What Actuarial Science Can Tell You About Hurricane Harvey, Driverless Cars, Health Care, and More

Statistics professor and actuarial program director Brian Hartman doesn’t call them “tragedies”—he calls them “uncertain events.”

“What actuaries do is . . . price uncertain events,” said Hartman. “They make predictions about when somebody is going to die, if are going to get sick, whether or not they are going to get into a car accident—all of these are so morbid!”

But rest assured: actuaries’ intentions are good, even if their subject matter is somewhat macabre.

“We insure [these events] so that if your house burns down we can get you back to normal,” said Hartman. “If you are in a car wreck, we can get you back to normal.”

Actuaries analyze data and make models in order to predict the probability of rare events that most people don’t even like thinking about. With these probabilities in hand, insurance companies can charge the appropriate premiums for insurance policies. Actuaries also examine retirement plans, pensions, and other unremarkable aspects of personal finance, but occasionally one of Hartman’s “uncertain events” makes the news. Take, for example, Hurricane Harvey, which caused $125 Billion in damages, most of which was due to flooding.

“Flooding is a very tough thing to insure because . . . if your house is flooded, then your neighbor’s house is flooded, two doors down is flooded, everybody in your area is flood damaged,” said Hartman. “There is no way to diversify the insurer’s risk by writing more policies. The losses are highly correlated.” And so the federal government has the National Flood Insurance Plan (NFIP), and they charge premiums and pay in the event of flood, because it’s not a profitable product [for private insurance companies].”

For Hartman, topics like catastrophic flood damage are part of the set of “fun problems” that actuaries get to tackle. Other “fun problems” in actuarial science include topics at the cutting edge of technology, like driverless cars.

“As [driverless cars] improve and become more common, there will be fewer accidents, which means that there will be fewer claims, which means that [insurance companies] won’t need to charge as much for insurance, which is great for policy holders,” said Hartman. “It will be interesting to see what that does to the auto insurance industry.”

Another area of interest in actuarial science is healthcare reform, a topic never far from the headlines. Medicare, Medicaid, and all health insurers employ many actuaries to assess the effects of potential policies.

BYU actuarial science students are uniquely prepared to handle the storms, autonomous vehicles, and healthcare reforms of the future. This is because in addition to a full curriculum of actuarial science, BYU actuarial science students also complete the entire statistics core coursework.

“Modern actuaries need to also be good statisticians,” said Hartman. “They need to be able to handle data, they need to be able to solve problems with large data sets, and [they need to] be able to find patterns in those data.”

Because computing technology has made it easy to generate models and manage data, effective actuaries of the future must also know how to apply these models to large amounts of data and interpret the results.

“There is more of an expectation of being able to handle data,” said Hartman. “Our actuaries need to be able to speak the language of statistics.”

The high salaries and job stability of BYU actuarial science alumni along with respected and tech-savvy professors have resulted in actuarial program growth in both quality and size. In a field devoted to “uncertain events,” there is nothing uncertain about the success of BYU’s actuarial science program.

Mitch Rogers

By Mitch Rogers Posted on