Data science – a new set of tools for actuaries

Written by David Johnson, Actuarial Tutor at BPP Actuarial Education

Why data science is crucial for actuaries

You might be wondering why actuaries need to learn about data science. After all, are actuaries not financial data scientists already?

The actuarial toolkit certainly overlaps significantly with the data science toolkit, and actuaries are well placed to extend their knowledge into the burgeoning field of data science. However, it’s best not to think of data science as another potential field of work for actuaries, instead – see it as a powerful set of tools that can discover patterns and insights that traditional actuarial methods cannot.

What’s important to note is that data science tools can be applied across the full spectrum of actuarial problems, and a skilled practitioner doesn’t need to be limited by traditional boundaries. I’ve seen actuaries apply data science techniques for personalised marketing and complaints handling – areas that historically would rarely involve an actuary at all.

When is an actuary NOT an actuary?

It’s becoming increasingly clear that graduates see actuarial science and data science as competing fields for their talents, often without outlining the distinction between the two.

The role of a ‘data scientist’ can cover a wide range of skills and experience. An actuary must pass rigorous exams and demonstrate ongoing professional development, which places professional obligations upon actuaries to understand the models they use, to communicate the results, and understand the inherent risks, whereas the data science industry is often focused on predictive accuracy of models.

But, as any actuary knows, the past may not be a good guide to the future, and it is key to be able to understand the circumstances when a model may fail and be able to quantify and communicate that risk.

As always, judgement and critical thinking remains essential.

The right tools for the job

Data science theory is now introduced in the actuarial exams, with a focus on theoretical understanding and visualisation, however, this only scratches the surface of what can actually be achieved with proper training.

The exams also introduce the R statistical programming language, which is a far more powerful tool than the actuary’s traditional weapon of choice: Microsoft Excel. If you’re used to spreadsheet modelling, don’t worry – it’s certainly not difficult to transform these techniques to achieve far more with the right tools, including Python, MS Power BI (Business Intelligence), and other specialist visualisation packages.

Lead, don’t follow

We are witnessing an explosion in data science, with large volumes of data and computing power becoming accessible to more and more people. Not only does this mean more opportunities for those who are able to solve problems with data, but for those who understand what questions can be asked of data in the first place.

Actuaries are well placed to take advantage of these opportunities due to their combination of technical knowledge, risk assessment and communication skills, a view put forward by John Taylor when he was president-elect of the Institute and Faculty of Actuaries (IFoA). However, actuaries are also at risk from others embracing this data science to solve traditionally actuarial problems.

Used well, data science capabilities can enable a business to extract huge value from its data. Organisations that fail to keep pace with this change risk failing behind innovative competitors or becoming unable to meet the needs of their clients.

Organisations that set up good systems that generate reliable and accessible data to help meet operational and financial goals can embed a culture of data-driven decision making, with actuaries helping to drive those decisions.

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At BPP we pride ourselves on understanding the needs of your business and finding solutions that plug that all-important skills gap. Our courses are designed to be practically applied and have instant business impact from day one.

Speak to us and find out how we can support your skills gaps and business goals.

About David

David Johnson joined BPP University Actuarial Education in 2020. He is an actuary with 15 years of post-qualification experience in the insurance industry, most recently specialising in data science.