actuary's comments

Actuarial credentials aren't licenses. In the United States, they confer no privileges aside from the ability to sign a particular statement on the condition of a company's loss reserves. This is something that few actuaries will ever need to do.

Actuarial credentials are instead a market-based signaling mechanism, akin to a specialized technical degree. All signaling mechanisms are imperfectly correlated to whatever it is they're signaling for, but in my own experience, it's usually a good bet that an actuary who holds a credential will be more capable than one who doesn't. The market agrees and pays credentialed actuaries a premium. If credentials stopped being an excellent predictor of ability, there would be nothing stopping the market from disfavoring them. Note that there's one highly successful insurance company (Progressive) that has made this call and hires very few actuaries. Most companies wouldn't be able to follow their operating model, but that's a different conversation.

And if the actuarial societies and insurance companies are trying to preserve scarcity of actuarial credentials, they're doing a poor job of it. The test-taking process continue to be well-supported by insurance companies. Junior actuaries typically have all exam expenses paid and are given an additional 25 to 30 extra days off per year to study for exams. The number of credentialed actuaries has exploded (I think more than doubled) in the past decade. There are no quotas and no economic barriers after you get your first job.

I do like your comparison with Michelin-star restaurants. Michelin stars are a signifier of quality. The letters after my name are too.

Insurance companies. Look into the actuarial profession.

If the article were instead devoted to exploring the application of similar programs in a different context, perhaps it would have been named "Drive Safe or Else: How Car Insurance Companies Became Obsessed with Tracking Your Speeding Tickets".

There are clear benefits to charging insureds in proportion to risk, especially controllable risk. But of course these benefits need to be weighed against potential negative impacts. There's some discussion here about how to strike the right balance. It may be comforting to learn that actuaries, who design these risk classification programs, and regulators, who monitor and approve them, aren't just making this up as they go along. We're guided by principles, a basic summary of which [0] covers some of the topics discussed in this thread. Of course this only scratches the surface.

[0] http://actuarialstandardsboard.org/wp-content/uploads/2014/0...

It's probably not the section that most of you will be focusing on, but the "Insurance" section seems to be written by someone who doesn't know the industry. Insurers are absolutely already starting to monitor driving habits[1] and offering discounts for home monitoring devices[2]. Large property/casualty insurance companies are sophisticated competitors that don't hesitate to invest in promising new technologies or techniques many years before they pay dividends. The industry is anything but "stodgy".

The idea of a crowdsourced insurance company is not a good one (to put it mildly). The expected returns of an insurer are highly correlated with the returns of the broader market[3], because a typical large insurance company makes little to no money writing policies and generates most or all of its income from investments[4]. But maybe he's thinking about crowdsourcing the insurance risk itself, not the whole insurance company with its massive portfolio of stocks and bonds (although that's not what he said). In that case, you get an investment that yields X% a year until and unless the underlying insurance contract is triggered, in which case you lose your principal. These securities actually exist[5], but as you might imagine they are not typically purchased by individuals.

I do think the insurance industry can be disrupted. It's harder for a startup to gain traction because economies of scale work differently in insurance than they do in other industries, but a Google or an Amazon could do some real damage if they wanted to invest the resources to do so. There are a lot of interesting problems to solve. But this article totally misses the point.

[1] http://www.progressive.com/auto/snapshot/ [2] https://www.statefarm.com/insurance/home-and-property/homeow... [3] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... [4] https://static1.st8fm.com/en_US/content_pages/1/pdf/us/2013-... [5] http://en.wikipedia.org/wiki/Catastrophe_bond

Nooo. No.

An actuary is someone who does actuarial work. Most people join the profession right out of college. They have no piece of paper other than their degree. They are still actuaries.

A credentialed actuary is someone who has gone through the entire educational system, which are a series of exams that are typically taken while working as an actuary. Credentials and the practice rights that come with them permit an actuary to do exactly one new thing. Only a credentialed actuary can opine on the adequacy of an insurance company's loss reserves (to make sure that the company has set aside enough money for all of the claims it will eventually have to pay).

Not many actuaries issue formal statements of actuarial opinion. All of the other work that we do can be legally done by anyone. There is nothing stopping an insurance company from hiring a large number of statisticians or whatever to do the day-to-day work, only bringing in a credentialed actuary to do the reserve opinion once a year. Companies generally don't do this because actuaries are more than just statisticians; they're business professionals with very deep domain knowledge. Credentialed actuaries command a premium in the marketplace not because of any "regulatory moats", but because the specialized education itself is very valuable. If that ever stops being the case then nothing is stopping the market from correcting itself.

Android is great but God help you if something breaks. Both of my Nexus phones stopped functioning after a year, and I know through very painful experience that after that point product support all but disappears. Presumably all of Google's good engineers move on to the next generation of products as soon as the last generation ships. In any case the pattern is pretty clear. If support is important to you, this is not a company you do business with.

Also a consulting actuary, here for the same reason as you. The number of actuaries replying here is pretty remarkable given the extremely small size of the profession.

As far as I know there is exactly one credentialed actuary working in any capacity in SV, but that number can only go up in the future.

The actuarial profession effectively requires a lengthy apprenticeship before practice rights are granted. A typical actuarial student starts their first entry-level actuarial job with only an undergraduate degree, and then spends the next five to ten years working full time under the supervision of senior actuaries while taking the examinations that eventually lead to being admitted into the profession. I do not know of any other profession that works this way.

Like any other product you buy, there is a reasonably transparent and competitive market for personal insurance.

Unlike any other product you buy, the price of insurance may not be excessive, inadequate, or unfairly discriminatory. This is the law. Unlike any other product you buy, personal insurance prices must be filed with regulators who have the power to block the sale of any insurance product that does harm to the public. Unlike any other product you buy, an entire profession is devoted to the pricing of insurance. You cannot even propose to sell an insurance policy if your pricing scheme has not been signed off on by a credentialed actuary. Those credentials are not easy to come by, and actuaries are bound by standards of practice that preclude us from doing anything unethical.

If my employer asked me to violate an actuarial standard of practice, I would quit on the spot, and I don't know any other actuary who wouldn't do the same. And finding an actuary willing to throw away their livelihood would only be the first step in the process of attempting to charge a consumer an excessive rate. There are so many safeguards in place that bypassing them all doesn't seem like it would even be possible, and even if it were, the insurer would not reap any rewards due to the force of adverse selection.

I don't often post on HN, and I know that the actuarial profession is not very well known, but arguing with an actuary about the pricing of insurance is like arguing with a heart surgeon about where the aorta is. I can tell you with the authority of an expert that you are mistaken.

This is quite incorrect.

I am a credentialed actuary responsible for the pricing of insurance risk. It is absolutely true that the consumer cannot price his or her own insurance policy (and I can). However, the end result of this is not some nefarious scenario where insurance companies are charging consumers ten times the fair price to insure their car or home. There is a functioning market for insurance, and consumers are going to tend to select the lowest-price option from amongst their choices in that market. This means that if you overcharge your customers, you will lose them to a competitor. Systematic mispricing of policies relative to the competition will lead to adverse selection, which is even worse - the insureds that you were making money on leave, and the insureds that you were losing money on stay.

Because of these factors, the insurer's goal is to price your policy as accurately as possible. Profit margins in the personal lines are so thin that many insurers engage in what's called cash-flow underwriting. The only money they make on the policy is the investment income they earn on your prepaid premium.

On top of all this, insurance (especially insurance marketed to consumers) is heavily regulated. Rate changes and new rating plans are scrutinized by each state's department of insurance. These regulators function like you wish the banking regulators did. They have enormous authority and their relationship with insurers is adversarial.

I could go on at some length but I will cut it off here. Suffice it to say that insurance, particularly property/casualty insurance in the United States, is about as far from a scam as you can get.

This is an excellent question. First, note that you will always need a place to live. If you rent, you have no option but to pay market rents forever. Another way to put this, in the language of finance, is that you are "short" housing. Purchasing a home covers this short position - a homeowner must pay their mortgage, but need not be exposed to market fluctuations in the cost of housing. In this sense, the purchase of a first home is a risk reduction technique.

Second, market forces keep the cost of owning a home below the cost of renting a home (in most markets).

Third, there are substantial legal and financial benefits to owning at least your primary residence. Home sales are usually free of all capital gains tax; mortgage interest and property tax are tax deductible; and homestead exemptions exist in many states in the case of bankruptcy.

Finally, there are only so many other places to put your money. It is difficult for an employee of a corporation making in the low six figures (i.e. for a typical reader of this website) to shelter more than around $30,000 of earnings a year from taxation. Because of the advantages listed above, once you max out your retirement accounts and have an emergency fund set up, there is often no better investment than the purchase of a primary home. Also note that paying down your mortgage early is equivalent to investing your money in a savings account that earns a rate of interest equal to the rate of interest on the note (at this point, this rate is much higher than the rate you can earn in a savings account). This is on top of all of the other benefits.

This is my area of expertise and I concur that the article is a thinly-veiled advertisement, but my account is relatively new and I don't seem to have the ability to flag it.

This is absolutely not true for insurance data, where the task is to predict expected losses per policy and (in any given year) perhaps only 1% of policies will have any losses at all. Even if your statement were true, this sort of analysis has nothing to do with business intelligence. The goal is to minimize adverse selection in a competitive marketplace. There is no such thing as "good enough". (If there were, I would be out of a job.)

I was in a similar boat, less than thrilled with both banking and academia. The property/casualty actuarial field was a very good fit.

My first thought upon clicking through was "Wow, a big crowd-sourced database of very cheap flights to random destinations. I think I know how I'm going to plan my next vacation!"

But then: "Sorry, only the contest owner can view flight details." And there's nothing more for me to see here and I go back to what I was doing. Very cool concept otherwise, though.