I have often been asked these questions: why did you switch from insurance to banks?
What’s an actuary? Are you better at being an life/health/property insurance actuary, fraud risk expert, credit and traded risk expert in banking, or, are you actually a Python/SAS developer/programmer?
I hope to answer these once and for all in this short article on what I have learned from being an actuary that works in banks, insurance, fintech and some more:
1. Diversification and law of large numbers
The law of large numbers is the foundation of at least how personal lines insurance and retail banking work. By spreading/sharing risk amongst large numbers of non-correlated customers, the variance is reduced and overall risk becomes more predictable and manageable.
2. Time value of money
Money should earn more money with time. By investing premium or deposits from customers while providing customers with insurance or other financial services is the traditional business model of insurance companies and banks. The time value of money is leveraged by Warren Buffet’s central businesses, and the fintech companies as well.
3. Use data; when data is scarce, use simulation
Data is the key. The better that a business is managing its business data the better the business will grow, all else being equal.
Use simulation when there is little data available such as catastrophic loss from natural or man-made disasters. This is directly applicable to banks’ stress testing, and the AI explorations.
4. Analytics works
I honed analytic/modeling skills/experiences by using both the most granular and the largest insurance data available and the aggregated loss and revenue in my actuarial trainings, by hands on building statistical and machine learning models, which in principle are still about bias and variance. These skills/experience have only gotten more enhanced with more experiences overtime by relentless learning and practicing.
5. Manage risk for protection and growth
Without saying, managing risk has great value. Not only that the business of risk managing has become trillion dollar industries, but also that should be part of the foundation of any rational business will based on.
Successfully managing old and new forms of risk is essential for protection and growth.
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