WHAT PRODUCT AREA IS RIGHT FOR YOU?

Actuarial work is typically separated into several areas of sub-specialization. 
Some of this may be obvious to you as you see that there are two organizations in North America that govern distinct areas of the profession (the Society of Actuaries and the Casualty Actuarial Society).  These two governing bodies work together on early actuarial education (for now, though this will change at the end of 2013) but the accreditation process is quite distinct between the SOA and the CAS .  Moreover, even within the SOA or CAS path, there are areas of sub-specialization that can make significant differences in your career.  As noted in the table below, Pinnacle Group typically identifies five major lines of business (aka product areas).  Choosing the right line of business for you is particularly important.  For reasons I’ll discuss below, actuaries do not easily move between sub-specialty areas.  Actuaries often develop a line of business expertise early and then remain in the same general product areas for the remainder of their careers.

Pinnacle Group estimates there are approximately 25,000 to 30,000 actuaries and actuarial students employed in the U.S. today. Generally speaking the five primary product areas in the US market are as follows:

% of US Actuaries (1)
Life & Annuity 26.5
Health & Managed Care (including Disability, LTC, Dental, and Group Life) 25.4
Pension & Retirement Benefits 26.0
Commercial Lines (P&C) 13.9
Personal Lines (P&C) 8.2

(1) Based on an analysis of the Pinnacle Group database (2/09). Non-actuarial product areas in which an actuary might be working were excluded from this analysis. Reinsurance actuaries were included with the product type they reinsure (e.g., life reinsurance)

All of the above areas offer long careers with plenty of interesting and rewarding actuarial work.  As is often the case with most career decisions, there are pluses and minuses with each path.  As an entry-level actuarial student, you may be fortunate enough to receive more than one job offer within the actuarial profession.  If this is the case, and if the competing offers are with companies that operate in different product areas, you will need to weigh the pros and cons of each opportunity before selecting the firm you’d like to join.  Part of that decision will be short-term considerations such as starting base salary, location and benefits.  However, when evaluating the long-term prospects of the opportunity, it is more important than you might think to consider “what line of business is right for me”?  This is not easy, as you don’t know what factors may influence your life in the years ahead but, as with any decision, you must work with the facts presented to you. The important point to remember is that you can’t make a wrong decision.  The actuarial profession, regardless of your area of sub-specialization, will provide you with terrific opportunities to learn and grow.

To help you make a decision that is most optimal for you given your career goals and interests, I’ve outlined the following three aspects to consider:

  1. Product Area Consistency: The product area in which you start your career is likely where you will end your career
  2. Marketability & Geography: Your product specialization will impact your ability to change jobs and geographic locations
  3. Compensation Potential: Your product specialization will impact your compensation potential

Product Area Consistency

As stated above, the product area in which you start your career is likely where you will end your career.  Researching our database, we found that 81% of actuaries stayed within the same product area for their entire career.  Furthermore, we found that of those actuaries who did change product area, 45% of them made that change within 2 years of beginning their career and 68% within 5 years.

The data shows that as you advance in your career, the likelihood of switching to a new product area declines significantly.  Why is this so? Let’s look at this from the employers’ point of view first.  When companies decide to hire an experienced actuary, they are looking to identify candidates with a proven set of specific skills.  The more senior the position, the more true this becomes, and therefore the less flexibility they will show in the hiring process.  For example, if the company is hiring an FSA who is expected to manage a staff of five individual annuity pricing actuaries, they will almost certainly seek to hire someone with both individual annuity pricing/product development experience and prior management experience.  The employer is expecting to pay this person a six-figure salary plus bonus and will not want to settle for someone under-qualified.  They don’t want to hire an FSA with life pricing and management experience, for example; or a technically strong annuity pricing actuary who has no experience managing a staff.  They want to hire someone who can join their organization as an expert, lead the staff and “hit the ground running”.  If the role allowed for less then they would be more likely to promote from within the organization.  They could pay less for the position and give a junior annuity pricing actuary an opportunity to step up into a managerial role. However, in this case they’ve chosen to go outside the company to find a candidate who meets their parameters.

Adding to employers’ reluctance to hire under-qualified applicants are today’s lean corporate structures and fast-paced business marketplaces.  Corporate budgets are tighter than ever and this has led many companies (not just insurance companies) to cut back on training and development of their staff.  Training is expensive and costs employers both dollars and time.  This is true whether the training is formal classroom instruction or on-the-job training,allowing someone to gain experience in a new area.  Adding to this cost is high employee turnover as numerous studies show that today’s employees feel less allegiance to their employers than they did in decades past.  So understandably, even at the most junior levels, companies look to hire individuals with “day one” expertise.  They don’t want to have you learning a new position for six or more months only to leave in two years.  They’d rather hire someone who can make an immediate impact.  There are lower costs and less risk with an experienced hire. This is a trend we have seen become stronger year over year particularly in a weak economic environment.

From the employee’s perspective it typically makes sense to stay within the same product area as well.  Once you begin working in a particular product area, you are investing in your career and developing expertise in that specialty. Over time, your employer’s recognition of your growing expertise and contribution to the firm will begin increasing your compensation and responsibilities.  For most individuals, it will make sense to continue along this path; to build upon your existing skill sets and be rewarded for doing so. This is what drives your career growth.  And for all the reasons listed above, it is easier to convince a prospective new employer of your worth if you have a proven track record in a particular product area.  A career switch from life products to managed care products, for example, requires “starting over” to a large degree.  As noted previously, most employers will not be interested to hire you in such instances.  However, in those cases where they do entertain hiring you, they will almost always discount your previous experience as not relevant to the current opening. As a result, you may face a pay cut or a position of lower responsibility.

Finally, there is the issue of exams. As of the writing of this book, no discussion of exams can occur without mention of the SOA’s plans to discontinue joint preliminary exams with the CAS as of December 31, 2013. While the CAS has indicated it will continue to recognize early SOA exams for credit towards CAS designations, this impending split will likely contribute to further specialization by product earlier on, though the impact may not be too significant.

Companies already look for directly relevant experience first and foremost when they hire, making it difficult for even junior level actuarial students to leave their current product areas.  To illustrate, if you have two candidates for a position pursuing one P&C opening; one with 3 exams passed and 2 years of Life product experience and another with 2 exams passed and 2 years of P&C experience, all other things equal, the second candidate is most likely to be hired.  This is particularly true if there are multiple P&C candidates being considered and you are the only Life candidate submitted for the position.

Product Specialization and its Impact on Marketability and Geography

It may not seem obvious at the outset of your career but your area of product specialization, or sub-specialization, will impact your marketability and your geographic flexibility throughout your career.  The impact of these differences can be significant depending upon your career goals.  I’ll discuss the pros and cons of each product area as it relates to “marketability” (or the ease of finding new employment) and geographic flexibility but for now, I’ll simply state the following: the more specialized your product area and the fewer people with those skills available, the higher your compensation may be (based on simple supply and demand) and the greater geographic flexibility you may need to secure new employment in the same product area.

To illustrate, let’s review marketability and geographic flexibility for pension versus a very specialized commercial lines actuary.  The responsibilities of a typical pension actuary are fairly similar, generally speaking, across all pension consulting firms.  Of course, there are many individual differences based upon the clients of the firm but the products are normally defined benefit plans and the clients are typically medium to large employers.  Your pension actuarial skills are very transferrable and therefore, easily marketable to a wide number of firms.  Given the fact that pension clients (and therefore pension consulting firms serving those clients) are essentially located in every good-sized city in the U.S., you have geographic flexibility to move across the country or across town to do similar work.  The commercial lines actuary who specializes in environmental liability, however, faces a very different marketplace for his skills.  There are far fewer companies in the U.S. that offer environmental liability products.  These companies are often located in only the largest U.S. cities. It is not likely that you’ll find them in smaller cities such as Columbus, Pittsburgh, Washington D.C., St. Louis, Denver, Portland, Omaha, etc.  Yet, all of these cities have sizeable populations of pension actuaries.  The point being, if you are a highly specialized actuary who needs or wants to change his/her job, your only option may be to relocate to a new city to find suitable employment.  This is important to consider given that your actuarial career may span 40 years.

Product Specialization May Impact Your Compensation

Continuing with the illustration above, supply and demand factors are clearly in your favor as a specialized commercial lines actuary when it comes to compensation.  Generally speaking,, commercial lines actuaries are the most highly paid actuaries in the U.S.  Over time, they will be better paid than defined benefit (and most other types of) actuaries with the same number of exams, years of experience, etc. but, as noted above, it will come at a cost to their geographic flexibility.  Why is this so?  Why aren’t personal lines actuaries paid similarly, for example?  The reason rests squarely on the depth of sub-specialization that most commercial lines actuaries acquire during their careers.  Commercial lines products cover an enormous array of risks from aviation, property and liability, workers’ compensation, directors & officers, and medical malpractice, just to name a small fraction of coverages.  Personal lines actuaries, on the other hand, typically work on a much smaller range of risks, generally falling into two primary areas: personal auto and homeowners.  Employers needing an environmental liability actuary have a more difficult time finding a qualified applicant and compensation rises as a result.

Please keep in mind that the differences in compensation are often fairly modest.  Over time, compensation falls squarely on individual performance.  If you are successful as an actuary, you will earn six-figure compensation regardless of the path you choose.  Earning more money in your career is directly related to your innate talent, willingness to work hard and make sacrifices that put your career first.  If you are willing to put in longer hours and take the initiative to move up the corporate ladder, and if you are willing to invest in your career and seek out opportunities that pay more and provide growth opportunities, you will be well compensated regardless of what product area (Life, Health, Pension, P&C) you choose.

NOTE: The above is an excerpt from Achieving Your Pinnacle: A Career Guide for Actuaries, by Tom Miller, Copyright 2013. It is reprinted here with permission.