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How Actuaries Work: What Leaders Need to Know

July 04, 2019

Actuaries are number crunchers, and they’re wonderful at achieving that goal. Their aim is to predict what might happen in the future so that businesses can decrease their risk when they invest in pension plans. That’s helpful, no matter where you work.

That being said, actuarial tables only present us with a solution that is based on quantitative science. What that means for most business leaders is that they sometimes don’t step back and look at all of the other factors that will have an effect on pensions over the long term, and which can put their business at risk in ways that are unexpected. A firm can follow a risk-based approach, therefore, and rely on actuaries to try and churn the numbers in the right way to make decisions, but they may be setting themselves up for issues that matter to their success.

In our new paper on what how actuarial science in 2019 needs to be tempered with leadership, we look at how leaders ought to look critically at findings from actuaries, and how these findings can be best employed in the context of bigger-picture leadership decisions. We explore why, even though we may be able to better pinpoint individual mortality and what the optimal age of retirement ought to be, we still need to start the conversation through organizational leadership.

In this paper, we’ll examine how business leaders need to start with the assumption that they are not going to be able to predict the future, no matter how much information they have, and no matter how convinced their actuarial experts are that the data they have collected is correct. While actuarial data is probably correct, there are significant limitations on how it can work in real life business scenarios. Leaders need to leverage their own insight as well as that of the consultants they trust in order to get the results they need.

At Marris Miller, we know that actuaries do a pretty good job in analyzing mortality and demographic movements. But when it comes to predicting market performance and viability over the long term, conventional methods tend to fail more often than not, which is where a leadership orientation is key.

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