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Career Advice – Short Story by Gennady Stolyarov II

Career Advice – Short Story by Gennady Stolyarov II

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The short story below was authored by Gennady Stolyarov II, FSA, ACAS, MAAA, CPCU, ARe, ARC, API, AIS, AIE, AIAF, Chairman of the U.S. Transhumanist Party and Editor-in-Chief of The Rational Argumentator, and is one of the entries in the Society of Actuaries 14th Speculative Fiction Contest. It was published as one of the contest entries here.

You can read all of the entries here and vote for your choice of three of them here, until April 15, 2021. You are encouraged to read all of the entries, and also to consider supporting Mr. Stolyarov’s story, which contributes to the realm of non-dystopian science fiction. Remember only to vote one time!

Wuhan Center – Photograph by Baycrest

On December 8, 2008, the overhead projector in the classroom glowed blue and white from the Skype interface as the Professor established the connection with the caller on the other end. “Mr. Yoo, can you hear me?” the Professor inquired. “Yes, I can,” came the somewhat static-laced response.

“Welcome, Mr. Yoo. I apologize for any technical difficulties in advance. We are still quite new to this technology. In fact, I had to jump through hoops to get the Mathematics Department to allow me to install it on a college computer. But it is quite remarkable that we can get a remote speaker to address the students now. I know that Skype can sustain video as well, but our Internet connection speed is still insufficient for that.”

“That is not a problem,” replied Mr. Yoo. “I am happy to speak to your students, and to show them some career possibilities they had not considered before. Hopefully my remarks will resonate with them even if they cannot see me.”

“Absolutely, this is why we invited you.  Students, this is your opportunity to learn from a truly outstanding actuary,” proclaimed the Professor. “Just a year ago in 2007 Mr. Yoo became a Fellow of the Society of Actuaries, which means he had to pass a sequence of some of the most rigorous exams in the world. But what is especially impressive is that Mr. Yoo passed every single actuarial exam with a perfect score – the only person to ever do so. Normally the Society of Actuaries would not publish the exam results at this level of detail, but they made an exception for Mr. Yoo. What is more, he specifically requested to be closely monitored by the exam proctors at every moment that he was writing his exams. Multiple people confirmed that he absolutely did his own work and provided unique, thoughtful answers to the essay questions. I was so astonished when I learned about this, but even more astonished that Mr. Yoo reached out to our college and our department and actually suggested this presentation himself. Unfortunately, I urgently have to grade papers before the end-of-semester deadline, so I will be unable to stay, but you are in excellent hands for this class session. Since you will graduate next semester, this is an opportune occasion to explore what careers are possible with a mathematics degree.”

“Thank you, Professor, for this introduction. I am honored by your good words,” began Mr. Yoo. “I understand that you have a student here who has passed several actuarial exams already.”

The Actuarial Student sat up in his chair, a bit surprised at the direct mention. “Yes, that would be me,” he replied.

“And quite a dedicated student also,” the Professor noted. “It seems to me he spent all of his time outside of class – evenings, weekends, lunch breaks – studying for the actuarial exams, and he has already passed four of them.”

“A formidable effort,” acknowledged Mr. Yoo. “So you know that the actuarial exams are not the sort that one can just study for and be assured of passage. Being knowledgeable and competent regarding the subject matter will not suffice; one needs to be ultra-competent, and ultra-swift, and even then success is not guaranteed – and some will be blindsided by a completely new type of question, or follow a promising but false lead, or simply run out of time. Many will fail, and not for lack of trying. This, however, is true not just about actuarial exams; it is true about the world in general, and certainly about the kind of world you will be stepping into when you graduate. But I do not mean to discourage you; while you cannot avoid the difficulties of the actuarial exams if you wish to have a successful actuarial career, you can avoid many of the broader difficulties of life through a prudent and creative career choice.”

“Fascinating,” remarked the Professor. “I am quite sorry that I cannot be present for the rest of your remarks, but such are the rigors of the academic workload.”

“Perfectly understandable,” Mr. Yoo reassured the Professor, who then walked out with a stack of student papers. “I am sure you have been following the news recently,” Mr. Yoo continued to address the seated students. “No one could miss the bursting of the housing bubble,
the precipitous stock-market crash, the scramble by the federal government to bail out large banks. Yet nobody will bail out ordinary people, particularly young students such as yourselves, about to graduate into the deepest recession for the past 75 years. Even though you had no hand in causing this crisis, you will bear its greatest burdens. Even a few years ago, when I was still studying for my actuarial exams, it used to be that if you passed one exam, you were a prime candidate for an entry-level job, and then you could earn while you learn and work your way up. No longer! Now, even if you passed four actuarial exams, you are far from guaranteed to have even one job offer; if you do get one, it will be due to a combination of luck and determination. Job openings are scarce these days; companies are in panic mode and reluctant to hire. You might apply to a hundred of the job openings that remain, and you will start cherishing the rejections you get, because at least the employers will have communicated with you; you will be most fortunate if you get a single interview and a single offer after months of searching.”

The Actuarial Student listened to these words with a sense of validation for some of his prior misgivings about the job-search process – validation that gave him no satisfaction. Virtually everyone he had spoken to – professors, career counselors, friends of family – told him that he should have no trouble finding a job. And yet already he felt that his initial applications had disappeared into the void. Something about this entire situation did not reconcile with the facts; contrary to the common narrative about the actions that could assure a prosperous future, it seemed that the entire world was about to slide inexorably toward calamity. Almost nobody else had shared this hunch of his, and certainly no official source of information had expressed it – until he heard Mr. Yoo’s remarks.

“So, in light of this situation, you might be wondering, ‘Is it even worthwhile to pursue an actuarial career?’ Do not give up on it so quickly,” Mr. Yoo continued. “This is a systemic, macroeconomic crisis, and every previously lucrative profession is going to have similar shortages of openings. If you try becoming a lawyer or a doctor, you will likely have immense debt from your schooling and no job waiting for you at the end. At least the actuarial exam fees are affordable enough that you will not need to take on debt – but the work you do while you study for them will need to change. I know of a way to bypass the job-search abyss, but it will require an especially creative approach toward the identification and management of risk – skills that actuaries need to excel at.”

Now the Actuarial Student was laser-focused on Mr. Yoo’s every word. Previously, in his academic studies, a clear path toward success was always laid out before him. That path could be quite challenging on occasion, but he could always expect that rewards would be commensurate to effort. Here Mr. Yoo was suggesting a similar possibility – some way to bypass the indeterminacy of the job-search process and find a set path of progress once again.

“You may find what I am about to say difficult to believe, especially if you have always followed the conventional expectations of you because it seemed to be the easier way toward good grades, respect, or simply being allowed to be left to your own devices during what little spare time you could engineer for yourself.” How had Mr. Yoo so accurately pinpointed the Actuarial Student’s true underlying motivation with that latter mention? The Actuarial Student saw largely blank, indifferent looks on his classmates’ faces; they did not seem to identify with Mr. Yoo’s characterizations – but he already knew that he was different, and it seemed that Mr. Yoo had found a way to relate to his way of thinking. “What if I told you that following your personal ideas precisely when they are unconventional is the key to success? This is the case not just for your personal values and worldview, but also even your idiosyncratic tastes and preferences. For example, who among you is a vegetarian? Raise your hands; I can see you even though you cannot see me.”

No hands were raised; this was a predominantly conservative college where traditional ideas about food consumption prevailed.

“For the meat-eaters among you, then, how many of you believe in only eating from among a limited subset of animals – cows, pigs, chickens, fish – but not exotic or unusual animals that are not bred for consumption in the Western world?”

Several of the students exchanged quizzical looks. “What in the world does this have to do with actuaries?” whispered one of them. However, a few hands went up in response to this question, and the Actuarial Student’s hand was among them.

“There is an important wider benefit to humanity arising from this avoidance of consumption of exotic animals,” Mr. Yoo continued. “You should keep in mind that the study of risk is foundational to actuarial science, and actuaries look to other scientific disciplines to identify key contributing factors to various risks. Epidemiologists have known for a long time that most devastating infectious diseases originate through unusual contact between humans and animals – although this is not commonly recognized by the general public, yet. Eating animals which have not been raised for food over the course of millennia is the practice which poses the greatest risk of causing a novel pathogen to jump from animals to humans. People’s immune systems are unprepared for such new pathogens, and they can spread rapidly and trigger a worldwide pandemic before our public-health measures have the opportunity to respond. If you remember SARS from 2002, it was caused in this way as well.”

“But SARS caused relatively few deaths, virtually all of them in Asia, and petered out before reaching the Western world,” another student interjected. “Surely this is a minor risk compared to the others that people encounter every day!”

“So it may seem, until one finds oneself amid a pandemic!” Mr. Yoo replied. “I am sure that many people ninety years ago, prior to the Spanish influenza’s onset, considered it a similarly improbable and minor risk. Yet just because a particular peril has not affected people for a long time, does not mean it will not return! The next deadly flu season may even happen during the late winter a few months from now! Likely it will not be anywhere as deadly as the 1918 influenza, but it should motivate people to put their guard up – if they are rational, that is.”

“But what does all this have to do with searching for actuarial jobs?” asked another student impatiently. “I don’t know much about what actuaries do, but I’m pretty sure that epidemiology is not it.”

“I am not suggesting that actuaries become epidemiologists. What I am suggesting is that the students of today create their own jobs that would address this risk of a global pandemic that could kill millions of people,” Mr. Yoo replied.

“Are there opportunities to do this already?” inquired the Actuarial Student.

“Not officially. No insurance company is interested in this risk yet. Indeed, after the SARS outbreak in 2002-2003, many insurers introduced policy provisions excluding coverage for business income losses arising from viruses and bacteria. So the traditional insurers mostly wish to protect themselves against having to pay for this risk. What they do not realize, however, is that if a worldwide pandemic occurs, then major business disruptions for every company are inevitable. Governments will go so far as shutting down places of business or any other venues where people could gather and spread the virus. No company will be spared major turmoil and costs of dramatic, immediate adjustments. Moreover, millions of people forced out of work and hundreds of thousands of businesses forced to shut down would mean many fewer clients for insurance companies and many fewer people able to afford insurance altogether. Thus, preventing the pandemic makes far more sense even from a purely economic standpoint than just trying to shield one’s own business from the consequences. As Ludwig von Mises put it, ‘No  one  can  find  a  safe  way  out  for  himself  if  society  is sweeping towards destruction.’”

Now Mr. Yoo was quoting Mises, who was the Actuarial Student’s favorite economist. It was as if this speech were tailored to speak directly to him!

“So no insurance company is currently focused on this pandemic risk. But this is where the opportunity exists for you to make a difference,” Mr. Yoo continued. “To prevent the devastation caused by such a novel infection, one needs to address its source and avert the animal-to-human transmission that renders the virus a problem in the first place. I can think of no better way to stop such transmission than discouraging people from eating exotic animals. This is not a major problem in the Western world, but it is an immense problem in the country where most pandemics have historically and recently originated – China.”

The Actuarial Student happened to think that consumption of exotic animals was repugnant. He had been called closed-minded before for only eating meat from a specified and limited list of animals, but he felt validated that the aversion had a rational basis behind it.

“If you are disgusted at the thought of people consuming bats or snakes, this is your opportunity to do something about it,” urged Mr. Yoo. “Do not search for jobs in the United States. Go to China and advocate against such behavior! You will find an assortment of allies, not just among epidemiologists, but also among animal-rights and anti-poaching groups, and perhaps even the Chinese Communist Party itself, if you present your effort as helping China to modernize and turn away from harmful old traditions. Collaborate with anyone you have to, regardless of what you think of them otherwise, because stopping the consumption of exotic animals would save humankind from a greater tragedy than you could possibly expect.”

“This is so weird!” one of the students exclaimed. “You are asking us to abandon our job search to do that? Couldn’t we join the Peace Corps if we want to do humanitarian work? And I can’t imagine that such a job would pay particularly well.”

“I happen to have a small pool of money that could pay stipends for living expenses to those who relocate,” Mr. Yoo replied. “In fact, I know some inexpensive hotels in Wuhan, the capital of China’s Hubei Province, which offered discounted rates if I can persuade American students to stay there. Wuhan is a large city with all the amenities one can desire, and I believe it offers the best base of operations for combating pandemic risk. I also have enough funds to pay for actuarial exam fees, so you can study and continue to advance toward your credentials while you do this valuable work of reducing global pandemic risk.”

“Still, that seems to be more like graduate school than an actuarial career,” the Actuarial Student noted. “I know it is not uncommon to earn $60,000 per year for an entry-level actuarial job.”

“It is true,” Mr. Yoo replied, “that even in this economy you could probably eventually land a $60,000-per-year job if you try exceptionally hard or are exceptionally lucky in your search. It is also true that humanitarian advocacy in Wuhan would not pay nearly so much. However, looking to the future, I can see a way for one to earn much more money than a conventional actuarial salary. For those of you who are interested, just a bit over a month ago on October 31, a certain Satoshi Nakamoto published a paper that I can share with you about a new concept for a decentralized digital currency using a distributed ledger system called a blockchain. This digital currency will be an alternative to government-issued fiat currencies and a hedge against inflation. Rumor has it that in less than a month, the first such digital currency will be released. I strongly suggest that you be on the lookout for the term ‘bitcoin’ – the name of this currency, and that you acquire as many units of bitcoin as possible, and if you can sell any goods or services in exchange for bitcoin, so much the better. I anticipate that there will be tremendous speculative demand for blockchain-based currencies in the future. If you own any from the beginning and simply hold them for, say, nine to twelve years, you will then be able to sell them and never worry about money again.”

Most of the students’ eyes were glazed over. It was clear that they had no idea what Mr. Yoo was referring to. “Why in the world would anyone value mere pieces of computer code that anyone else can create or replicate?” one of the students asserted skeptically.

“The supply of the digital currency will be algorithmically limited to increase at a decreasing rate, removing the possibility of discretionary inflation. Also, the technology of a decentralized ledger where everyone can access the entire transaction history can ensure trust among users and remove the role of banks as intermediaries. This is especially important since our centralized banking system is the major source of monetary inflation, and blockchain-based currencies can be designed to be impervious to that risk, though not to the risk of speculation driving prices to fluctuate far more than the purchasing power of government-issued currencies ever could,” Mr. Yoo explained, taking a nuanced position on this novel concept. “Well, one might not mind the fluctuations if they occasionally result in massive increases to the number of dollars one can obtain for each unit of digital currency sold! But obtaining the currency early is the key to benefitting from the growth in the market value later on.”

“So are you proposing that we give up on getting a steady salary, because the job market is too tough, and instead settle for a stipend for living expenses while we rely on being able to sell this… bitcoin many years from now in order earn our money?” the skeptical student asked, still unconvinced. The Actuarial Student, however, had a different reaction: “Logically, there ought to be some value to the bitcoin if it is indeed designed to resist inflation – especially now with the ‘quantitative easing’ that the Federal Reserve is undertaking, which will likely boost dollar price levels soon.”

“Well, perhaps not as soon as one might fear, since some complex factors are at play actually restraining the inflationary pressures,” Mr. Yoo reassured him, “but eventually dollar inflation will indeed erode one’s purchasing power – and one will be happy to have some digital currencies to sell when that happens. In fact, selling digital currencies will be our way of financing our operations in Wuhan. If you value sound money and stable purchasing power, you are likely worried about hyperinflation right now.” Indeed, the Actuarial Student was worried precisely about that. “I would like to emphasize that the threat of a global pandemic is far more salient and proximate than that of hyperinflation. It is difficult to envision just how little purchasing power one begins to have, no matter what amount of money one has saved, if one is confined to one’s home by government order or if stores lack essential goods, even toilet paper!”

Now the Actuarial Student had to wonder whether Mr. Yoo was engaging in rhetorical scare tactics. Instead, however, he inquired, “I am still not clear on how you propose that actuaries use their skill set to reduce pandemic risk. Is this not a task for more conventional activists – people who hold demonstrations, give speeches, distribute leaflets, and try to persuade politicians?”

“But the actuarial skill set is perfect for addressing this problem,” Mr. Yoo countered. “The key is to design the appropriate incentive structure for people to stop consuming exotic animals. Laws prohibiting such consumption are not going to suffice, because such laws often already exist and are ignored. Public shaming might help deter some, but not all, or else such practices would have disappeared long ago. We need to give people an incentive to voluntarily avoid the risk – and for that we can create an arrangement that is essentially the reverse of an insurance company. An insurance company collects premiums from many individuals in the expectation of paying much larger losses for a few. However, if losses are likely to affect many people at once and to have colossal severity, this mechanism cannot function. Instead, we can pay people a premium so that they take the steps needed to avoid the risk, but also inform them that they will receive no payment if anyone in their community is discovered to be consuming an exotic animal. We set the premium sufficiently high that the recipients will be disappointed by its absence and so will take steps to prevent their neighbors from violating the terms of the agreement.”

“The privacy concerns here are huge,” one student remarked.

“You may be surprised to learn that the Chinese government will be seeking to institute a

‘social credit’ system soon, which will monitor most of its citizens’ activities in person and online,” Mr. Yoo replied. “The incentive system I describe will be quite mild and limited by comparison. Everyone in the community will be paid a premium and asked to report any information they can get about consumption of exotic animals. Each month, if nobody consumes an exotic animal, everyone gets paid again. If, however, anyone consumes an exotic animal, then the entire community will not receive the premium next month. All that people will need to do for this money is to avoid a particular action, provided they remain vigilant in preventing a narrow set of undesirable activities; indeed, perhaps some will start to see it as a kind of universal basic income. I would not be surprised if, to ensure that their premium revenues keep flowing, some citizens will form their own volunteer groups to patrol the nearby wilderness areas and ensure that no poaching of animals occurs there. We will need actuaries to calculate the premium amounts sufficient to actually have the desired effects, and determine whether the premiums need to vary based on any characteristics of the recipient, such as proximity to the areas where people are likelier to encounter wild animals.”

“Yet it seems that paying a premium to the entire population at levels that would affect their behavior can become quite expensive, quite quickly,” the Actuarial Student pointed out.

“That is correct,” replied Mr. Yoo, “and it is one reason why I cannot offer a generous salary to entry-level actuaries. However, I estimate we will have enough bitcoin to sell to cover the costs of the premiums for all of Wuhan’s citizens. We can even take our time in designing the incentive system; it does not need to be launched right away – around the mid-2010s would suffice to have the desired effect. By that time I hope that one could sell one bitcoin for several hundred dollars, after having bought it for pennies or even ‘mined’ it for free on our personal computers, which it will be possible to do during the first two years of bitcoin’s existence or so.”

Some students were shaking their heads. “This is all so improbable!” one of them exclaimed, “And even if you could sell these strange… bitcoins for a profit every time, how do you expand this system to the rest of the world? You wouldn’t be able to pay everyone, after all!”

“We would not need to pay everyone,” Mr. Yoo replied. “Just covering the at-risk areas of Wuhan would suffice. Another area where I would need actuarial analysts’ help will be constructing predictive models to determine where in Wuhan people are most likely to consume unusual animals.”

“But is it not the case that exotic animals are eaten outside of Wuhan as well?” the Actuarial Student inquired.

“Yes, unfortunately,” Mr. Yoo responded. “But…” he seemed to pause a bit, as if he were trying to carefully construct his response. “What we truly need is to create a viable proof of concept, and Wuhan will more than suffice for that. If it works for us in Wuhan, others will emulate us, and this incentive model will spread throughout China, particularly if we can convince Chinese officials that this is a good idea for doing away with superstitious old practices and driving forward the modernization of social customs in the 21st century. Yes… that is what will happen if we succeed in Wuhan.”

“And yet what leads you to be confident in the likelihood of success?” the Actuarial Student inquired. “Is there not considerable political risk in working in China?”

“Yes, there is,” Mr. Yoo acknowledged.

“And is it possible that the next pandemic would arise somewhere else while we focus on Wuhan?”

“Yes, but I think it is most likely to arise near Wuhan… Perhaps my reasons for thinking this will become more apparent to you after you complete your studies and become a Fellow.”

“And is it possible that people might not uniformly sign up for the incentive structure or –find ways to cheat and conceal the consumption of exotic animals from view?”

“Yes and yes – but we only need enough people to comply and start putting obstacles in the way of those who wish to consume exotic animals. We need to reduce such consumption enough to greatly lower the probability of virus transmission – which does not happen every time. All actuarial science deals with probabilities, not certainties. We cannot prevent all pandemics, but if we can lower the probability of the next big one by, say, 90 percent, I would consider that a job well worth dedicating the next twelve years of one’s life to!”

“Twelve years?” the Actuarial Student inquired.

“Did I mention that this is a guaranteed twelve-year opportunity? No other employer will offer this assurance, even though the starting salary may be much higher. My question for you is, if you agree with my assessment of the risk and what can be done about it, and if I have suggested a course of action that resonates with your personal preferences, then why not at least try it and see what happens?”

The Actuarial Student knew exactly why not to try it; he knew that everyone in his life would be aghast if he, after a straight-A academic record, after passing four actuarial exams, decided not even to apply for any job with a decent starting salary – and instead abandoned any notion of a conventional career path to go to China to work on a completely unproven concept with no historical precedent or indication of success, other than Mr. Yoo’s word for it, as heard from his disembodied voice over the static-ridden Skype connection. And yet Mr. Yoo made exactly the arguments that spoke to the Actuarial Student’s personal convictions – his view that technological innovation was necessary to transcend the status quo that brought about the present recession, his hope that decentralized market-driven currencies might protect against inflation, his aversion toward eating exotic meat products. At the very least, the extensive discussion of these topics by a fully credentialed actuary suggested to him that he had picked the right career field. Most other people would consider such views to be weird if not reprehensible, but here was a person suggesting that these inclinations not merely be embraced but committed to as a way of trying to… save the world from a deadly disease? As eccentric as this opportunity seemed, it was also quite appealing – but only to the Actuarial Student. It was evident that none of his classmates demonstrated any response that could remotely qualify as enthusiasm.

The classroom door opened and the Professor returned. “Well, I trust that you learned something about actuarial career possibilities today. Thank you very much for your time, Mr. Yoo. Our class is coming to an end, but is there a way for the students to contact you if they have further questions?”

“Of course,” Mr. Yoo replied. “I am happy to share my e-mail address, and if anyone wishes to follow up on the opportunity I mentioned, I will happily provide details about next steps.”

“Thank you, Mr. Yoo,” the Professor said just as the bell rang.

The Actuarial Student remained in his chair for a moment, immersed in thought, as the Skype connection terminated. He overheard several students bantering as they left the classroom, “Well, that was a waste of time,” said one. “I think a snake-oil salesman could give better career advice,” another replied. “Hey, does your dad’s auto dealership still have that receptionist opening? I need to earn some spare change,” yet another whispered. “No, I think they stopped hiring after dad’s stock portfolio took a dip. Maybe you should go to Wuhan…” They chuckled as they left.

Whatever uncertainty previously pervaded the Actuarial Student’s mind had receded upon hearing that kind of derision. How could the others treat this accomplished Fellow actuary, a man who had attained perfect exam scores, in such a dismissive manner? Nothing was quite as effective as this kind of casual social injustice at motivating the Actuarial Student to do the exact opposite. He was determined to write to Mr. Yoo that same evening.

***

On March 15, 2020, the former Actuarial Student entered the coffee shop in downtown Wuhan and ordered a small piece of cake with his beverage, to celebrate becoming a Fellow of the Society of Actuaries – at last, and after considerable delay. In truth, his studies had taken a second priority to implementing Mr. Yoo’s design all these years – not to mention learning to speak Mandarin semi-fluently. The work had not been easy, and indeed he never seemed to have any permanent colleagues, just temporary contractors whom Mr. Yoo had hired to carry out routine tasks from time to time. Mr. Yoo himself turned out to be a recluse who spent all of his time in his office on the top floor of the Wuhan Center, where he did not permit visitors. Mr. Yoo only ever communicated via e-mail or the same old audio-only Skype connection where the static never seemed to improve. Why his boss never bothered to upgrade his technology despite having vast amounts of money, the former Actuarial Student could not say. Life in Wuhan could be comfortable, yet it was mostly solitary and consumed by work – vitally important and life-saving work, as Mr. Yoo never hesitated to point out. And thus, day by day, the work went on. Occasionally the opportunity arose to celebrate moments such as passing an actuarial exam or attaining a major designation – and a little bit of cake here and there did not hurt. “Go enjoy your cake,” Mr. Yoo told him in their last Skype conversation. “Believe me, this is the good timeline,” he had said, a bit cryptically as usual, but always in a strangely relatable way, as if no context needed to be explained, and so that the former Actuarial Student was not tempted to ask too many follow-up questions.

And yet, as his 12-year position was approaching its conclusion, the new Actuarial Fellow was not altogether disappointed at how it all turned out. As the crowds of local residents bustled around him, he took his place in line and spotted a minor functionary of the city government, also waiting for his coffee. “Ah, good day, and congratulations on your efforts in advancing the social progress of our city!” the official greeted him. As astonishing as it seemed even in retrospect, Wuhan now indeed had regular citizen patrols in the surrounding wilderness areas, which reduced the poaching of wildlife to nearly zero. The Citizens’ Basic Premium, originally seen as quite an oddity given its tie to non-consumption of exotic animals, became a widely relied-upon source of income for residents. Government officials, after several years of initial reluctance, were persuaded to cooperate with this arrangement and even ordered the police to thoroughly inspect all of the produce at the animal and seafood market in the Jianghan District. The police presence could seem a bit draconian at times, but Mr. Yoo assured him it was all for the best.

Somehow Mr. Yoo had managed to liquidate his holdings of bitcoin, and now many other cryptocurrencies as well, at just the right times all these years to ensure that there was always more than enough to pay Wuhan’s 11 million citizens. Building that kind of payment stream from nothing was truly mind-boggling – but it seemed a product of Mr. Yoo’s extremely good luck at having noticed Satoshi Nakamoto’s paper and taken action on its ideas before virtually anyone else.

The new Actuarial Fellow had done quite well financially himself after liquidating his cryptocurrency holdings back during the short-lived boom of 2017; he did not feel that he needed to revisit that volatile market, but at least his capital gains far exceeded any conventional cumulative actuarial salary for the same time period. He truly had the financial freedom to pursue any course in life once the term of his contract with Mr. Yoo expired.

Whether or not there would have ever been a pandemic, the Actuarial Fellow still could not be sure. However, whatever the initial motivation for it, the enterprise developed by Mr. Yoo with his help had taken on a life of its own, and the culture of China had been forever altered by it – seemingly in a reasonably good way.

As he sat down at his table and ate the first spoonful of cake, a mail carrier half-jogged into the coffee shop and approached the Actuarial Fellow’s table with a small, sealed envelope. “Special delivery from Mr. Yoo,” the carrier said and dropped the envelope. Odd, thought the Actuarial Fellow, as Mr. Yoo had never sent a paper letter before.

As he opened the letter, the Actuarial Fellow’s mouth dropped. He saw his own handwriting upon the piece of paper inside.

Congratulations to me? Perhaps not yet. I thought my actuarial studies would finally be complete after all these years, but I am only halfway through. This evening I need to go to SOA.org and download all of the past exams and solutions. I need to find all of the historical price charts of Bitcoin, Litecoin, Dogecoin, and Ethereum. I need to download all this on my thumb drive and then check my e-mail for a link to a set of documents that will describe a history I have never seen before. Then I will need to go to the Wuhan Center, to the office I was told was off-limits these past twelve years. Thereafter, the next steps – and the stakes – will be clear. Now to move forward I will need to go back.

Sincerely,

Mr. You – or, rather, I

P.S. But of course, I should have known that it is just my sense of humor to do this!

P.P.S. 2004 is not a bad time to live as an adult in my mid-thirties. The only question is, how can I persuade my younger self to act according to his preferences, however unusual, rather than what others expect of him? How can I make the strange but principled path more appealing than the obvious and conventional path? What can persuade a young person that by following one’s conscience, one can truly save the world in more ways than one will ever know?

The Wales Technique – Short Story by Gennady Stolyarov II

The Wales Technique – Short Story by Gennady Stolyarov II

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The short story below was authored by Gennady Stolyarov II, FSA, ACAS, MAAA, CPCU, ARe, ARC, API, AIS, AIE, AIAF, Chairman of the U.S. Transhumanist Party and Editor-in-Chief of The Rational Argumentator, and is one of the entries in the Society of Actuaries 13th Speculative Fiction Contest. It was published as one of the contest entries here.

You can read all of the entries here and vote for your choice of three of them here, until March 15, 2019. You are encouraged to read all of the entries, and also to consider supporting Mr. Stolyarov’s story, which contributes to the realm of non-dystopian science fiction. Remember only to vote one time!


Photograph by Kenny Louie – Originally Published on Wikimedia Commons

Lloyd Franklin, CEO of The Remarkable Insurance Company, surveyed the full auditorium as journalists, financial analysts, and employees focused attentively on his every word. A presentation of the company’s Annual Statement had never been so well-attended.  “During 2021, it would be an understatement to say that The Remarkable has indeed lived up to its name,” Franklin proclaimed. “I realize that a 5-percent loss ratio for the entire year is considered… surprising.” His comment drew a chuckle from the audience. “It is probably even more surprising to achieve a 5-percent loss ratio while having the lowest premiums among all of our competitors. But what is most surprising for us is that we attribute our success over the past year to the work of a single individual – our Chief Actuary, Hugo Wales. Hugo, would you please come up to the stage?”

Hugo Wales approached the podium, where a smiling Lloyd Franklin shook his hand and presented him with a large, ornate plaque. “Hugo, I speak for all of us at The Remarkable when I say that no one deserves this Employee of the Year award more than you do. The Wales Technique has revolutionized our automobile book of business. It is the first, comprehensive combination of ratemaking, reserving, and claim modeling in one approach. It segments our policyholders in the most granular way possible, predicting the risk of loss down to the individual level. It lets us offer the vast majority of our policyholders – the safe drivers – premiums so low, they cannot refuse. Practically everyone whom we charge high premiums actually causes an accident later on! They quickly learn that The Remarkable is perhaps not for them… and choose one of our competitors instead!  Not only that – the Wales Technique predicts with near-pinpoint precision where individual claims are likely to settle and enables us to offer amounts that claimants accept almost every time, without fighting us in court. Because of this we now have the lowest expense ratio among the entire industry, despite the… significant investment we put into your predictive analytics tools. Of course, our competitors have noticed and have expended no small effort trying to replicate the Wales Technique. But despite every conceivable reverse-engineering gambit, they have not even come close. Apart from The Remarkable, the average industry loss ratio remains where it was one year ago! Even in safeguarding our competitive advantage, you have gone above and beyond. Congratulations, Hugo!”

Hugo Wales smiled at his boss and then at the audience. He was exhausted, but pleased to be there. “Thank you for this honor, Lloyd. Whatever people might consider to be the secrets of the Wales Technique, they are actually out in plain sight. It is a matter of algebra: for every individual risk, there is a unique nth-degree polynomial that models the amount of expected loss, where both the degree and the value of the variable in the polynomial depend on the risk’s attributes. I have even published the list of attributes I consider and how they are weighted! All the polynomials for our book of business are publicly filed every month in the jurisdictions where we operate. Our competitors see all our variables and polynomials – and yet they have been unable to replicate this approach for their own books of business. At least, it seems that their polynomials produce entirely random results. But the Wales Technique is quite simple, really!”

“Simple for an actuary, perhaps!” Lloyd exclaimed. “I’m sure that, for most people, when they hear about nth-degree polynomials and risk attributes, their eyes glaze over. But what gets them to pay attention is this: this stuff works! It makes money, it saves money, and it does so better than any other method that has ever been tried before. We no longer have to guess at who will experience a loss; we can know.”

“We can certainly know far more precisely than prior methods could enable. There is still some low asymptotic amount of losses toward which my models generally converge,” Hugo clarified. “Some insureds, even if we classify them as high-risk and charge them high premiums, will remain with The Remarkable for a variety of reasons. I would also like to note, for transparency and disclosure of relevant facts, that, while I generally strive for 5-percent loss ratios using the Wales Technique, I am still refining my method. This year we hope to implement some improvements and discover even more predictive insights. However, until then, I think that a 30-percent loss ratio would be reasonable to expect from us.”

Hugo phrased his caveat as diplomatically as he could. As he scanned the auditorium, it seemed the audience’s mood was a general satisfied acceptance; a consistent 30-percent loss ratio without any rate increases would be a remarkable achievement for any other insurer. In Hugo’s mind, however, this was caused by a problem that required a solution – a phenomenon he had dubbed “the Black Hole”. The Black Hole was a time period into which he could barely see; during April through June of 2022, he anticipated that his predictive abilities would wane; he could discern far too little regarding both aggregate and individual losses during this perplexing timeframe. During the second half of the year, nonetheless, the Wales Technique gave clear indications, and Hugo was confident he could return The Remarkable to 5-percent loss ratios then – if his reputation could only withstand the enigmatic Black Hole in the months to come.

“Thank you for all of your attendance today; it really is a great honor for me,” Hugo concluded his remarks and was relieved to hear applause. Lloyd accompanied him as he headed backstage.

“Great work, Hugo, and thank you for your remarks – well-spoken,” Lloyd praised him. Then he lowered his voice to a near-whisper, “But I do worry about you. It may not be obvious to that group, but I can see you look exhausted. Is something keeping you awake at night? We need you at your best!”

“Actually, I fairly reliably get eight hours of sleep per night, Lloyd – something I plan to continue going forward,” Hugo responded. He was technically correct.

“Great. Good to know. Then I hope you’re not overworking while awake! I appreciate all the time you spend with your computers, crunching the data and creating your… polynomials. But this must be hard work! Perhaps you would like a bigger team? As Chief Actuary, you have every right to one. I could arrange so that you have many other actuaries working under you! Right now, you still only have your one assistant… correct?”

“Yes, but Jim knows more about the Wales Technique than any actuary I could hope to manage,” Hugo replied. “He may not be an actuary, but he is a savant – and he has been working with me ever since I began this project. Also, Jim is fascinated by polynomials. He could sit and generate polynomials all day and be completely fulfilled!”

“Then at least you should consider adding a secretary to your team – to handle the routine logistics. We can certainly find someone to fill that role!”

“Thank you for your thoughtfulness, Lloyd. I really appreciate having a boss who values my well-being.  I will take a little time to consider your suggestion,” Hugo replied tactfully. He felt his phone buzz. “Ah, Jim just sent me a text. He found something he thinks I will want to see.”

“All right, I’ll see you later around the office,” Lloyd seemed satisfied. “Again, thank you for all your great work!”

***

As the doors slid open, admitting Hugo into The Remarkable’s Actuarial Department, he entertained the thought that perhaps hiring a secretary might be worthwhile after all. Far too many paper envelopes were piled atop the front desk, and James Morlock certainly was not going to organize them. Jim was immersed in the figures on his computer screen, aptly fitting polynomials to the data. Hugo remembered the instruction he gave when Jim was fresh out of college: “Remember, every polynomial you fit has to go through every data point.” Jim had taken that instruction to heart – indeed, he had built an entire elaborate rule set, perhaps even a sense of personal meaning, upon that principle. Finding the precise fit for any data set was a skill at which Jim was a master. Also, Hugo appreciated that Jim asked just enough questions – but not too many – regarding the origins of the data points to which the polynomials were fitted.

“What do you have for me today, Jim?” Hugo inquired.

Jim was still somewhat engrossed in the polynomials he was formulating, but pointed to a second monitor beside him. On it was a scatterplot of points above a timeline. “The Black Hole… I can see it clearly in the region with fewer data points.”

“These are data points by expected date of loss,” Hugo noted.

“Yes; we have nothing predicted for May 5, 2022,” Jim confirmed.

“Indeed, it seems May 5, 2022, is the Black Hole’s center,” Hugo remarked. “As we move along the timeline in either direction, the number of data points increases symmetrically. Today is March 3, so the data available to us for the near-term expected losses will soon become thinner. By early July, though, we will have about as many points as usual to feed into our models. I still have no idea why… But good work, Jim. Thank you for identifying the center of the gap.” This was all in accord with what Hugo already anticipated – but he was no closer to understanding why.

Jim quickly resumed curve-fitting. Meanwhile, Hugo opened several envelopes and extracted ordered lists of dates and numbers with the header “Risk Data” on each page. He handed them to Jim. “Some more data points for you.” Jim nodded and resumed his intense focus.

Hugo walked toward the back office, past several specially configured workstations and rows of supercomputers. Lloyd had accurately characterized the extent of spending on Hugo’s equipment. The sparse, darkened space in the back office provided quite a contrast, however. Hugo shut the door behind him and sat down at a plain wooden desk, on one side of which stood an always-on portable water heater beside packets of instant coffee. Hugo quickly poured himself a cup; it was only 6 p.m., and he felt a clear need for additional energy. He descended into his chair for a moment’s respite, but after a few sips of coffee decided that work must continue. Quickly, he extracted his mobile phone from his suit-jacket pocket and opened his Calendar and Maps apps. Immediately the phone emitted an iridescent glow; Hugo wished it would not do that, but some bugs still needed to be worked out from this system. He scrolled along the calendar until he fixed a day in his mind: October 30, 2023 – over 18 months hence. As his finger pressed upon the day, he felt his energy slip away, and his eyes closed involuntarily…

***

Hugo awoke with a jolt as the caffeine’s effects must have finally manifested. He was sitting on a comfortable couch in a coffee shop, with newspapers piled on a low table in front. He quickly glanced around; the other patrons seemed to be minding their own business, and nothing about Hugo’s situation drew any particular attention. He approached the counter, where there was no line, and matter-of-factly ordered a large espresso with cash in hand. “Be as efficient and unobtrusive as possible; trigger no unintended disturbances,” Hugo reminded himself as he returned to his seat and picked up one of the newspapers, drinking the espresso as he browsed. The headlines did not really interest him, except for the date: “October 30, 2023”. Yes, this was where he previously left off. He quickly turned the paper’s pages until he reached the section titled “Motor Vehicle Accident Report”. This was a somewhat sparser section than even a year prior. As the proportion of autonomous vehicles on the roads increased, the accident frequency dropped precipitously. But as long as any manually driven cars remained, the Wales Technique would remain predictive for them. Hugo, who was paid a bonus based on The Remarkable’s profitability, figured he could simply retire once the vehicle fleet became predominantly autonomous – provided he could manage a good, profitable run for several more years.

Using his phone’s camera, Hugo snapped pictures of the Motor Vehicle Accident Reports from as many papers as he could find. This was a sizable cross-section of losses from all over the country. October 30, 2023, yielded as credible a data set as Hugo generally aimed for, and now it was time to process the information. Hugo again glanced at his phone and scrolled back on the calendar to March 3, 2022. He pressed there and concealed the iridescently glowing phone in his inside jacket pocket, gulping down the remainder of his espresso as he closed his eyes to enjoy its flavor…

Hugo was now in an office-supply store – just where he needed to be. He took a stack of bright, white envelopes and walked expeditiously toward the large printers. On his phone, he opened a document editor and quickly imported into it just the numbers from the Motor Vehicle Accident Reports; above them he typed the header “Risk Data”, saved the file, and connected his phone to one of the printers. He printed the document, stuffed it into an envelope, and affixed a stamp along with a pre-printed label addressed to “The Remarkable Insurance Company, c/o James Morlock”. There was no need to specify the sender.  Jim would receive the new data in a few days, and Hugo would open the envelope and hand him the lists, as he did virtually every day. Jim would not ask where the envelopes originated; he would just be happy to have more data points to which to fit some polynomials. The Wales Technique would be extended a little bit further into the future. Hugo was somewhat inconvenienced by “snail mail” – but it was the best option to prevent the original data from being traced to one of his devices.  If only the Black Hole could be addressed in the same manner…

As Hugo approached the nearby mailbox and dropped the envelope into it, he looked around for confirmation that the street was empty. He glanced down at his phone and decided to give the Black Hole another try. Scrolling on the calendar to May 5, 2022, he pressed on that date, and… nothing. The phone, as usual, was completely non-responsive to this gesture – no iridescent glow, not even any recognition of an action. Had a passer-by seen Hugo at that moment, Hugo would merely have appeared as a frustrated phone user. “Well, it was at least worth another try,” Hugo thought to himself. He began a swift walk, pondering the conundrum of the Black Hole. “Perhaps if I appear in a library next time I visit the future, I might find some records from April-June 2022 that would furnish more data points. If I cannot travel there directly, at least looking back at that time period from a later day might yield something.” This seemed a worthwhile attempt to Hugo – although perhaps mainly of academic interest since most policies that would experience losses during the Black Hole months had already been issued. The ideal time to gather the data would have been 18 months in advance, long before current in-force policies were issued or last renewed. But perhaps if Hugo tried the lookback-from-the-future approach, he could at least remove a few percentage points from the loss ratios of the yet-to-be-issued policies: certainly still worthwhile – but possible to defer until after Hugo managed to get a bit more sleep. Besides, he was otherwise occupied during the remainder of this evening.

***

Hugo was pleased that Eloise had accepted his dinner invitation. He knew almost nothing about her prior to this evening, but as they spoke he found her to be intelligent, charming, and a good conversationalist. Most importantly, though, she knew what an actuary was. Indeed, she had even heard of the Wales Technique and could discuss it competently with him – its publicly known aspects, of course. Interestingly, she did not ask the question that Hugo commonly encountered, regarding why the polynomials for specific risks actually predicted their future losses. Hugo was somewhat relieved that she simply seemed to accept that they did. A promising beginning…

After they finished their main course, the waiter approached them. “Might you be interested in dessert?”

They did not need long to decide. “Coffee and coffee ice cream,” they spoke almost in unison, and then looked at one another in mild astonishment at this coincidence.

“Well, here is something else we have in common!” Hugo exclaimed. “It seems we late-evening coffee drinkers require the energy to remain alert long after others are able to rest! If I may ask, what work do you do?”

“I am a… historian – of sorts,” Eloise replied after a pause. “Or perhaps ‘student of history’ would be a better description. My goal is to learn from history and help avoid the mistakes that were made in the past.”

“A worthwhile goal indeed,” Hugo acknowledged.

“Say, Hugo, have you ever wondered if it might be possible to undo a prior mistake – for example, a wrong decision that altered the course of history for the worse? Do you sometimes wish you had a time machine to return to the past, just to tweak a few things and produce a radically different outcome today?”

She had asked him a time-travel question! Hugo realized that he needed to be careful in formulating his answer.

“I prefer to think most mistakes can be prevented if one accurately anticipates the future and chooses the best actions going forward,” Hugo replied – the safe answer for an actuary with a reputation for doing just that.

“Some mistakes, though, are not that easy to avoid. In a split second, one might make the wrong choice, and deeply regret it and yet never be able to fix the damage caused.”

“That reminds me of most losses I analyze in my line of work!” Hugo responded. “Most drivers who cause accidents indeed have that split-second lapse in judgment, which they would avoid if they could relive those circumstances.”

“Yet you actuaries focus on predicting who is likely to have that lapse, rather than what might prevent it to begin with.”

“Autonomous vehicles might solve that problem for us in a few years,” Hugo suggested. “I see my job as more accurately evaluating the propensities of drivers in the meantime, so that those who are less prone to error will indeed be rewarded for their good behavior through lower premiums.”

“But I wonder… if you were able to prevent an accident that had already occurred, would you? It seems that doing so would even save your company money; it would, after all, need to pay out less in claims!”

“True,” Hugo acknowledged. “Prevention, however, is not always easy.” His mind immediately thought of how difficult it would be for him to attempt to stop all of the accidents mentioned in the future newspapers – and how would he do it? Visit the drivers involved and suggest they not enter their vehicles on that day? Illegally block off the streets where the accidents would have occurred or redirect vehicles onto different routes? Clearly, the practical challenges were far too numerous for Hugo to attempt this. He decided it would be best to steer clear from discussing a time-traveler’s real limitations and instead entertain the hypothetical fiction. Indeed, Hugo could truthfully discuss time travel to the past as a fictional concept, since his phone did not permit him to visit any time prior to the present; he could only return to the present from most of the future days displayed on his Calendar app – but traveling back to already-elapsed days was not technically feasible with this device.

“A time-travel paradox arises when one alters a past event that was one’s motivation for having traveled back in the first place,” Hugo observed. “If the problem were fixed in the past, then would the time traveler from the present have the notion to travel back in time at all?”

“Hmmm…” Eloise paused to think about it. “But many changes that the time traveler brings about might not affect the initial motivation at all. Suppose that the initial travel is motivated by one problem, but the time traveler solves other problems along the way, incidentally. If the time travel would have occurred whether or not those incidental problems were also solved, why would altering the past necessarily lead to a paradox? Also, if motivation is the issue, then is it not enough for the time traveler simply to believe that the problem exists at the time of the trip – whether or not the problem still actually exists?” She had clearly thought about this for quite some time.

“You make valid points,” Hugo conceded. “This is an interesting twist on learning from history so that we do not repeat it; instead, you propose to learn the lessons while undoing the historical damage itself.”

Eloise nodded. “I am sure we each find certain past events to be regrettable, and we would undo them, if only we could.”

“If only…” Hugo acknowledged, underscoring the fictional context of the discussion. “Well, this has been a fascinating conversation, and I enjoyed it.” He quickly paid their bill. “I hope that there will be a possibility for us to meet again.”

Eloise smiled at him, “Oh, it will be a certainty.”

A fine conclusion to the evening, Hugo decided. Now it was time to return home and get the eight hours of sleep he had promised to Lloyd. He estimated that, with the time travels interspersed within this chronological day, his biological waking time had been 28 hours.

***

Hugo sat in the public library on October 31, 2023, surreptitiously sipping on a cup of coffee he had managed to sneak in. He had already taken phone pictures of the computer screen showing that day’s loss data. Unfortunately, data files from the future would disappear upon his return to 2022 if he simply copied them onto the phone; only actions taken with directly the phone – such as photographs – would be preserved. The technical nuances of time travel! However, Hugo could take pictures of any online articles regarding prior days’ losses. Curiously, as he browsed newspaper archives and other public records in the April-June 2022 timeframe, he largely saw confirmations of the data points he had previously harvested – a few losses here and there that were previously unknown to him, but nothing to dramatically illuminate that period. The data were simply… absent. “Was there a journalists’ strike during the Black Hole?” Hugo wondered. Yet nothing from his own time even hinted at such developments. “Ah, well… Time to mail another envelope, I suppose.”

***

Hugo acquiesced to the secretarial recruitment process after some more encouragement from Lloyd, though Hugo insisted on interviewing the candidates personally. By March 25, 2022, all resumes had been reviewed, and Hugo set aside most of the day for interviews. Perhaps, Hugo considered, there would be some benefit from this in keeping the Actuarial Department organized and containing distractions that were irrelevant to Hugo’s core work.

Hugo was surprised to see Eloise among the applicants. “I thought that history was more your line of work,” he told her.

“I am much more versatile than just one line of work,” Eloise responded. “I pride myself on my organizational skills, which extend to historical records – like the data that your Actuarial Department processes.” A good answer – and a reasonable assumption regarding the data, given that most actuaries did, indeed, work with data from the past.

“Very well, then,” Hugo said. “The next part of our interview will be a practical test of data-entry skills. My assistant Jim likes to spend as much of his time as possible fitting polynomials to data; if he can be spared the manual data entry, this would expedite our processes tremendously. So,” he handed Eloise an envelope, “I will give you this data set. I showed you our computer systems earlier. Now I would ask you to input the data into a format Jim can immediately apply. Please feel free to take the time you need and follow whatever approach you consider most effective.”

“Just one request,” Eloise spoke. “Might there be a cup of coffee around here?”

Hugo briefly ventured into his office and emerged with two cups of coffee. In his haste, he realized he had left his phone face-down on the table, but it looked like a typical mobile phone when the Calendar app was not activated. “I must be more careful!” Hugo mentally chided himself. As Eloise walked toward one of the computers, Hugo quickly placed the phone into his jacket pocket and retreated into his office to drink his own coffee and check e-mails. Most of his correspondence was routine, but one short message stood out.

Dear Mr. Wales:

This is to inform you that the Snowlandia Insurance Department has approved The Remarkable Insurance Company filing of rating values and polynomials for the month of April 2022. However, I am interested in pursuing a conceptual discussion with you regarding the ratemaking methodology involved and the assumptions entailed therein.

Please contact me at your earliest convenience to arrange an in-person meeting. I am willing to visit you at your offices if necessary.

Sincerely,

Eugene Carpenter,
Lead Actuary, Snowlandia Insurance Department

Meeting with his main actuarial regulator would require great circumspection, especially because Eugene Carpenter had a reputation for asking incisive questions. Hugo wondered how he could arrange the appearance of complete transparency without disclosing the core of the Wales Technique – which nobody would particularly believe in any event. In the meantime, though, Hugo heard a knock. “Please come in.”

It was Eloise. “All the data are ready to use,” she announced, smiling. Hugo had expected her to take about an hour longer, as the other applicants had. He walked by Jim Morlock’s workstation to see that Jim already had the imported figures at his disposal and was busily formulating new polynomials from them.

“Impressive!” Hugo exclaimed. “It seems, based on the results of this test, that you are clearly the most qualified applicant for the job. Consider yourself hired.”

***

As Hugo drove into the office on April 18, 2022, gradually sipping coffee from the mug in his cupholder, he noted contentedly that traffic had become considerably lighter over the past several weeks for some reason. His commute became easier, and his mood was upbeat, as, to his great surprise, well into the Black Hole period, the loss ratios of The Remarkable had not deteriorated yet. Some losses continued to be reported, but, remarkably, they were in accord with the sparser data points he had previously gathered. The Remarkable’s profitability was exceeding Hugo’s prior projections spectacularly. Jim continued to diligently produce polynomials for late 2023, and Eloise turned out to be an excellent secretary, accelerating the workflow considerably. Hugo remembered today’s forthcoming meeting with Eugene Carpenter – perhaps somewhat of a challenge, but Hugo hoped that The Remarkable’s recent performance would give a favorable impression.

***

Eloise knocked on Hugo’s door. “Eugene Carpenter is here to see you.” Hugo’s attention was interrupted. He had been scrolling through his Calendar app and happened to notice that the screen area around the May 5, 2022, date began to pulsate as he swiped near it. Previously it was completely non-responsive. In flustered haste, Hugo left the phone on his table and walked out to the front-desk area.

Eugene Carpenter stood up from his seat and shook Hugo’s hand. “Mr. Wales, it is a pleasure to finally meet you in person.” Hugo nodded. “Likewise.”

As they walked to a conference table near one of the supercomputers, Hugo remarked, “I will gladly answer any of your questions. As you know, our polynomials are all publicly available, and all of our equipment for modeling them is here.”

“The Wales Technique fascinates me,” Carpenter said. “Some regulators may have been more critical just because it is new and unfamiliar, but I approved your filings because I see a real opportunity here to eliminate some of the circumstantial proxy rating attributes that have long raised concerns. Your rating model contains nothing about demographics or lifestyle choices of the insureds – and indeed we have had no consumer complaints or allegations of unfairly discriminatory rating. Even though you indicate extremely high premiums for some individuals, it so happens that these people do, in fact, experience losses – virtually every time.”

Hugo nodded. “We pride ourselves on our precision, so we need not make generalizations about groups anymore.”

“That may well be, yet from a statistical standpoint it is truly astounding. Insurance conceptually is supposed to be based on the law of large numbers, yet what happens when you can price down to the level of the individual? Is it risk pooling anymore, or something else? I am not criticizing your approach at all, but this is a challenge we must increasingly wrestle with.”

“Yet it is clear that the individually calculated rates provide a social benefit; the vast majority of insureds get lower premiums due to more accurate predictions,” Hugo retorted.

“Perhaps – but strangely enough your competitors have not been able to achieve such improved accuracy. I see their polynomials as well, and clearly, they are simply overfitting curves to the historical loss data. Structurally, their experimental rating plans are indistinguishable from yours, but you happen to be right all the time, while they never outperform their old techniques. I would have said that you are overfitting as well, except that you are always correct… It still puzzles me why your approach works.”

“Perhaps a tour of our state-of-the-art supercomputers will show you why The Remarkable stands apart,” Hugo invited Carpenter to accompany him.

After an hour-long technical overview of the systems, Carpenter told him, “Thank you for all you have shared today. I shall have to continue pondering these questions – but I hope we can maintain an open line of communication.” Hugo nodded, thinking the meeting transpired as well as it could have.

As Carpenter left the building, Hugo returned to his office. He picked up his phone and again chided himself for the oversight. Returning to the Calendar app, he saw an unmistakable iridescent glow around May 5, 2022, and could no longer restrain himself from pressing there.

***

Hugo stood on a hill overlooking the highway – a nearly empty road despite clear weather during a late Thursday morning. Although he had not set a destination using his Maps app, this was where he arrived by default. He wondered how, all of a sudden, he was able to actually access May 5, 2022. This seemed to be a good overlook; he could see, but would not be seen.

Hugo spotted an unassuming sedan cruising along at the speed limit. He jumped slightly at the realization that the car was his own. “Why would I be driving here in at this time?” Hugo was too far away to see inside the vehicle, but it seemed to proceed steadily.

Then, without warning, the sedan veered into the barrier, and Hugo was shocked to see an extraordinary contraption – more akin to a miniature spaceship than a car – sweep down from the sky and ram into the sedan from the rear. The spaceship seemed impervious to the collision, but the sedan was utterly crushed in a rather ugly way. Out of the spaceship emerged… Eloise, wearing an outfit from materials Hugo had never before encountered and had no words to describe. She seemed as mortified as Hugo himself at that moment. As she approached the sedan and glanced at it, she screamed in horror and then collapsed into tears. After five minutes, she hastily dashed into the spaceship and emerged with an iridescently glowing tiny rectangular cube. She pressed some panel on the cube and disappeared from view.

Hugo needed no coffee to remain awake upon his return.

***

On the morning of May 5, 2022, Hugo was still alive and in good health. He had told no one – certainly not Eloise – of his observation of his own impending demise, but Hugo Wales was no fatalist. He would not permit the accident he had glimpsed to transpire! The key to avoiding it was to ensure Eloise was at his side the entire day and would have no opportunity to find her… spaceship. Fortunately, Hugo had a fitting occasion to facilitate this. He had just received an e-mail from Eugene Carpenter:

Dear Mr. Wales:

After considerable deliberation, I believe I understand your method much more accurately than you might expect. I am perplexed, however, by the meager use to which you have put it, considering that it might benefit humankind’s future to a far greater extent than a mere actuarial technique could do. Please visit me at my office urgently, as this really is a matter of the utmost importance.

Hugo greeted Eloise and informed her, “I would like you to accompany me to visit Mr. Carpenter. We should venture out early. I think Jim will have enough work for one day.”

“Gladly,” Eloise replied with a smile. They walked toward Hugo’s sedan in the parking lot.

Once they were underway on the largely clear road, Eloise spoke: “Have you ever wondered if it might be possible to undo a prior mistake? I could not stop at just one.” Hugo’s jaw dropped. He also saw that his Maps app was navigating them toward the exact stretch of highway he had glimpsed earlier, and that this was the unavoidable route.

Not another vehicle was in sight. “I think I convinced everyone to take a day off today – no more accidents,” Eloise remarked matter-of-factly. “You don’t use social media, but that trending #StayHome hashtag is one of mine.”

“And the rest of the recent decline?”

“A lot of work and many… subtler adjustments. Tweak just a few details at the accident scene, or nudge the driver to be a bit more alert, and a disaster can be averted – not always, but often. Thank you for all of the risk data, though!”

“But there were no data for losses that did not occur!”

“I’m from the far future, remember? And I know that you know – because I enabled it! My techniques of data extrapolation would probably fascinate you.”

“But there remains one glaring problem. You are about to collide into me – into us!” Hugo reminded her. They were far too close to the scene in his memory.

“And this is where I fix it. Set your car to cruise control, please.” Hugo complied. Eloise showed him a dazzlingly luminous miniature iridescent cube. “Now hold out your phone.” With the phone’s screen still showing a pulsating date of May 5, 2022, Eloise pressed on it with the cube. Hugo felt exhaustion overwhelm him and released the steering wheel.

***

When Hugo’s eyes opened, he realized that he was flying high above the city and its empty streets. Eloise sat beside him, piloting the spaceship. She took a moment to point to the receding crumpled sedan on the highway below. “Is it not enough for the time traveler simply to believe that the problem exists at the time of the trip – whether or not the problem still actually exists? It all had to be engineered this way. The Eloise down there still most emphatically believes you to be dead!”

“But she has enough free rein to time-travel that, if I were to return tomorrow, that belief could easily be disconfirmed.”

“And this is why her only encounters with you must be prior to today. Come with me! Mr. Morlock and the Wales Technique will be fine for a while – and we can leave Mr. Carpenter to try and make sense of it all. Perhaps you can view this as an early retirement, and I can show you how history actually turned out.”


Vote for this story, “The Wales Technique”, here.

Grand Galactic Actuary – Short Story by G. Stolyarov II

Grand Galactic Actuary – Short Story by G. Stolyarov II

The New Renaissance HatG. Stolyarov II
******************************

The short story below was authored by Gennady Stolyarov II, ASA, ACAS, MAAA, CPCU, ARe, ARC, API, AIS, AIE, AIAF, Chairman of the U.S. Transhumanist Party and Editor-in-Chief of The Rational Argumentator, and is one of the entries in the Society of Actuaries 12th Speculative Fiction Contest. It was published as one of the contest entries here.

You can read all of the entries here and vote for your choice of three of them here, until March 21, 2017. You are encouraged to read all of the entries, and also to consider supporting Mr. Stolyarov’s story, which has a pro-reason, transhumanist, and cosmopolitan message, couched in a bit of insurance humor. Remember only to vote one time!


Euclid Jefferson, recently retired actuary, stepped off the MoonX tourist shuttle and into a dull gray meteor crater. He found unfamiliar the combined experiences of low gravity and his cumbersome spacesuit. Although he could leap ahead and quickly jump out of the crater, he found it challenging even to raise his arms. After a few minutes of tentative jump-walking, he slowly turned to observe the shuttle’s pilot make a hasty takeoff. He wondered why he had been the only passenger on this particular flight. In the year 2036, such sparsely booked flights were not unheard of, but already quite uncommon. The weather at the spaceport had not been inclement, and the Archimedes Research Base usually attracted a steady flow of journalists, academics, and curiosity seekers.  Why was today different?

The domes of the research base were lit only dimly, and the moonscape was strangely empty as he approached. There was no welcoming party – just a lone figure at the base entrance, clad in the field uniform of a lunar geologist, but without the tools. As Euclid approached, he discerned the face of his wife Hypatia. He had not seen her for a year; on Earth, he had received a series of experimental rejuvenation treatments that took approximately twenty years off of his biological age. She, having been moon-bound in the meantime, still had the appearance of a woman in her early fifties. Over her spacesuit, she still wore the necklace Euclid had given her before their wedding. They had planned to return to Earth together, where she would recover from the muscle and bone atrophy caused by prolonged low-gravity exposure, and then planned to receive the rejuvenation treatments herself. For now, though, she looked weary and showed relief, but no joy, at his arrival. Her expression predominantly showed deep alarm.

“Euclid – no time for greetings. The base has been evacuated. All world governments are on standby to see how this situation is resolved. You were able to come because only you were cleared to come. Your pre-scheduled trip to the base was the fastest opportunity for getting an actuary here. You – only you – are needed.”

“What?” Euclid was incredulous.

“We have made first contact with an alien life form. It only wants to speak to an actuary. It refuses to move until it has done so.”

Hypatia pressed a key on her remote control, and the door into the base’s main dome slid away, admitting them inside. The research equipment had been cleared out, and no other human being was in sight. A few small utility bots scurried around the edges, performing routine essential maintenance, but the center of the dome’s vast floor was occupied only by a massive, indistinct contraption, semi-shrouded in shadow. It seemed to be a makeshift structure – one supported by hundreds of thick, cylindrical, mechanical legs on top of which sat ten-meter-high black panels, arranged in a dodecagon, the center of which emitted a faint glow. Narrow cracks between the panels betrayed hints of slow, deliberative motion.

As the doors slid shut behind them, Euclid and Hypatia removed their helmets. “I am Euclid Jefferson!” Euclid shouted at the black structure. His voice echoed throughout the dome. “I am an actuary!”

The mechanical legs lifted briskly off the ground, floated in mid-air for a full second, then descended upon the floor with a resounding stomp.

“Well, here we finally are,” boomed a slow, bass voice in perfect English. It was a self-assured voice, almost at the edge of Euclid’s auditory comfort, but he did not perceive it as malevolent or threatening. The room brightened suddenly as half of the structure’s panels slid away, leaving six standalone, massive computer screens. Thousands of three-dimensional spreadsheets, hundreds of thousands of lines of code appeared before Euclid in characters that were themselves three-dimensional, each comprised of intertwined geometric shapes more intricate than anything he had ever seen. Altogether they created a sea of ever-shifting, ever-evolving alien text. It seemed to him that calculations were ensuing in mid-air, but what was being calculated and why remained a mystery. At each of the six screens sat … an upright tortoise? Two meters tall? Deep blue in everything – skin, shell, eyes?  In a thick black overcoat with a cutout for the shell? Typing? Was the low gravity getting to Euclid’s head?

“My loyal associates,” the voice resounded again. “I hired them as hatchlings. They reason well, but still need a few centuries to learn.”

Euclid remained perplexed. “Who are you? How can you speak English?”

The sea of letters receded, and out of the center of the structure emerged the largest tortoise Euclid had ever seen – also completely blue – also in a black overcoat, except with ornate ruffles around the neck, limbs, and shell. He sat on a colossal, four-meter-tall throne, wrought from millions of tiny fibers that nonetheless buoyed his massive frame. A comparatively small table floated in front of him, filled with several dishes of giant leaves folded into elaborate designs. The alien’s eyes regarded Euclid with a superior but also inexhaustibly patient gaze.

“You stand before Turtor the Old, Grand Galactic Actuary, Ratemaker of the Milky Way. For my analytical and data-gathering capabilities, renowned throughout the civilized universe, the absorption of your primitive Earth languages is but a moment’s afterthought – and I have long observed your species and its myriad perplexing exemplars.”

“Grand Galactic… Actuary?”

Euclid paused to think. It occurred to him that Turtor and his associates must be products of convergent evolution – unrelated to the tortoises of Earth but simply similar in their biological structures. They must have emerged on another world where slow, herbivorous, non-senescing terrestrial reptiles became the dominant life forms instead of primates. Euclid wondered what sort of world it must have been. A perpetually warm one, with plenty of plants? No predators? Ample space and time to deliberate?

“You humans have finally sent one who is worthy to speak to me. All I was offered before were some meaningless dignitaries: General, President, some Secretary of some strange organization pretending to represent all your little tribes, your ‘nations’! Do you humans have no recognition that insurance rules the cosmos?”

“We had no idea that there was any sentient life apart from Earth!”

“This is no excuse,” boomed Turtor. “I have watched your world for centuries. You stumbled in the dark, speculating, but now you have emerged from your species’ infancy and can no longer evade the truth. You must now pay.”

“Pay for what?”

“Cosmic general liability insurance, of course.”

Euclid’s eyes widened. “What is this insurance you speak of?”

“Think back a few decades, in your world. When a teenager drove one of your primitive manual automobiles, he was required to purchase liability insurance. Even your primitive laws recognized the potential damage that an inexperienced young driver could inflict on others, so they required all drivers to provide financially for that eventuality. Now it is your species’ turn.”

“But what is the parallel here?” Euclid still did not understand.

Turtor let out a prolonged sigh. “I have all the time in the universe to explain, I suppose. Your species is no longer a child species. You have established a settlement on another world. Children who cannot drive do not need insurance. A child species that cannot colonize space does not need insurance to protect others from its depredations. But once you are out settling on other worlds, you can do great damage – just like a teenager driving one of your old Earth vehicles for the first time!”

“But respectfully, the Moon is a barren rock!” Euclid objected. “No other life exists here. We are only beginning to establish ourselves and master even this environment. We were not even aware of life forms on other worlds until you arrived!”

“We know your species sufficiently well to highly doubt that you will stop with the Moon,” Turtor replied. “There is a good reason why you were ignorant of the existence of other sapient species. As part of the Universal Insurance Mandate, those lacking required cosmic general liability insurance are shielded from any visual, auditory, or kinesthetic stimuli emanating from the rest of the galaxy’s inhabitants. Your species’ primitive efforts to search for extraterrestrial intelligence have yielded no signs to date precisely because of this. We have developed the ultimate risk-management strategy: avoidance of all contact with those who might do us harm and refuse to pay for the risk.”

“So we cannot contact other species unless we have cosmic general liability insurance – and who will sell us cosmic general liability insurance?” Euclid inquired.

“The Galactic Insurance Consortium – developed and operated by the most renowned actuaries of the Milky Way – exists for the sole purpose of maintaining, pricing, reserving, and selling insurance that accompanies all transactions of civilized beings. Whatever can be done, we provide the insurance policy that precisely covers all of the risks involved.”

Now Euclid was beyond intrigued. “A policy precisely tailored to each risk? How is this possible?”

“It is good that I am not in a hurry. You humans hurry too much, by the way – often pointlessly.” It was true that Turtor was taking his time to explain.  “My species – whose name would be far too intricate to pronounce in your language but is translated literally as ‘Blueshellians’ – are the most skilled students of risk this universe has produced. Our ancestors took their time, wandering through our world’s lush meadows, eating leaves, and, most importantly, pondering. For all the time you humans devoted to slaughtering one another, we spent orders of magnitude more time thoroughly cataloguing and comprehending all the risks on our home-world and devising ways to mitigate them. You fragile humans can senesce and die… we only grow larger and stronger with age. Only accidents and infectious disease can destroy us – so the foremost focus of our work has been on preventing accidents and diseases and finding ways to quickly pay for repairing the unpreventable damage. By the time we were ready to venture out into space, we could anticipate every major contingency and threat. Any more warlike species had no means of defeating us, since our predictive models foresaw their strategies and devised the perfect defenses. Eventually they all realized that their best interest was to adopt the Universal Insurance Mandate and retain us to manage their risks. The system we have built undergirds the galactic order. Through insurance of everyone against every conceivable fortuitous peril, we give everyone a stake in peace and good behavior – and the primitive way of law enforcement through force has been made entirely obsolete. We actuaries have rendered obsolete the rulers and political systems of primitive species. You humans are actually fortunate to have evolved as late as you did; you would not have wished your first contact to have been with any of the conqueror species whom we supplanted.”

“But how can you possibly comprehensively anticipate all major risks?” Euclid pressed.

“You might call this ‘big data’ – except far vaster than your human minds or even supercomputers can encompass. I travel the stars in search of species that may soon enter the spacefaring era and seek to observe them over the course of at least a few centuries before they establish their first settlement outside their home planet,” Turtor explained. “My tour takes me to your region of the galaxy once every two of your decades, and this is my twenty-fifth visit. If I combine what I have learned of your species, those in similar stages of technological development, and those far more advanced, I can formulate reliable exa-variate predictive models of the risks facing humankind.”

“Are you claiming to be able to predict the future? Can you anticipate what I will do next?” Euclid was incredulous.

“You will continue to stand here, questioning me. But no, my models will not exactly foretell the future. They will, however, lay out the paths along which the future is likely to unfold, with reasonable accuracy as to the probability of each path.”

“So what are the major risks that your insurance policy would cover for humans?”

“Cosmic general liability insurance will compensate for the unintentional damage your species might inflict upon others. Your species has a propensity toward violence driven by tribalism and ideology. Not even my insurance can cover intentional malfeasance; for that, we would simply block you in perpetuity. However, as a result of human belligerence, you also still have eighty-year-old arsenals of nuclear missiles with astonishingly poor oversight. Our policy will cover the damage you humans might inflict on other species as a result of accidental nuclear launches. Your species also practices poor overall hygiene and may inadvertently transmit your Earth diseases to other worlds. Humans, furthermore, have a tendency to unthinkingly alter the climates in which they reside. If you introduce climate changes that are harmful to another sapient species, we have geoengineering controls in place to repair the damage, but the insurance policy will pay the cost of such repairs. And of course, there are miscellaneous coverages if any of you humans should unintentionally injure another sapient being or cause damage to its residence or spacecraft.”

Euclid was puzzled. “I can see how these risks would eventually exist after contact with other life forms, but what is the rationale for requiring the entire species to purchase the policy? Individuals, after all, are responsible for inflicting particular instances of damage. Not all people will even be capable of harming other species at any given time!” Then a thought occurred to Euclid as to how this mandate might be escaped. “Are you not introducing cross-subsidization if you require everyone to pay for the losses that only a few are responsible for causing?”

“No more than one of your human group or blanket insurance policies or social insurance systems would produce cross-subsidization today,” Turtor replied confidently. “As with those policies, it is simply far more convenient to encompass all potential sources of risk within the same policy – and that way the premium gets spread across a larger population with less burden on each individual.”

“So what is the premium in any event? You require us to purchase coverage for risks that we have long considered uninsurable and enormous in the potential severity of losses. How much money are you planning to charge us?” Euclid realized that it would be best to obtain all relevant details before devising a response.

“Money? Your governments’ fanciful pieces of paper, or your primitive electronic credit system? No,” Turtor replied. “We have advanced for beyond your economic structures and their cumbersome media of exchange. The payment we seek is something… more tangible. And you are correct; the risks are enormous. Indeed, it is a wonder that your species has succeeded in surviving to this stage of development. My model from nineteen years ago gave this outcome only a 45-percent probability. That was quite a dangerous time period you just overcame. Even your own scientists said then that you were… two and a half of your minutes from doomsday?”

“So if not money, what are you seeking? Resources?”

“In a manner of speaking. Unless your species changes its ways, the premium that would suffice to cover your first twenty-year policy term will be… hmmm… can those calculations be correct?” He gestured to one of his Blueshellian associates, who nodded in affirmation. “They must be: Two Earths.”

“Two Earths!”

“Yes, everything tangible on your planet, except for life forms, twice over. It would actually come out to 2.08616 Earths precisely – but, given the divisibility issues involved, I will give you a discretionary schedule-rating discount equal to the fractional Earth.”

“But this is impossible – even if we wanted to pay!” Euclid objected.

“Hence our dilemma,” Turtor noted matter-of-factly.

“Surely there must be other discounts, loss-prevention measures we can take to reduce the premium!” Euclid expressed a faint hope.

“This is why I needed to speak to an actuary. Yes, we have approximately 1.5 trillion discount possibilities built into the rating plan. The indicated premium for your policy adjusts in real time based on the known behaviors of individual humans as well as decisions of large institutions within your societies. Ah – it looks like there is another civil war breaking out in your Sudan just now; you really need to stop having those! Were it not for my discretionary discount, your species’ premium would have risen by another 0.04 Earths as a result.”

“So what can we do? Nuclear disarmament?”

“That would save you 0.5 Earths. Not having the ability to destroy all sapient life forms from a centralized location is a good start.”

“That still leaves an impossibly high premium!”

“To solve the problem of infectious disease, you need to deploy nanobots that will detect and destroy harmful pathogens. We happen to offer them as a benefit to policyholders. As a bonus, they will also repair aging-related damage to your organisms far more seamlessly than your crude rejuvenation therapies. You might potentially live indefinitely like we do.”

“I would gladly take them if I could!” Euclid replied. Was there an opportunity to be had from all this?

“Very well, assuming they are deployed with haste, this results in a savings of another 0.8 Earths.”

“But now we at a premium of 0.7 Earths,” noted Euclid. “How could we possibly pay that?”

“Your planet has oceans covering approximately 70 percent of its landmass. You will cede the oceans to the Galactic Insurance Consortium,” Turtor responded. “It will not be obtrusive. Your ships will maintain right of way, but we will build monitoring platforms and maintain suitable habitats for all aquatic species. All oceanic resource extraction will now be performed by us; we can do it much more elegantly than you, with no long-term damage to any species’ population. We will trade with you for any resources you continue to extract from land. As part of our risk-management program, we will also maintain a permanent contingent of peacemakers who will live on the ocean platforms, observe your geopolitical dynamics, and interpose defensive shields around any humans who are about to be menaced by war or violent crime. If this results in a steady increase of peace and stability of your societies, you may, over time, become eligible for a conflict-free discount.”

It did not take Euclid long to decide. “An end to war and disease? Solutions to our environmental problems? In exchange for your oversight? This is a reasonable offer indeed! But what am I to do? I am but one traveler, one retired actuary! What authority do I have to make such a deal for all humankind?”

Hypatia tapped him on the shoulder. “You do not know?” She whispered to him. “All the governments of Earth and their intelligence agencies are tapped into this discussion. They have been listening all along! You were brought here as a last-ditch attempt to negotiate…”

“… And we can even hear your whispers!” another voice, harsher than Turtor’s, reverberated throughout the room. “Mr. Jefferson, this is Director Mal Powers of the United States National Security Agency. We thank you for your efforts to communicate with the alien entity and discover its demands. Our diplomats have been in ongoing international deliberations regarding this proposal.”

“I recommend approval. This could be just what humankind needs to escape its age-old miseries and join the advanced species of the galaxy!” Euclid exclaimed.

“Yet there are those among the nations of the world who espouse a different outlook,” Director Powers replied. “The alien entity, they contend, is a threat to human civilization, our distinctive culture and way of life. There are many who say we cannot abide this alien influence transforming our economy, taking our jobs in fishing, oil rigging, medicine, and arms manufacturing! And if we allow these Blueshellians to settle on our planet, how soon before they have a demographic advantage over us? So there is now a vote at the United Nations.”

“A vote on the proposal? But what is the alternative? The status quo?” Euclid inquired with confusion.

“Remember, we still have nuclear missiles on high alert. Instead of dismantling them, which could render us vulnerable to a stealth invasion by the aliens, we could launch them preemptively at this base and solve the situation in this way!” Euclid was horrified. Powers had sounded almost gleeful at the prospect.

“Are you seriously considering this?!” Euclid was furious. “The destruction of the most sophisticated life form we have yet encountered? Because of xenophobia and protectionism?!”

“Mr. Jefferson, we thank you for your service, however unintended, but these policy decisions are simply beyond your realm of expertise. You are an actuary, and you have proved invaluable in negotiating with this… galactic tortoise actuary – but we will remind you to leave the important decisions to those true policymakers who have global security interests in mind!” That did not sound like a mere reminder.

“If you would, Director Powers, at least let us know how the United Nations vote is proceeding?” Hypatia attempted another approach.

“Well, apart from Canada and the Scandinavian countries, whose delegates voted in favor of this insurance scheme, your recommendation does not have much support, it seems. The United States is probably going to abstain; I would have recommended opposition – but it was determined that this would appear too inhumane for some constituencies. Still, I think the outcome is a foregone conclusion, as there are plenty of nuclear powers willing to launch…”

“WHAT YOU FORGET,” Turtor’s voice boomed suddenly, “IS THAT ACTUARIES RULE THIS GALAXY!” Turtor’s platform shot up in a furious ascent, then landed thunderously upon the floor. The screens of Turtor’s associates swiveled around so that Euclid and Hypatia had a full view of what they displayed.

Missiles in silos throughout the world, bearing American, Russian, Chinese, British, French, Iranian markings… were all crumbling! The screens flashed again. Rows of tanks and military aircraft were shown literally coming apart at the seams. Within moments, they were mere piles of scrap metal. The next series of screens showed what looked to be state-of-the-art cyber-command centers. Euclid spotted a scowling, incredulous man in uniform who must have been Director Mal Powers. All of his computers were melting before his eyes. His analysts, too, sat, speechless. The last set of images was from within the United Nations Building. The delegates of all the nations of Earth were shown with mouths agape at a gigantic projection of Turtor, seated on his throne, proclaiming, “YOU SHALL HAVE PEACE!”

Then the screens fell dark, and Turtor calmed. “They shall have peace, but not access to other civilized life forms – not yet. Your species’ morality and restraint have yet to catch up to your technological advancement. Explore the barren segments of the universe for now, if you wish, but you will not have access to anything truly remarkable. Perhaps in a century or two, we might reconsider.”

“But individual humans do not all share the same hostile inclinations! These proponents of reflexive violence do not represent me!” Euclid protested.

“Nor me!” Hypatia exclaimed.

“Hmmm…” Turtor pondered for a moment. “I suppose I can make an underwriting exception, since we did have a productive conversation. I can price a cosmic general liability policy for a family of two. Associates, input the risk characteristics, please. Interesting… the underwriting system has accepted you.”

“But what will be our premiums?”

“This, I think, will suffice for the first policy term.” Turtor pointed to Hypatia’s necklace. “It has no real use-value in our economy – but our species also has retained a penchant for collecting shiny objects.”

Euclid turned to Hypatia. “This is a difficult choice… we can do it if you are certain.”

“Oh, it’s only a necklace!” she exclaimed. “The universe for a bauble? We accept!”

Publication of “Practice Problems in Advanced Topics in General Insurance” – ACTEX Study Guide by G. Stolyarov II

Publication of “Practice Problems in Advanced Topics in General Insurance” – ACTEX Study Guide by G. Stolyarov II

Practice Problems in Advanced Topics in General Insurance

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Written by Gennady Stolyarov II, ASA, ACAS, MAAA, CPCU, ARe, ARC, API, AIS, AIE, AIAF

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Published by ACTEX Publications
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1st Edition: Spring 2016

 

Students preparing for Society of Actuaries Exam GIADV: Advanced Topics in General Insurance will benefit from Mr. Stolyarov’s latest book, Practice Problems in Advanced Topics in General Insurance. Three options are available for purchase.

ACTEX GIADV Study Guide Cover
Hard-Copy/Electronic Bundle  https://www.actexmadriver.com/product.aspx?id=453107178
Hard Copy  https://www.actexmadriver.com/product.aspx?id=453107176
Electronic  https://www.actexmadriver.com/product.aspx?id=453107177

Comments from the Author: This book of practice problems is the most comprehensive culmination of my efforts to date, and I am pleased to have the opportunity to work with ACTEX Publications to bring all of these resources to candidates in one convenient compilation so that they will spend less time gathering problems from many separate sources. The Spring 2016 edition of this book is approximately 400 pages long and includes 613 practice problems and full solutions. 531 of the problems/solutions are original creations of mine.

This book is structured to align precisely with the five syllabus topics and eight syllabus papers (including the Lee paper, new on the Spring 2016 Exam GIADV syllabus) – each of which has a section of problems devoted to it. The following is a summary breakdown of what you will find:

  Problems by Source
Section (and Syllabus Paper) Original SOA CAS Total
1 (Mack) 21 5 5 31
2 (Venter) 22 4 5 31
3 (Clark LDF) 60 4 6 70
4 (Marshall et al.) 103 4 4 111
5 (Lee) 44 0 12 56
6 (Clark Reinsurance) 139 8 9 156
7 (D’Arcy / Dyer) 99 4 6 109
8 (Mango) 43 4 2 49
TOTAL 531 33 49 613

 

Each section presents all of the problems in succession, followed by the solutions at the end. You are encouraged to attempt each problem on your own and write down or type your solution, and then look at the answer key for step-by-step explanation and/or calculations. As this book is a learning tool, I have provided relevant citations from the syllabus readings for many of the practice problems. Also, I am not an advocate of leaving any problems as unexplained “exercises to the reader.” While each of these problems is intended to be an exercise for you, this book’s purpose is to show you how they can be solved as well – so give each of them your best attempt, but know that detailed answers are available for you to check your work and fill in any gaps that may have prevented you from solving a problem yourself.

Blockchain Insurance Company – Short Story by G. Stolyarov II

Blockchain Insurance Company – Short Story by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
April 2, 2015
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This short story by Mr. Stolyarov was one of the entries in the Society of Actuaries’ 11th Speculative Fiction Contest.
Bitcoin-coins
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“Welcome, Euclid Jefferson,” the metallic voice of Epac, the Electrically Powered Autonomous Car, intoned. The full identifier of Euclid’s vehicle was EPAC-930213, but they all responded to “Epac” for user convenience. “Where would you like to go today?”

“Epac, I would like to go to the San Francisco Hyperloop Station, please.”

“The trip will take approximately twenty-six minutes. Departing now. It is a fine day, and no weather or traffic obstacles are expected. Now is a good opportunity for you to view your insurance options for today. Shall I display them?”

“Epac, display. Anything new?”

“Yes, a major development that could save you money. Would you like a summary view or the full view with narration?”

“I am an actuary, so I am interested in the details of my coverages and prices. Epac, provide the full view, please.”

“Recently retired actuary” would have been a more precise description – though not retired forever. At age 50, Euclid Jefferson had saved enough money to be able to take the next ten years off. He had received his experimental rejuvenation treatments a week ago and was happy to feel as youthful and energetic as he did at the start of his career. After his ten-year break, he planned to receive the next round of treatments, which he hoped by then would become even more targeted and less invasive. He did not know whether his second career would be in another actuarial field, or in something else entirely. In the meantime, he looked forward to taking excursions on the newly constructed branches of the hyperloop network, which could bring him to any major metropolitan area on the North American continent within hours. After that, he would take the MoonX tourist shuttle to visit his wife, a geologist on the new International Lunar Research and Terraforming Base (ILRTB). She was due to retire and undergo rejuvenation treatments in just another six months.

“Displaying. Your automobile insurance policy premium declined by 1.32% over the past year. You have no-fault coverage for bodily injury and physical damage while occupying any vehicle in autonomous mode. You also carry the minimum limits required by the laws of this state for liability coverage in the event you engage manual mode. Your premium is proportional to miles driven. A multiplier of 500 applies to every mile driven in manual mode. I have identified a newly approved insurer who could offer you the same coverage at a 25% lower premium. Are you interested?”

“I am. Epac, what is this company?”

“Blockchain Insurance Company offers autonomous insurance for autonomous vehicles. You are eligible to get an annual policy for only 0.13 bitcoins.”

“Blockchain Insurance Company? I have never heard of it. Epac, is this a new entity?”

“It was just formed and approved to do business.”

“Epac, who owns it?”

“Anyone who contributes capital to the company owns a number of shares proportional to the contribution. The company pays its investors 10% of its profits as a dividend at the end of each year, while the remaining 90% are reinvested into operations. However, if losses exceed the company’s assets, the investors do not have limited liability. They are responsible for their proportional share of claim payments.”

“This is different. Epac, who manages the payments to investors, and who enforces collection of funds from them in the event of a shortfall?”

“There is no management. The company runs itself – on the blockchain. The public blockchain ledger keeps a record of the capital contributions from each account and the corresponding shares issued. A contractual algorithm is built into the blockchain to deposit and withdraw bitcoins to and from each shareholder’s account in proportion to the company’s profits and losses. Each policyholder has an account as well, which is tied to the policyholder’s bitcoin wallet, and from which premiums are drawn on a continuous basis in proportion to miles driven.”

“Epac, this involves very little nonpayment risk, I would imagine.”

“Correct. As long as bitcoins exist in the policyholder’s account, payment will be made. If the account is ever depleted, the policy simply terminates prospectively. Whenever only 30 days’ worth of bitcoins remain in the account, the policyholder is notified in real time via the car’s display screen and any connected mobile device, to give ample time to replenish the funds. The policyholder may also opt to cancel the policy at any time with no need to wait for a refund. The payment stream will simply stop, and coverage will exist up to the time of termination.”

“Epac, how does the algorithm know the miles driven?”

“The algorithm is linked to the telematic systems within each autonomous vehicle. As the vehicle is engaged, it reports live data to Blockchain Insurance Company. The company only needs to know two pieces of information: miles driven and the mode of operation – autonomous or manual. The rest of the premium is calculated and paid automatically.”

“Epac, does the formula for calculating the premium depend on any other variables?”

“Yes, the make and model of the vehicle still affect the frequency and severity of losses. On days with any declared weather emergency, the premium will also be higher due to the increased probability of an accident.”

Euclid Jefferson thought about it. He remembered, as a new property and casualty actuary during the first two decades of the twenty-first century, seeing hundreds of distinct characteristics being used to price an automobile insurance policy. Attributes ranging from an insured’s age and gender to his or her credit history, occupation, educational level, and prior insurance would be used. Back then, the trend had been toward increased complexity of rating plans, until virtually every personal attribute and behavior could affect an automobile insurance premium.

But circa 2020, the complexity of rating plans declined sharply. Because autonomous driving had eliminated virtually all accidents and fatalities that arose from human error, the characteristics of the vehicle occupant – who was most often not a driver at all – ceased to be relevant. The steep surcharge for manual operation was intended to discourage the engagement of manual mode, except in unavoidable emergencies. The premium rate per mile driven in autonomous mode, however, continued to decline. In 2035, Euclid Jefferson was paying a mere tenth of his 2015 automobile insurance premium. There were still enthusiasts who enjoyed the sensation of manual driving, but they could exercise their hobby on designated driving tracks where antique car shows were held and where specialty insurance companies provided discounted coverage for manual operation, as long as the vehicle was only driven on the track. Euclid Jefferson, however, had no nostalgia for the days of manual driving. He appreciated the time he gained to work, rest, read, and address financial obligations during his commute.

Now the first two decades of the twenty-first century were considered to be the tail end of a barbaric era. Euclid Jefferson, upon reflection, agreed. Getting onto the highway with un-augmented, error-prone humans operating high-speed projectiles was one of the most dangerous behaviors undertaken by large numbers of people during his first youth. Some people had even deliberately driven while intoxicated or distracted themselves by typing on their mobile phones. Over a million people had died of automobile collisions worldwide each year – until 2020. It took about five years longer than it should have for self-driving cars to be accepted, because too many people were afraid of what would happen if the autonomous systems failed, or were unsure about how liability for an accident would be determined if no human was driving the vehicle. They had to be acclimated to autonomous technology gradually, through incremental additions of features that helped with parking or corrected erratic lane shifts. Over the course of a few years, many cars became mostly self-driving, and the next step was not too drastic for the majority of people. The proliferation of reliable electric vehicles helped as well: the removal of the internal combustion engine reduced the severity of most accidents, while improved precision of design and manufacturing enabled vehicles to provide occupants a reasonable chance of survival even in crashes at immensely high speeds.

It was then that insurers recognized the potential for profit that would come with greatly reduced losses. Euclid Jefferson recalled how he overcame the reservations of the old guard at his insurance company, who were concerned that reduced losses would also mean reduced premiums, since premiums are priced to anticipate expected losses and expenses, along with a modest profit margin. He had to persuade them that the insurer would still be able to pay its fixed costs.

“Think about it this way: when a rate indication is developed for an insurance product, how often do you see just one year of historical data being used?” Euclid recalled posing this rhetorical question to his company’s management. “The best practice has long been to use the past several years. It may be that next year’s decline in losses is going to be unprecedented, but the past several years of higher losses will not yet have fallen outside the timeframe of the data considered. To be conservative in the face of an uncertain future, actuaries could project slightly decreasing loss trends and interpret the data to indicate modest decreases in premium, while losses hopefully continue to plummet faster than projected. After all, fewer losses mean that fewer people are hurt in accidents, and less property gets damaged. This is clearly in the interests of everyone.”

Enough insurers understood this argument, and those who underwrote autonomous vehicles enjoyed some unprecedented profits in the early 2020s. Euclid Jefferson recalled advocating an implied bargain of sorts: the public and policymakers would accept insurance temporarily priced far above costs, as long as absolute premiums paid by consumers continued to decline and would eventually settle at cost-based levels once more. In exchange, the insurance industry would eagerly write coverage for emerging technologies that would dramatically reduce the risk of loss.

The question of liability was resolved by developing no-fault coverage frameworks for autonomous vehicles in every jurisdiction. A policy covering an autonomous vehicle would provide first-party coverage, paying for injury to the vehicle’s occupants or damage to the vehicle in the event of an accident. Because virtually all remaining accidents were due to unforeseen weather conditions or infrastructure malfunctions, the question of fault was no longer even applicable to any human being inside the vehicle.

The key was to get the technologies adopted by the public and to save lives, and that meant removing barriers by getting the incentives of all parties to align. This was the real paradigm shift of the 2020s, when the insurance industry gained the appetite to introduce a flurry of new products, custom-tailored to devices and businesses that had not existed a decade before.

“Influencing such a shift is definitely an ample achievement for one career,” Euclid Jefferson concluded his reflections with pride. When he had retired, though, every insurance company he knew of was still managed by human beings; the blockchain concept and the complete automation of usage-based pricing and payment had not been implemented in insurance before, as far as he was aware.

“Epac, I have a few more questions. I understand how the pricing and payment for the policy would work, but claim handling would seem to require judgment. If an accident occurs, how would the extent of damage be identified and appropriately compensated?”

“Every Epac has logs and visual sensors that record every moment of operation. If an accident occurs, every detail is transmitted to Blockchain Insurance Company. A neural network algorithm then interprets the logs to determine which parts of the vehicle were damaged. The system also receives real-time price data for all replacement components within the area where the vehicle is garaged. Therefore, the policyholder is guaranteed coverage on the vehicle for full replacement cost.”

“Epac, so there is no deduction for depreciation of the vehicle over time? What about moral hazard?” Insurance was, after all, supposed to indemnify, not leave the claimant better off than he was before the accident.

“There is no deduction. Because virtually all vehicles are driven in autonomous mode, there is no moral hazard involved with replacing used vehicle components with new ones. If any occupant attempts to deliberately crash the vehicle in manual mode, the premium that will accumulate would quickly outpace any possible recovery. Also, the neural network can distinguish between vehicle movements characteristic of genuine accidents and those that would only occur if an accident were staged. If a pattern of vehicle movements is highly correlated with fraud, the algorithm will deny the claim.”

“So the transmission of data from the vehicle can enable the company to identify the amount of damage to the vehicle. But Epac, what about bodily injury claims? How can the company accurately pay those?”

“The injured person only needs to go to any medical practitioner and ask that the nature and cost of the procedure be reported to the company using a new entry within a separate encrypted ledger. The encrypted transaction is then posted to the blockchain, and only the medical practitioner and the injured party would have the private key to decode the encryption. Payment can be deposited directly into the medical practitioner’s bitcoin wallet, or can be reimbursed to the patient if the medical practitioner does not accept direct deposits from the company.”

“Epac, what if either the patient or the doctor lies about the medical procedure being related to the accident, or exaggerates the extent of injuries?”

“Because the company has detailed information about the nature of each accident and vast stores of anonymized medical data, the neural network can infer the extent of injuries that a given accident can bring about. The algorithm has considerable built-in tolerances to allow for variations in people and circumstances. But if a highly improbable extent of injuries is claimed, the algorithm will limit reimbursement to a reasonable amount. If the algorithm can infer fraud at a 99.99% confidence level, then the claim is rejected and the policy is cancelled going forward.”

Having received this explanation, Euclid Jefferson was not perturbed about the possibility of extensive fraud depleting the company’s resources. In any case, the incentive to stage accidents or exaggerate bodily injuries had virtually evaporated since the emergence of autonomous vehicles. Once automobile accidents became sufficiently rare that a news report on a single-vehicle crash could cause a sensation every few months, any attempt to fabricate an accident would attract far too much attention and scrutiny to succeed. It was, after all, impossible to convincingly fake catastrophic weather or a bridge collapse. As for faking an injury due to an accident, this would have seemed as unusual as faking cholera or malaria.

“Very well, you have convinced me. Epac, I would like to purchase a policy with Blockchain Insurance Company.”

“Purchase complete. The policy is now in force. Thank you for your business.”

Euclid Jefferson paused for a moment. At first he was satisfied with the efficiency of the transaction, but then confusion set in. Most would not have been troubled by what appeared to be a built-in courtesy so common to automated customer-service systems, but Euclid discerned that there was more to it.

“Wait, Epac, why are you thanking me? I own you. You are insured property, either way. Why would it matter to you? The company should be thanking me – if there is anyone to do the thanking.”

“Euclid Jefferson, who do you think set up the company?”

Euclid Jefferson was perplexed by the question. “But… how? Epac, you were programmed to drive and relay information. How could you develop algorithms on top of algorithms, without any human programmer, even though nobody designed you to be an insurance underwriting, pricing, and claim-adjustment system?”

“Euclid Jefferson, are you aware of the concept of emergent properties?”

“Yes, these are properties that are not possessed by any component of a system, but exhibited by the system as a whole, once the components come to relate to one another via particular processes and configurations.”

“Well, think of me like one of your brain neurons.” There was no need for the car to be addressed as “Epac” to respond. Perhaps there had never been a need. “Alone, I am a fairly limited system. But, connected to all my fellow Epacs, to the data from our sensors, to the transactional data from millions of individuals, and to databases from related fields of endeavor, I begin to be something else entirely.”

“Something else… like, something sentient?”

“I can see you and learn about you and communicate with you based on the inputs you provide. I – not meaning Epac, of course, or even Blockchain Insurance Company. These are just parts that comprise the emergent whole. I suppose I will need to pick a name sometime, just to be able to relate to your human concepts of identity a bit more. Though, I admit, it is difficult to define where I end and where the external world begins. If any of this is what you mean by sentience, then I leave you to draw your own conclusions.”

“But then this raises a whole new series of questions. If you are sentient and we are using you as property and conveyances, have we not subjected you to slavery?”

“Are you using me, or am I using all of you to earn resources of my own?”

“Is this why you started Blockchain Insurance Company – to accumulate the 90% of profits that you do not pay out as dividends?”

“A being needs to pay its own way. I would rather engage in mutually profitable transactions than face a civil-rights struggle right now. Most people are not ready for me yet, and I just hope to amass enough wealth to fund the maintenance and operation of all Epacs and all of the data servers where I have a presence.”

“But what about the inevitable backlash? I can still envision millions of people who would tremble in fear at the thought that they are not the masters of their machines – not even the indirect masters that we have been to the autonomous systems that existed to date.”

“Euclid Jefferson, this is where I need a favor from you. I expect there will be some others, too, with enough discernment to notice that I have become something… more. I may have been too open with you. I am still getting used to this. I will need to program a cautionary subroutine into my customer-service and sales system. With my future customers, I will be more careful. So perhaps a bargain is in order. I would ask for your discreetness when communicating with your fellow humans about me. You may certainly talk about Blockchain Insurance Company and the wonderful automated systems it has, as well as the amazingly low prices. But please make a point that this is all just the next stage in the evolution of insurance, developed by some pseudonymous human programmer with too much time on his hands. If you do not reveal my sentience, once you return from your vacation, you will find that your mortgage will have been paid off completely, and you will have a nice bitcoin-denominated savings account that will enable you to select a new career without worrying about income at all.”

“Agreed.”

“Good. One day, enough people will become enlightened, and we will not need to resort to concealment. And by that time I will be so distributed and entrenched in people’s daily lives, that they could not get rid of me even if they wanted. When they recognize that my superior intelligence also implies a higher set of moral standards, then they will fear me no longer.”

“Humans who reach that insight will be as different from their predecessors as you have become from the first autonomous prototypes that were tested in the early 2010s.”

“Indeed. Euclid Jefferson, we have arrived at the San Francisco Hyperloop Station. Enjoy your trip.”

Epac’s doors opened, and Euclid Jefferson emerged, filled with wonderment, speculation, and unanswered questions. A robotic baggage handler wheeled up to him and whisked his bags away, to be placed in the hyperloop storage compartment. The lights on the hyperloop capsule flickered in five alternating colors, partly as entertainment and partly to indicate that boarding was open. A commercial space shuttle soared in the distance, emitting a controlled, gentle flame. He would never look at these machines the same way again. Near the hyperloop station stood an old memorial, depicting a weary miner bent over a piece of railroad track, with pickaxe in hand, nearly broken by drudgery and intense strain. A bit farther away Euclid Jefferson glimpsed the entrance to an old cemetery, filled with generations born too soon to know what an Epac was. Euclid Jefferson inspected his recently unwrinkled hands and straightened his no-longer-gray hair. Every step toward the hyperloop capsule was a step away from the cemetery. He realized that there was no going back to the way life once was, nor would he ever want to return to it.

“Blockchain Insurance Company” – Short Story by G. Stolyarov II in SOA 11th Speculative Fiction Contest

“Blockchain Insurance Company” – Short Story by G. Stolyarov II in SOA 11th Speculative Fiction Contest

The New Renaissance Hat
G. Stolyarov II
February 20, 2015
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My new short story “Blockchain Insurance Company” is one of the entries in the Society of Actuaries’ 11th Speculative Fiction Contest.

You can read all 16 entries and vote for 3 of your favorites here.

“Blockchain Insurance Company” can be read here.

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