect each year to make sure it has collected $120 over 6 years? • $120 / 6 = $20 12 AUTO PRICING 101 HOMEOWNERS INSURANCE GAME: Round 3 Why did the cost of insurance double? • The likelihood of a loss doubled • In round 1, the likelihood was 1 loss in 6 years. • In round 2, the likelihood was 2 losses in 6 years 13 AUTO PRICING 101 HOMEOWNERS INSURANCE GAME: Round 4 What happens if we change the rules? • Now a storm happens on a roll of 1, but it costs $30 to replace a house • How many times in 6 years do we expect a loss? • Die roll of 1 • 1 year in 6 • How much is a loss? • $30 • What is the insurance company’s expected loss over 6 years? • 1 x $30 = $30 • How much does the insurance company need to collect each year to make sure it has collected $30 over 6 years? • $5 = $30 / 6 14 AUTO PRICING 101 HOMEOWNERS INSURANCE GAME: Round 4 Why did the cost of insurance decrease by half? • The size of a loss was reduced by half • In round 1, the size of a loss was $60. • In round 2, the size of a loss was $30. 15 HOMEOWNERS INSURANCE GAME: Discussion Concepts: • How often claims happen is called frequency • The size of a claim is called severity • Frequency times severity is the cost of claims • One claim every six years times $60 per claim = $60 per 6 years = $10 per year • 16 Insurance companies have many more factors to consider: • Age of home • Geography • How the home was built • What the competitors are charging WHY DID YOU BECOME AN ACTUARY? WHAT’S GREAT ABOUT THE PROFESSION? LIFE AS AN ACTUARY… WHAT IT’S LIKE … WHERE DO ACTUARIES WORK? | 17 NOT JUST INSURANCE. Although insurance companies can’t function without actuaries, that’s not the only place you’ll find us. • • • • • • Consulting The Government Rating bureaus Colleges and universities Banks and investment firms Public accounting firms 18 WHAT’S GREAT ABOUT THE PROFESSION? TOP-RANKED JOB • No matter the source, actuary is consistently rated as one of the best jobs. US News and World Report, the Jobs Rated Almanac, CNN Money, and others all agree. GREAT SALARY • Actuaries are well compensated. Experienced fellows have the potential to earn from $150,000 to $250,000 (USD) annually, and many actuaries earn more than that. • Actuaries earn while they learn. An entry level actuary with 1-2 exams passed will bring in a starting salary of $45-$65,000 (USD) depending on region. 19 WHAT’S GREAT ABOUT THE PROFESSION? JOB SECURITY: • Actuaries enjoy certainty in uncertain times. We're always in demand as the world confronts risk. LIFE IN BALANCE: • More than a fulfilling career, being an actuary allows you to maintain a low-stress, highly sought-after work/life balance. MAKE AN IMPACT: • Actuaries manage today's complex risks facing our society. 20 WHERE WILL I LIVE? GEOGRAPHIC REGION United States CAS MEMBERSHIP (%) SOA MEMBERSHIP (%) WHAT 84.6 IS AN ACTUARY 68.6 Canada 8.6 17.6 International members 6.8 13.8 21 WHERE WILL I LIVE? 22 WHY DID YOU BECOME AN ACTUARY? • How I found out about the profession • Why I became an actuary • What I like best about being an actuary 23 LET’S COVER SOME BASICS… | 24 HOW DO I GET STARTED? If you want to be an actuary, start preparing now! • Follow a college preparatory curriculum of high school classes. • Take math classes every year. • Take advantage of Advanced Placement (AP) and advanced courses such as statistics and calculus. • Enroll in computer science courses to develop your computer skills. • Explore colleges and universities that offer actuarial science curriculum. • Look into scholarship opportunities. 25 WHAT ABOUT COLLEGE? • Among the college majors you might choose: actuarial science, math, statistics, economics, business and finance. • Your equation for success should include the following courses: finance microeconomics and macroeconomics calculus linear algebra calculus-based probability and statistics actuarial science courses, as available computer science courses business courses, such as marketing communication courses, such as speech, business writing and technical writing 26 HOW DO I STAND OUT? While you’re hitting the books, don’t forget to • Apply for scholarships. There are a number of scholarships open exclusively to actuarial students. • Look for internship opportunities. An internship will give you a head start on an actuarial career with relevant work experience. • Get involved with your actuarial or math club, if your school has one. • Talk to an actuary. • Start taking exams! 27 DIVERSITY PROGRAMS… | 28 TO DO THIS, WE ACTIVELY SUPPORT: • Summer actuarial programs for high school students so students can get comfortable with the profession. • Reimbursements for qualified minority students who pass either of their first two exams. • Opportunities for those who want more guidance on what it takes to be a professional in today’s economy. • Scholarship opportunities are available from the Actuarial Foundation and other organizations. 29 FIND OUT MORE… Follow us: QUESTIONS? | 31