wtf is an "ACTUARY"????

If you've got ambitious Asian parents, this is probably the career path they found most acceptable once they realized you were too dumb to become a doctor. In this career, you'd earn six figures the day you graduate, more than half a mill a year once you reach the top. And most people have never even heard of it, let alone know what the hell they do. Welcome to the life of an actuary. Yeah, even the name sounds boring. But here's the thing, these guys quite literally predict the future with maths. They price hurricanes before they hit. They price your health care based on how likely you are to die. They even priced Lionel Messi's left foot at almost a billion dollars. What does that even mean? I don't know. But by the end of the video, we will. You guys have been asking for this one for a while, and I read all your comments because I love you dearly. So let's find out what the hell an actuary is, what they do, how you become one, and whether or not you should become one in today's era. Let's go. According to Wikipedia, an actuary is a professional with advanced mathematical skills who deals with the measurement and management of risk and uncertainty. Great. That barely helped. Here's a better way to think of it. Actuaries get paid to look at something uncertain and put a price on it. So will you crash your car? Will the 62-year-old with high blood pressure have a heart attack in the next 10 years? Will Lizzo ever stop eating? An actuary works out the odds of these events happening and then turns those odds into a dollar value. So you're probably now realizing that insurance companies must be filled with actuaries, and you're right. The entire insurance industry is actuarial science. That doesn't mean actuaries are the scumbags, though. I think it's more like actuaries plus scumbag executives who will say they'll do anything for a bit of profit equals insurance companies. But anyways, actuaries are also working at sportsbooks setting the odds on tonight's games, at NASA calculating the odds a satellite gets destroyed by space debris, or at Netflix and Spotify modeling how many of you are going to cancel next month. Basically, anywhere there's uncertainty and money on the line, an actuary is in a back office figuring it out. How do they figure it out? Well, it's all built off a stupidly simple formula. The probability of an event occurring multiplied by the cost equals the expected loss. That's the foundation of every actuary's job. The difficult part in all of this and why they get paid very good money is in calculating the P, the probability of the event occurring, which can get broken down into three major ingredients. First, mountains of data. Second, statistical models. And third, assumptions about the future. If we're going to attempt to make predictions about future outcomes, we should probably study past outcomes. So, we need Lizo-sized data sets across literally everything. Every car crash, house fire, heart attack, hurricane, whatever. And get that data going back as long as possible. Then, we need to run that data through statistical models so that it's usable. And this often comes in the form of regression models. Finally, we've got to make assumptions about where we're headed. Is climate change going to make hurricanes worse? Is our life expectancy going to keep increasing? Is the lunatic going to bomb more or less women and children in months to come? And so, this is basically a very simplified version of the foundational loop actuaries go through, no matter which industry they're observing. Gather data, find the pattern, predict the future. That being said, they're not all built the same. So, let's break down the different types of fortune-telling nerds within the industry. There's basically five types you need to know about. Life and health, property and casualty, pensions, re-insurance and specialty, and then the modern non-traditional crowd. The first four are the basic [ __ ] of it all, but in recent years actuaries have been getting poached left, right, and center from tech companies, aerospace firms, fintech startups, etc. And that's what the fifth category is all about. But anyways, more on that later. First up, life and health. These guys are the ones putting a dollar value on your life. Life insurance bets on whether you'll die earlier than expected, and health insurance bets on how often you'll get sick. And the data these guys pull from is nothing short of insane. They figured out heavy smokers lose nearly a decade off their life. They know how many years obesity, alcohol, motorcycles, even your zip code will take off you. Every habit, every choice you make has a number attached to it in some database. And that's why when you apply for life insurance, they hit you with a whole bunch of weird questions and take your blood. They're not just being nosy pricks for the sake of it, they're collecting all the data they can and comparing you against millions of past humans to figure out exactly what premium you should be paying. The industry as a whole brings in around $3 trillion globally, which is how they can pay senior actuaries more than 300k a year. Now, if life and health actuaries are pricing humans, type two actuaries are pricing everything humans own. Your car, your house, your business, your dog, and maybe even your jewelry. So, what's the probability you crash your car multiplied by the value of the car equals the expected loss. And for example, if you're an Asian woman, P goes up absurdly high. And I'm allowed to say this because my mother is in fact an Asian woman. It's also just probably statistically true. Anyways, they're basically doing the same [ __ ] as the life and health insurance actuaries, but it does differ in a somewhat substantial way. And here's how. From a statistical standpoint, life's pretty smooth. People die at fairly predictable rates. But the type two actuaries, they got to deal with chaos. Most years are normal, and then every so often, a hurricane shows up and [ __ ] everything. And I mean everything. Like when Hurricane Andrew hit Florida in '92, the industry was expecting 4 to 5 billion in claims the morning of the storm. The final tally was 15.5 billion. Eight insurance companies went bankrupt overnight. Anyways, it's pretty big difference in how they calculate things. P&C actuaries have to price in catastrophe. The once-in-a-lifetime 50-year wildfire, the free hail storm, whatever the [ __ ] Trump's going to do next, every weird, unpredictable, highly impactful event has to be priced in by an actuary. And that's partly why it's a massive and growing industry. We've got climate change making things less predictable, geopolitical tensions all across the world, and entirely new categories of risk like cyber-related risks that barely existed 15 years ago. Globally, it's around a $4 trillion industry. And so again, senior actuaries in P&C easily pulling 300k plus. The third type of actuaries are the ones who focus on pensions, which is obviously a little different because rather than pricing outcomes, you're basically starting with the outcome and then trying to work backwards from there. So let's say our buddy Jeffrey is a public school teacher who's guaranteed a pension of $4,000 a month for the rest of his life once he retires at 60. Now we work backwards. How much money does the school district need to set aside today to make sure Jeff actually gets paid the four grand pension for the rest of his life? And there's three main levers that swing the maths. First, longevity. If Jeffrey lives 20 years after retirement, the math says X. If he lives 30 years after retirement, the math says X plus a hell of a lot more. And so imagine the longevity estimate being wrong across millions of people in your pension fund. Yeah, a major [ __ ] catastrophe. The next big assumption baked in is investment returns. If we're assuming Jeff dies at 85, 20 years after retiring, and he needs 52k a year, that's a little over a million dollars in total. But we're obviously not just going to set aside a million dollars the day Jeff signs up to receive the pension. We're going to put aside a much, much smaller amount and invest it hoping that it compounds to the amount we need once he does retire. But in order to know what smaller amount we need to invest initially, we need to make an assumption about what the compound rate will be on a yearly basis. Do we go with 7%, 5%, 10% over a 30 or 40-year time period and then across millions of pensioners? Getting this figure right is the difference between a fully funded pension and a bunch of starving old people with no money. Third big assumption they've got to work with is inflation. Pretty self-explanatory, but figuring out how much our money is going to drop in value over the course of 40 years is a pretty difficult task. With an aging population, this industry's massive these days. And in countries like mine, Australia, we're forced to invest at least 9% of our income into a superannuation fund, so that there's no pressure on the social security system to pay for everyone once we get old. I think it's been one of the best ideas the government's come up with. Basically, just forcing people to be smart and save for retirement. Type four actuaries are reinsurance and specialty. And these guys price the wildest bets in the entire profession. First, reinsurance, insurance for insurance companies. So, when a normal insurance company gets too exposed to a single risk, like maybe they've covered millions of Florida homes and can get wiped out by a single hurricane, they buy insurance for their own insurance. And so, these guys are just doing normal actuary work, but at a completely ridiculous and massive scale. And then there's the specialty actuaries who are pretty cool because they'll price stuff absolutely no one else is willing to touch. Things like satellite launches, things like Hollywood movies. Like, what happens if we're mid-production and the lead actor dies mid-shoot? Or what about the insurance for someone like Tom Cruise who does his own stunts? They'll price stuff like kidnap and ransom policies for executives traveling dangerous countries. They'll price athletes' legs. They'll price Bruce Springsteen's voice. All the weird [ __ ] rich people and companies want a plan B for. And most of this stuff runs through Lloyd's of London, an insurance market that's been running for over 300 years, starting back in Edward Lloyd's coffee house back in 1688. But now onto the final type, the modern non-traditional actuaries. And these are the guys who basically just didn't want to work in insurance. Remember, P * C = expected loss isn't a formula that only applies to insurance. It applies to literally any business where outcomes are uncertain and money is on the line. So, for the past 15 to 20 years, every industry that's woken up to that has been poaching actuaries. Big tech is probably the biggest. Google, Amazon, Tesla, Uber all have actuaries on staff. Sports books are another fairly obvious big one. And aerospace is one that's gotten massive lately. When SpaceX launches any kind of payload out into space, an actuary somewhere has priced exactly how likely that thing is to blow up on the launch pad. And so, that pretty much wraps up the different types of actuaries and where you might find them. But, how do you actually become one? And should you even become one? So, this part is brutal. You start with a degree. Maths, statistics, actuarial science, finance, economics, basically just anything quantitative. That's the easy part. Then you start the exams. Depending on which country you're in, you'll qualify through a different governing body, but it's basically all the same [ __ ] And if you qualify in one country, you can transfer to basically any of the others with a little top-up exam. But, whichever country you're in, you're looking at 7 to 10 university level exams, each one being 3 to 4 hours of brutal maths. And these usually have only a 40 to 50% pass rate. People will typically take something like 6 months to a year of studying per exam while working their full-time job. And so, it takes most people 5 to 10 years to fully qualify as a fellow. There is a saving grace though, companies pay for everything. Study materials, paid study leave, exam fees, and usually a salary bump every single time you pass an exam. So, even though you're getting for tuto, For tuto means getting [ __ ] you're at least getting paid for it. But, now the real question, should you actually do it? Well, for one, do you genuinely enjoy maths? And not just yeah, I was decent in school, or yeah, I don't hate it. You need to be able to spend hours in spreadsheets, running numbers, digging into data. You're basically Sherlock Holmes plus maths. You got to be super high conscientiousness on your big five and super high on your investigative interest in your RIASEC. You can get both from your first two assessments on Career Compass. And then you've got to be hella disciplined because you're going to be grinding for exams for the better part of a decade in your 20s. But if you do graduate, you're in one of the most consistently top-rated, recession-proof, six-figure careers in the world. There's still one more question though. What about AI? Well, AI's already deep in actuarial work as I'm sure you can imagine. AI handles the data crunching, actuaries handle the judgement calls. Meaning, which assumptions to use, which models to trust, what to tell regulators when the model goes sideways, etc. Again, this goes back to a broader issue we've touched on in previous videos. AI has no accountability. So you can't have an LLM sign off on a 50-year pension liability because if [ __ ] goes wrong, there's no one to sue. Anyways, the US Bureau of Labor Statistics predicts actuarial jobs to grow 22% from 2024 to 2034, which is seven times faster than the average job. Plus, if you do go down this path, even if you never actually work as an actuary, you've proven your skills as a disciplined, analytical problem-solver, which are skills almost anyone would hire. If you want to know more about your strengths, weaknesses, values, and maybe even see how certain careers and industries feel using simulations, check out my company Career Compass. We're building out some awesome stuff and people are really loving our products lately. Link's in the description. As always, hope you enjoyed this one. Please remember to like, comment, and subscribe. And I'll see you in the next one.