It's not surprising that insurance startups employ actuaries. What's more unusual: for them to deploy their scenario-crunching risk experts on what's effectively a business-development exercise. Earlier this year, that's what happened at Clover Health, when its co-founders Vivek Garipalli and Kris Gale wanted to figure out the near impossible: Which new markets were the least risky for the San Francisco-based insurer to enter?

Clover's chief actuary, Judah Rabino­witz, and his team typically model data like mortality rates or the likelihood of sickness. Now they were applying hypothetical future analysis to macroeconomics. In October, after raising $120 million, Clover unveiled its expansion plans--to San Antonio and Savannah, Georgia. "Without the quantitative analysis, we would have been flying blind," says Rabinowitz.

The Future of Forecasting
Demand for risk 
experts keeps
 heating up
$114K
The mean salary of an actuary in 2016.
Source: U.S. Bureau of Labor Statistics
Automated actuaries
Startups including Cytora 
(London), Winklevoss Technologies (Greenwich, 
Connecticut), and Origami 
Risk (Chicago) sell software 
that automates some 
aspects of actuarial duties.
Retail uncertainty
Abercrombie &
 Fitch, Walmart, 
and Amazon have 
all recruited risk
 analysts in the 
past two years.
22 percent
The projected growth rate of actuary jobs from 2016 to 2026.
Source: BLS

In the era of big-data analysis, flying blind is a gamble you don't have to take. Companies are hiring all kinds of risk analysts (including actuaries) to look at new kinds of potentialities and how much they could cost their business, says Joshua Weiss, CEO of New Jersey social marketing software company TeliApp, which hired a risk analyst earlier this year. Arming yourself with someone who can determine the range and likelihood of possible future outcomes, says Weiss, is foresight you should consider.

1. Use intelligence expansively.

"Rather than merely mitigating classic risks, our goal is to understand the behavioral patterns of ideal customers," says Weiss, who relies on his risk analyst to inform marketing campaigns for the firm's retail clients. David Klein, co-founder and CEO of New York City-based CommonBond, says his chief risk officer measures such things as the volume of customers the alternative lending firm can expect to see on its website each week. "At the core, the role is all about data and models and finding insights," says Klein. "But you can apply that to anything that would benefit from predictive power, including revenue and profit."

2. Get organizationally creative.

Employees might run in the other direction once they find out a professional risk analyst has been unleashed. "People tend to roll their eyes and go, 'Here comes this guy who will make my life a bloody misery, and ask a thousand questions until we can't do stuff,'" says Claudia Iannazzo, the founding partner at New York City-based venture firm Alpha­Prime, who spent years pricing risk at larger corporations.

Instead of giving that person a title like risk analyst, she suggests rebranding him or her as a "policy director, commercial director, or even director of emergent operations." Insurance upstart Oscar Health, also in New York, applies that creativity to office design, physically stationing its actuaries and data scientists next to one another so they'll interact. "Data scientists tend to be more open to crazy new ways of doing things," explains Oscar's chief risk officer, John Loser. "They'll push on the actuaries to be more innovative, and the actuaries are pushing on the data scientists to make sure there's a rock-solid foundation."

3. Consider investor perception.

Some investors view a company's hiring of a risk analyst early on as an indicator of a mature founder. "We want to hear not just that there's a risk culture," says Iannazzo, "but also that the company has started to institutionalize how it thinks about risk." But not all investors consider it a positive. Nihal Mehta, founding general partner with NYC-based venture capital firm Eniac Ventures, says he's wary of startups that are too focused on risk from day one. "At an early stage, if we see any risk executives close to the company, it's a pink flag," he explains. "You want these founders to think big, and you don't want anybody artificially inhibiting their ambitions."

4. Take with a grain of salt.

Rick Stollmeyer, who recently hired risk analysts at Mindbody, his San Luis Obispo, California, cloud software company, urges entrepreneurs to consider their advice--but thoughtfully, in the larger context of the business. "When your tool is a hammer, your whole world looks like a nail," he says. "As the CEO, balance all the relevant information."

 

Risky Business 2.0: New Uses for Risk Experts

Tracking purchase patterns
Given retailers' razor-thin profit margins, risk experts can help them do everything from anticipating dips in the economy that could affect discretionary spending to keeping supply chains efficient. TeliApp CEO Joshua Weiss hired a risk analyst after realizing that his social creative agency and software service company could help its retail clients examine purchasing patterns. Once they do, explains Weiss, these clients--including Walmart and Barnes & Noble--can decide what types of inventory to stock up on, and if they're wrong, how much that will cost them and whether they can afford that loss.

Political risk
Many fast-growing technology companies bump up against life-or-death regulatory issues, prompting them to hire political risk experts to help them determine what calculated risks are worth taking. Bradley Tusk, the founder of New York City-based political strategy and venture firm Tusk Ventures (and an Inc.com columnist), has carved a name for himself helping startups like Uber and FanDuel do just that. Recently, he worked with the marijuana-delivery app Eaze to expand its business across California, persuading the founders not to pursue smaller towns. "The legal effort would have been just as much as it was for a big market, and the reward wasn't proportional to the risk," he says.

Enhancing cybersecurity
With breaches affecting such corporate giants as Yahoo, Sony, and Equifax, businesses
are increasingly looking to security analysts to model the likelihood of future hacks. After Mindbody was the victim of a cyberattack in 2011--bringing the cloud software company's services down for four days--CEO Rick Stollmeyer hired a new chief information officer, a new head of security, and, most recently, several risk analysts who could evaluate the probability of a future attack and whether it was worth investing in more security. Says Stollmeyer: "We got a lot smarter, very fast."

From the Winter 2017/2018 issue of Inc. Magazine