Quants at the Gate: The Unique Education of Actuaries

Universities typically emerge as gatekeepers of the professions, by wresting control over the training and certification that is required. The process generally begins outside academe—with apprenticeships and voluntary associations—and evolves toward a new norm of academic credit and degrees. Faculty then become the experts who determine the body of knowledge budding professionals need to know in a field—as they develop scholarship that supports that profession. Research-oriented faculty trained in doctoral programs emerge to lead in this process. These academics then determine admissions standards and curricular hurdles so that the profession’s leadership is confident that individuals have been sorted and screened for the best to surface as future representatives of that profession.

An academic discipline and a profession eventually converge through the relationship, division of labor and trust between universities and professional associations—and their mutual respect for the authority and the respective roles of one another. Sometimes, professional associations evaluate academic programs or even provide an examination at the end of the education process. But the growing portfolio of academic programs over the past century is the direct result of more and more professions coming under the purview of the academy.

One exception has been the actuarial field. Few of us know much about this occupation, nor appreciate the pivotal role that actuaries play in our lives. An actuary analyzes the financial consequence of insurable risk, and then, for example, sets premiums for insurance companies or evaluates whether pension plans are adequately funded. An actuary determines if a young driver of a powerful sports car should pay more for auto insurance than an aging professor who drives a 20-year old jalopy. An actuary determines our health insurance costs. No one gets out of this world alive—the actuary handles the hard part of forecasting the when and the how. These are the quants in the back office, invisible yet indispensable to the public. They play moneyball with matters far more important than professional sports.

The actuary applies sophisticated mathematics and statistics to the dilemma of risk: how best to quantify the unknowable and assess probabilities so that an uncertain outcome can be somehow anticipated. Their work might be hidden to the public, but their impact on everyday life is nonetheless significant. They have been called the bookies of the insurance industry. The trust that consumers have in their insurance companies when they hand over large premium payments today for benefits that might need to be paid out decades later results from the integrity and intelligence of actuarial professionals. Even with a mega-catastrophe such as Hurricane Katrina, the insurance companies were prepared to honor all legitimate claims.

Actuaries calibrate what becomes the necessary equilibrium between the self-interest of the individual and that of a corporation—so each can have the security necessary to transact a long-term relationship for an otherwise unknowable future.

Remarkably, only a minority of the 28,000 actuaries studied the discipline of Actuarial Science in college. The true gatekeepers for this profession are the Society of Actuaries (SOA), founded in 1949 (but with roots more than a century old) and the Casualty Actuarial Society (CAS), established in 1914. Collectively, they determine and test the knowledge and skills of those seeking to enter this highly selective field. Although open to all, this lengthy series of rigorous exams serves as a sieve that limits the number of candidates who successfully complete the gauntlet.  Standards have been established with about a 50-50 chance of success on just the first two of the several examinations. The content of these exams is written by committed volunteers in the SOA/CAS. This sequence of examinations is much more than comparable to the rigor of most university master’s degree programs both in the hours of study required and in the difficulty of the material. There are few independent professional associations with this much authority and autonomy over the credentialing of their members.

This is now one of the best-compensated fields for entry-level jobs, paying an average of $50-$60,000 to start. Some schools have undergraduate majors in Actuarial Science, for those who choose this seemingly dry field as teenagers. Given how invisible this is to most young people, the more prevalent path is a solid undergraduate mathematics or statistics major, followed by self-study toward the initial SOA exams. A shadow industry of test prep tools—study guides, videos, classes and online programs—has emerged to aid those on this path.

Yet another, now more common pathway into the profession is through a master’s degree programs in Actuarial Science. These programs are very appealing to talented students in their 20s and beyond who did not consider the profession initially as undergraduates, but would now like to seek a professional direction for themselves or perhaps change careers. For someone holding a full-time job, or otherwise away from the classroom for a couple of years, fearful of self-study, looking for a practical degree that builds on their more abstract undergraduate major, the draw of the Actuarial Science as a post-baccalaureate endeavor is powerful.

Typically, these programs are taught by a blend of academic faculty from mathematics and statistics departments and practitioners—generally current or retired Fellows of the Societies—who teach courses in their unique area of specialization. Given SOA’s and CAS’s selectivity, those with this credential often have the capability to teach complex material such as pension mathematics or survival models. The curriculum is typically aligned with the SOA and CAS examinations—and when the exam content changes, course content follows. The best programs go further, introducing students to the various corporate sectors that employ actuaries—life insurance, health care, predictive modeling, property insurance, or pension practice—so their graduates will have a more complete understanding of the profession they are about to enter.

These academic programs are seeing burgeoning enrollments—even though an academic degree is not necessary to become an actuary. The national focus on health care insurance, publicity on how the profession ranks in starting salaries and job satisfaction, and the growing need for actuaries in the fast-growing economies in China and India—have made advanced degrees in Actuarial Science more appealing.

Rarely does an established profession in a field as sophisticated, intricate and quantitative as actuarial science thrive outside the realm of academe, depend so much on a voluntary association of professionals, and yet not even require a college degree for entry. Even when higher education offers a degree in Actuarial Science, this field might be the major example of where academe humbly defers to the wisdom and hegemony of a profession.

Jay A. Halfond is dean of Metropolitan College at Boston University. Lois K. Horwitz is associate professor of the Practice and Chair of Actuarial Science at Metropolitan College.

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