Opinion

Why We Are Leaving

by Gil Student

In the ongoing debate over the relevance of an actuarial degree, my viewpoint is one that might add to the dialogue. I was an actuarial student for four years before I left the profession. For the past year and a half, I have been working in the credit risk department of a major credit card issuer and I am currently pursuing a CFA degree (I still read The Actuarial Review out of nostalgia, nerd that I am).

I strongly agree with Sholom Feldblum. While I am not able to judge my actuarial capability without bias, all indications were that I was at least an average actuarial student. However, my growing family was more important to me than my exams and I was therefore passing them very slowly. The frustration of failure combined with the knowledge of the many years it would take to finally finish exams led me to my current path.

Don Mango and Thomas Struppeck hit the nail on the head and confirmed every actuarial student's sneaking suspicion when they wrote: "Every profession puts up barriers to entry. If the goal isn't difficult to attain, it is typically not highly valued—the two are inextricably bound together...Members have a stake in the exams' staying difficult—maintaining the value of the designation."

The only reason that there are so many exams, and the only reason that they are so difficult, is to protect the jobs of already certified actuaries. To students who spend hundreds of hours poring through poorly written study material with the knowledge that every irrelevant footnote may be tested, that reason is not sufficient. If extra knowledge was gained by the added difficulty, maybe we could understand. Maybe. But the material can be learned to a working knowledge without being able to pass the exams. That is the ultimate frustration—knowing the material well enough to be able to teach a course on it but still being unable to pass an exam. And the only reason, and one that I have never seen admitted until now, is that some Fellows fear the competition of younger and more energetic colleagues. Evidently, decades of actuarial experience is not enough job security for the Fellows so they had to legislate their job security by requiring insurance companies to have certified actuaries sign off on their reserve opinions and then manipulate the supply of certified actuaries.

It certainly is not the case that successfully completing exams is a sign of good actuarial behavior. We all probably know actuaries who readily passed the exams, who are not very good. Yet there are many who would make exemplary actuaries but cannot because of the exam burden.

The question that every actuarial student asks is whether it is worth it. Coming out of college, everyone thinks that they can pass exams quickly. Sure we hear the warnings, but we figure that we're probably smarter than the rest. After we finally realize how hard these exams are, and everyone eventually does, we start to wonder whether all of the time we spend studying is being wasted. We are spending our youth studying for exams. Will it pay off?

We all have friends who are making more money in other careers without having to take exams. But can we do it? Are we to believe the often repeated mantra that passing actuarial exams is a guarantee of job and salary security? The average salaries for Fellows that I have seen range between $90,000 and $120,000. While that seems low, I view that as the guarantee that the letters FCAS offer. Is that kind of salary worth all those years of intensive study?

Mango and Struppeck wrote: "[An actuarial degree's] market value is to some extent a result of the difficulty."

But only "to some extent." Similar balances of salary and security are available elsewhere with less difficulty so an actuarial degree is not worth its purported value. Since passing actuarial exams is harder than getting a masters degree in statistics or business, actuarial salaries should be much higher than in other industries. But they aren't. So why bother? I see statisticians and MBAs making over $100,000 just because they stayed in one company and put up with the bureaucracy for ten years. Others finesse their way up the corporate ladder to much higher salaries.

I've posted my experience of leaving the actuarial field on actuarial message boards a few times and have been inundated with questions and private e-mails. The general feeling that I have gotten is that many students do not think that the actuarial path is worth the struggle. The same salaries (or more) can be made with similar work conditions and without any exam requirements.

You Fellows are probably smiling to yourselves. It worked! You still have your job security. But think about who leaves the profession. Those who are daring enough to leave their comfortable surroundings—the risk-takers. Those smart enough and presentable enough to be able to convince businesses to take a chance and hire someone without industry experience. After years of trying to shed the pocket-calculator, back-office image, you create adverse selection that will bring it back.

Mango and Struppeck wrote: "Actuarially inclined students considering actuarial careers must first ask, `Insurance, yes or no?'"

How many students really care whether they work in insurance or another similar mathematical or risk-related field? Why should it matter? Try asking some of those actuarial students who are cranking out rate filings whether they are married to the insurance industry. They probably hate insurance.

I analyze a different kind of contingent liability with a different cash flow. It took a while to get used to it, but I am using the same skills I was always using in a slightly different context. I am using the same spreadsheet skills, the same programming languages, and I still have the occasional obscure theoretical discussion about the statistical behavior of losses and premiums. The only difference is that we discuss loss rates instead of loss ratios and my colleagues are statisticians and MBAs instead of actuaries.

There are many different areas where an actuarial student's skills can be used and, particularly for those with only a few years of experience, there is very little practical difference. And the need for talent is very real. My company is dying for anyone with mathematical skills and I have recruiters calling me all the time for other companies with similar needs.

Mango and Struppeck also wrote: "Exams 3 and 4 teach the fundamentals of the `actuarial approach,' unique to our profession. We have both worked with financial engineers and capital market quantitative professionals, at firms such as Center, RiskMetrics, and Goldman Sachs, who expressed great interest in learning these actuarial techniques."

I agree. Actuarial techniques have not yet made it to mainstream economists or statisticians. So what? A colleague of mine, with a Ph.D. in econometrics, was undertaking the equivalent of a trend analysis. It was a grand experiment for the department which held much hope for slightly more accurate forecasts (the cash flows are extremely quick, so forecasting can be done with very recent data which mitigates the inaccuracies of untrended analyses). He was starting from scratch so I gave him some actuarial readings to help. He quickly picked it up and did a job that would make any actuary proud. All this, and he never passed a single actuarial exam! Can it be that someone can learn actuarial techniques without memorizing inane lists and studying obscure footnotes? It didn't even take him five to ten years to be able to do it.

Mango and Struppeck very wisely stated "Is our rigorous training a net benefit to our employers, after recognizing the costs?"

Perhaps the good old days are over. Maybe the time has come to shorten the study time and number of exams so that employers won't have to pay for so much "vacation" time. To employers, that is what study and exam time is. For five to ten years, they are annually paying for employees to have hundreds of hours for themselves. Multiply that by a few dozen employees and that is a cost of hundreds of thousands of dollars. Add to that all of the travel expenses of the frequent actuarial "seminars" in extravagant places like Bermuda. Wake up! If high salaries are most important for actuaries then reduce the other expenses that go along with an actuarial department because artificially inflating your worth is not working. The statisticians with whom I currently work would be glad to try their hand at insurance scoring.

Editor's Note: The Actuarial Review encourages the publication of opinion pieces. If you would like to respond to a published opinion or express a new one, please send your article to the CAS Office or send it by e-mail to esmith@casact.org. All submissions should be in electronic format with 500 words or less.