In the Wonderland of Life Insurance!

HUMOUR

 

 

In the Wonderland	Pawan Verma takes a humorous dig at the functioning
	of Life insurance companies
of Life Insurance
	with a special focus on the role of actuaries.

 

- Seeing Beyond the Mundane

 

For all the uninitiated and the under-privileged who have been deprived of the fun of working in a Life insurance company, I would like to present a few glimpses of the same for their benefit. Have you ever imagined what a Life insurance company looks like? Let me suggest that you may visualize a typical Life insurance company as a bus transporting passengers to their respective destinations. There is this Sales Director who, immediately after sighting the bus, jumps into it, grabs the steering wheel and starts pressing the accelerator, while the Chief Underwriter keeps on pressing her foot constantly on the brake and the Compliance Head keeps on honking incessantly. While all this is happening, the Appointed Actuary keeps continuously looking into the rear view mirror and giving directions how to move forward.

In this entire melee, the Conductor, i.e. the salesman, keeps on enticing all the passengers outside to get inside the moving bus, irrespective of their destinations. However, he does not bother to stop the bus even if some passengers fall down from the moving bus accidentally unless they have paid the fare, i.e. the premium.

 

Who is the Actuary?

While all the actors in this play are familiar players, the Actuary is a relatively unknown face to the outside world as the tribe is mostly confined to the Life insurance industry, where he is treated like God. In fact, the only thin line of difference between God and an actuary is that God never thinks that He is an actuary. The actuaries are in fact, bright individuals who are professionally fond of handling figures – but of the excel sheet variety only. Their interests in vital statistics also remain limited to those relating to the insurance companies only. In fact, the literature on actuarial science provides some interesting role models one of which relates to a tall, young and handsome actuary who had two beautiful wives living separately from each other. As the story goes, the young actuary would often lie to them, telling each of them that he was with the other, and thus finding out time to go to office to do some actuarial modelling. 

 

However, all said and done, the role of an actuary is the backbone of the Life insurance industry. They are the ones who, with their analysis of the past trends and future projections, tell a Life insurance company in advance how many of its customers are going to die in a particular year. But, before you misunderstand it, let me clarify that they are different from the mafia, as the mafia goes a step further and decides who are the ones that are going to die! The actuaries are also different from the mafia in the sense that you can negotiate with the mafia and get some concessions from them.

 

The senior and experienced ones among the actuaries are appointed by the insurance companies and designated as “Appointed Actuaries”. As the role demands, they are expected to report both to their company head and the regulator. But being responsible professionals, most of the time, they report into themselves

only.  Their job is to keep a constant watch on the financial health of the insurance companies. However, as a result of the constantly falling top lines and rising expense lines year after year, most of these Appointed Actuaries have turned into disappointed actuaries today.

The Theory of Probability

Coming to predicting the future, unlike the astrologers, the actuaries do their jobs scientifically and get paid for it handsomely as well. They work on the theory of probability and by analyzing the historical data and trends; predict the probability of the occurrence of similar trends in future as well. As students of the actuarial science, the actuaries would have an absolute belief in the theory of probability and they would not allow any unknown factors, emerging trends or unexplained possibilities to impact their judgment. You must have heard the story of the old and veteran actuary who had a sudden chest pain while walking down the staircase. Suspecting it to be a heart attack, he immediately jumped down the staircase after doing a quick calculation that as per past data, the probability of a person having a heart attack while falling down from a staircase was much less than the probability of a person having a heart attack while climbing down the staircase. The rest is part of the sad history as the actuarial books have recorded the incident as one of the rare exceptions when the theory did not work.

Handling Complications

With their expertise in developing and handling complex actuarial models, analysing complexities with speed and accuracy becomes just the second nature of the actuaries. And they are never reluctant to showcase their skills. It happened once that an actuary was travelling in a train with a farmer. True to his nature, the actuary was boasting of his mental faculties trying to impress the farmer. As the train passed a flock of sheep in a meadow, the farmer asked, “Can you count the sheep in the flock and tell me?” The actuary looked at the flock and said with a winning smile, "There are 1,159 sheep out there." The farmer was impressed as he said, "Incredible! By chance, I happen to be the owner of the flock and I know that they are exactly 1,159. But how did you count them so quickly?" The actuary answered, "Easy, I just counted the number of legs and divided it by four.”

 

Camouflaged by Simplicity

 

The ever-increasing inclination to handling complexities, however, deprives the actuaries of the ability of handling simple and mundane situations. And that becomes possibly the only weakness that they possess as a tribe. A friend of mine told me the story of a young actuary who had come to seek admission to an advanced actuarial course. As the queue was long, the clerk told him to go to the end of the line. The young man came back five minutes later and said he couldn't because someone else was already there.

 

The situation is no different with experienced and qualified actuaries as well. Quite often they get cheated by small-time street vendors and shop keepers because these votaries of higher maths tend to forget the lower maths involving addition, subtraction, etc. I was myself witness to a scene when I once walked into the actuarial department of my office. What I saw was simply mind-boggling. There were three young actuarial interns, busily involved with something in the centre of the room. As I went closer, I saw one of them was holding a long board upright, the second was steadying a chair on a desk while the third intern was standing on the chair placed on the desk. He had one end of a tape measure and the first student had the other. Amused, I enquired what they were doing. They answered in a chorus, "We're trying to measure this board." Perplexed, I said, "Why don’t you lay it down on the floor and measure it?" They said, "We have already measured its length, now we are measuring its height.”

 

Mixing like Oil & Water

Though extremely dedicated and hard-working, the actuaries are often the most misunderstood professionals in the industry simply because of the inability of others to understand what they are doing. It is a well-known fact in the industry that oil and water mix better than actuaries and salesmen. While it is extremely difficult for a salesman to say “no”, an actuary would find it almost impossible to say “yes” to any proposal. While the actuary would constantly blame the Sales Director that he does not sell the product but sells the company itself, the Sales Director would have you believe that the actuaries do a useless job and can be dispensed with altogether.

Nothing illustrates this relationship better than the story of the Sales Director of an insurance company who had crash-landed in a paddy field after a plane accident. As he regained consciousness lying in the field, he looked around and asked an onlooker, “Where am I?” Startled, the onlooker asked him, “Are you the Sales Director of any company?” “Yes”, said the Sales Director, “but how did you know this?”

 

The onlooker laughed, “Well, your question reminds me of the eternal refrain I have been hearing from the successive sales directors of my company with reference to their targets – where am I? But, forget it”, he added, “let me help you with your query. You have crash-landed here after a plane accident. You are lying in a large paddy field which is ripe for harvesting…” Startled, the Sales Director sprang up on his feet and asked, “Are you an Actuary?”

 

Now, it was the onlooker’s turn to be surprised. He said, “Yes, but how did you come to know this?”  “Elementary, my friend,” said the Sales Director, “as usual, the information provided by you is absolutely correct, but thoroughly useless”.

 

Love-Hate Relationships

Professional jealousy and rivalries also are the factors why actuaries usually develop a love-hate relationship with the other professionals within the industry, Underwriters, in particular. While together they would espouse common causes, they would leave no opportunity to undermine the other once they get the opportunity.

This love-hate relationship is amply illustrated by the story of the two underwriters of a Life insurance company who were going to attend a conference along with their actuary. Travelling in a plane, the underwriters had taken the window and the middle seats. As the actuary came in, he settled down in the aisle seat next to them, kicked off his shoes, wiggled his toes and closed his eyes. After a while, the underwriter in the window seat moved and said, "Let me get up and get a soda for myself." "No problem," said the actuary, "I'll get it for you."

 

While he was gone, the underwriter picked up the actuary's shoe and spat in it. When he returned with the soda, the other underwriter said, "That looks wonderful, I think I'll have one too." Again, the actuary obligingly went to fetch it and while he was away, the other underwriter picked up the other shoe and spat in it. The Actuary returned and they all sat back, discussed business and enjoyed the flight. As the plane was landing, the Actuary slipped his feet into his shoes and knew immediately what had happened.

 

"How long must this go on?"  he asked, "This fighting between our professions? This hatred? This animosity? This spitting in shoes and pissing in sodas?"

(The author is former COO of Star Union Dai-ichi Life Insurance. The author undertakes that views expressed are his own; and that the article has been written in a lighter vein with malice to none.)

 

(First Published in the June 2014 issue of the IRDA Journal)