Actuaries T h e m ag a z i n e o f t h e Ac t ua r i e s I n s t i t u t e
JuLY 2014 ISSUE 191
Focus on Asia: 6 Review
Standing at the C-ROSS of China’s Insurance History
10 Comment
Micro-insurance in the Philippines 14 Review
Actuarial Careers in Asia – An Update 20 Comment
Asian Insurance 26 Leading Actuary Profile
A Social Actuary – Interview with Sarah Johnson 32 Event Report
Catastrophe Risk Seminar
The 18th East Asian Actuarial Conference (18th EAAC) is organised by the Actuarial Institute of Chinese Taipei (AICT) and will take place in Taipei from 12 –15 October 2014.
18th East Asian Actuarial Conference
W
ith the theme of Risk﹐ Challenges and Opportunities, the 18th EAAC provides a forum for speakers to share their views on risks and challenges across Life Insurance, General Insurance, Health Insurance, Risk Management, Pension and Social Security and also explore opportunities, especially in Asian markets. An excellent program has been developed with an estimated 36 parallel sessions being run for delegates to choose topics they are interested in. Networking opportunities are numerous including the Welcome Reception and Farewell Dinner with excellent food and entertainment. There is also a great social program with six city tours to explore Taipei’s beauty, learn how to make Xiao Long Bao (dumplings) or experience the Tai Chi in Taipei!
Find out more and register now www.actuariesasia.org
Contents
Events
4
Coming Up
Editorial
5
Myopia
❙ Sharanjit Paddam
July 2014 • ISSUE 191
Review
6
Standing at the C-ROSS of China’s Insurance History – An Outline of China’s Risc Oriented Solvency System ❙ Dr Zhao Yulong
Comment
10 Micro-insurance in the Philippines
❙ Sachi Purcal /
Peter Carroll Review
14 Actuarial Careers in Asia – An Update ❙ Jas Singh / John Killick Report
16 No Fork Required – An Australian Traveller in Asia’s Insurance World ❙ Alissa Holz Report
18 An Equatorial Perspective – Experiences in Malaysia ❙ Tim Howell
6
Comment
20 Asian Insurance – Still a profitable high growth market for the next decade? ❙ Arjan van Veen Comment
22 An Analytics Minded Actuary’s Guide to MOOCs ❙ Dimitri Semenovich Leading Actuary profile
26 A Social Actuary: Putting Passion into Practice – An interview with Sarah Johnson ❙ Alice Crowley Comment
28 Actuarial Transformation – The Future Actuary ❙ Kaise Stephan / Caroline Bennet / Mathew Ayoub / Senthooran Nagarajan Comment
30 The Winner’s Curse
❙ Colin Yellowlees
Event REPORT
32 Catastrophe Risk Seminar
❙ Ashish Ahluwalia
Under the spotlight
35 Brnic Van Wyk The Actuarial Pulse
36 Working in Asia
❙ Solai Valliappan
In the margin
38 You are Here
❙ Genevieve Hayes
Ask Gae!
39 Cheerio
❙ Gae Robinson
Actuaries taking the lead
40 The Importance of Reflection
❙ Martin Mulcare
Event notice
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42 Actuaries Summit 2015 – Take the Lead Actuaries at Play
44 Cissy Zhang Young Actuaries program
47 Developing Stronger Client Relationships
❙ James Morris
Report
48 See What We See
❙ Katrina McFadyen
Notice
© COVER: asharkyu– Shutterstock.com
51 Welcome to New Members – May 2014 Notice
51 New Zealand CPD Tour – Maximise Your Contribution President’s column
52 Perception
❙ Daniel Smith
Ceo’s column
52 Let’s Go Digital Notice
❙ David Bell
54 General Insurance Seminar and Enterprise Risk Management Seminar, Early Bird Registration Opens – 1 September 2014
26 July 2014 Actuaries
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Actuaries IMPORTANT INFORMATION FOR CONTRIBUTORS
Coming Up
Actuaries Magazine welcomes both solicited and unsolicited submissions. The Editorial Committee reserves the right to accept, reject or request changes to all submissions as well as edit articles for length, basic syntax, grammar, spelling and punctuation via ActuariesMag@actuaries.asn.au All contributions must conform to our submission guidelines which are available from the Communications and Marketing Team. Next Editions
A192 - August 2014 A193 - September 2014 Deadline for contributions: 1 August 2014 ACTUARIES Editorial Committee Editor
Sharanjit Paddam editor@actuaries.asn.au
INSTITUTE HQ Team members
Katrina McFadyen Hayley Schultz Nicole Sitosta
Assisting Editors
Genevieve Hayes Chris Larkin Kitty Leung Jun Li David Millar Candice Ming Michelle Ng Solai Valliappan
July – Nov
Business Luncheons with CEO David Bell Wednesday 30 July, Melbourne Monday 25 August, Sydney Monday 29 September, Sydney Monday 20 October, Sydney Thursday 13 November, Sydney Insights – Superannuation – Risk Culture and Risky Communication Thursday 24 July, Melbourne Young Actuaries Program – How to Make Better Public Speeches Monday 28 July, Melbourne Actuaries Institute Professionalism Course Monday 28 – Tuesday 29 July, Melbourne Insights – Financial System Inquiry Interim Report Tuesday 29 July, Melbourne Insights Networking – CFA Society of Sydney – In Pursuit of Investment Career – One Person – Multiple Careers Tuesday 29 July, Sydney Insights – Financial System Inquiry Interim Report Wednesday 30 July, Sydney and Webinar
Magazine Design
Young Actuaries Program – The Actuarial Job Market and Remuneration Wednesday 30 July, Sydney
Printing
Research Colloquia – Principles for Legislation Governing Retirement (Income) Products Thursday 31 July, Sydney
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Insights – Big Data Analytics – Insights, Opportunities and Challenges Wednesday 6 August, Sydney and Webinar Young Actuaries Program – Mind Fitness for Leadership Tuesday 12 August, Sydney Young Actuaries Program – Meet the Presidents Tuesday 12 August, Auckland Wednesday 13 August, Wellington New Zealand CPD Tour Maximise Your Contribution Tuesday 12 August, Auckland Wednesday 13 August, Wellington NZSA Annual Winter Dinner Tuesday 12 August, Auckland Wednesday 13 August, Wellington Melbourne Fellowship and Graduation Dinner Tuesday 19 August, Melbourne General Insurance Seminar Monday 17 – Tuesday 18 November, Sydney Enterprise Risk Management Seminar Wednesday 19 November, Sydney
Editorial
Sharanjit Paddam editor@actuaries.asn.au @Sharanjit
Myopia
© Taras Vyshnya+mikeledray–shutterstock.com
N
ow that the dust is settling from the initial flurry of immediate responses to the first budget of the new Australian government, some of the long-term implications are becoming clearer. From an actuarial point of view, the big win was the increase in the retirement age for the Aged Pension to 70 by 2035, thereby ensuring our pension system remains sustainable. Of course, more reform is required to the post-retirement system, especially as the number of over 65s is set to double over the next 30 years to 22% of the population. The Treasurer clearly understands the power of compound interest, and has adjusted indexing in many areas: aged pension, fuel excise, overseas aid, tax brackets, university funding, and student fees, to name a few. It is a way of back loading the cuts, and hoping the public will not feel the pain until after the election. Sadly, this long-term view seems to be lacking in other areas, and very little thought seems to have gone into the long-term consequences and risks of tackling the deficit so aggressively. The Asbestos Safety and Eradication Agency has received a 10 per cent cut in funding. Considering the potential health and social costs of a third wave of asbestos related diseases, this seems to be pointless penny pinching at best, and ideologically driven at worst. Geoscience Australia, responsible for research into earthquakes – the most devastating natural disaster we are exposed to and know least about – is losing 96 jobs. The Bureau of Meteorology is facing 58 job losses, potentially reducing our ability to measure, research, and record weather patterns in general, and cyclones in particular. There is not much prospect for increasing Australia’s resilience to natural disasters and the impacts of climate change. On the back of cuts made by the previous government, the Australian Bureau of Statistics must now reduce expenditure by $50m over three years. This has resulted in reduced research and development and discontinued series, the most ironic of which is ‘Measures of Australia’s Progress’. The deregulation of university fees, together with the increased interest rate on student loans can only lead to a reduction in the number of students who go on to do a PhD. Without young people committing to scientific research, our ability to innovate and improve productivity will inevitably degrade over the long term. The big vision seems to be an economy driven by ever-bigger holes in the ground, and rickety houses on the ever-encroaching beach. Even where the government has decided to invest in the future, there are significant downsides. We are funding the infrastructure of the past like roads, but scalping the infrastructure of the future like broadband to the premises. Even the Medical Research Future Fund is being funded by the Medicare copayment, which seems very likely to reduce early and preventative healthcare by poorer Australians, and risk much higher health costs in the long-run. To add to future health costs, Health Workforce Australia forecasts a shortage of 109,000 nurses by 2025, even before we consider whether young people will continue to train as nurses if they must pay more to study and the expected salary remains so low. The government has dealt with this by shooting the messenger – the HWA is no more, and with it goes any coordinated response to training doctors and nurses after 2016.
Myopia, commonly known as short-sightedness, translates literally from the Ancient Greek as ‘shut eye’. As Jonathan Palmer, the Australian Statistician says, “The quality, integrity and relevance of our statistics are critical to informing effective decision making and we must not lose sight of that as we plan for the future”.
Goodbye to Ask Gae! It is with tremendous sadness that we say goodbye to Gae Robinson this issue. Gae has been writing her column for nine years, and this last will be her 50th. Over that time, her column has provided genuine, heartfelt and wise advice to all our readers. It’s regularly been our most read section and has almost become synonymous with the magazine itself. We wish Gae all the best and thank her for all her time and hard work.
Sharanjit Paddam
July 2014 Actuaries
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Review
Dr Zhao Yulong yulong_zhao@circ.gov.cn
Standing at the C-ROSS of China’s Insurance History B
As a result, a few cases of ‘not looking after the interest of customers’ were seen in recent years, including misleading sales and difficulties making insurance claims. The China’s Insurance Regulation Commission (CIRC) conducted an analysis and concluded that the existing simple, but overly strict, regulation environment had contributed significantly to these issues arising. Currently, the CIRC operates a factor-based solvency system similar to Europe’s Solvency I regime. It is volume driven and focuses on the quantitative assessment with no risk management requirements. Due to the lack of any links between risk management and the regulatory capital requirement, there is no incentive for insurance companies to build comprehensive risk management frameworks. This system worked well in the early stages of market development and served as the first step to the solvency management of insurance companies in China. However, the market’s self-discipline mechanism is weak under this system, and the regulator has had to strictly regulate
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©ultimax–shutterstock.com
– An Outline of China’s Risk Oriented Solvency System (C-ROSS)
ackground
After enjoying a few decades of rapid growth, China’s insurance industry had accumulated total assets of USD 1.34 trillion at the end of 2013. The annual premium, with an annual growth rate of 18% in the last ten years, reached USD 0.27 trillion in 2013. The market may be booming but the insurance industry is also facing several issues: • risk management capability is generally weak and not in line with market growth; • capital efficiency is low due to the volume-based solvency regime; • long-term investment is not performing well; and • expenses are high.
Review continued
The market’s self-discipline mechanism is weak under the current system, and the regulator has had to strictly regulate insurers at the front line.
• Solvency Modernisation Initiative from the National Association of Insurance Commissioners in the US; • Risk-Based Capital 2 from the Monetary Authority of Singapore; and • Life and General Insurance Capital from the Australian Prudential Regulation Authority. A great deal was learnt from these recently developed principles and systems. In the interim we also realised that China has its own characteristics as an emerging market and that no single regulation fits all markets. C-ROSS has been developed to meet local market needs – but it may also be useful to other emerging markets.
insurers at the front line, i.e. the premium rate, investment channels, product terms and conditions. This approach is not in line with the overall objective of China’s market-oriented reform of the financial industry and the CIRC’s strategic goal to “open up the front, regulate the back”. Recognising these shortcomings, the CIRC decided to launch a project to develop a new regulatory framework to reduce front-line regulation and to strengthen the insurance industry’s market economy. As a result, the C-ROSS project was launched in April 2012.
C-ROSS
Sketch of C-ROSS
To develop the new system, the CIRC conducted a thorough study of regulation and supervision trends across the globe for example: • Insurance Core Principles from the International Association of Insurance Supervisors; • Solvency II from Continental Europe;
Similar to the Basel system, C-ROSS adopted a ‘three pillar’ solvency framework. However, by developing Chinaspecific approaches and placing different emphasis in each pillar, China’s ‘three pillar’ framework is intended to fully reflect its own evolution.
C-ROSS Framework C-ROSS Framework
Value
Company information disclosure
Pillar III Liquidity risk management
Integrated risk rating(IRR)
Pillar II
Solvency Ratio Stress Test
Pillar I
Regulator information disclosure
Solvency aligned risk management requirements and assessment (SARMRA)
Credit Rating
Regulatory Measure Quantifiable Risks Supervise-able Risks
ESM(Enterprise Solvency Management)
Overall Risks
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Review continued
There are five key components under Pillar I, including: 1. own fund; 2. minimum capital; 3. solvency ratios; 4. stress testing; and 5. regulatory measures.
CIRC focuses on four risks, which are important but difficult to quantify currently given companies’ technical capabilities and data availability.
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Own fund is the difference between admissible assets and admissible liabilities and any such capital is classified into four categories under the technical standards: Tier 1 core, Tier 2 core, Tier 1 ancillary and Tier 2 ancillary. Lower ranked own funds will be admissible with reference to Tier 1 core own fund. Minimum capital is the total capital requirement, and consists of inherent risk, control risk and system risk. Inherent risk is the risk that objectively exists in the business activities of insurance companies, and includes both quantifiable risk and unquantifiable risk. Quantifiable risk consists of insurance risk, market risk and credit risk, whilst unquantifiable risk consists of operation risk, strategy risk, reputation risk and liquidity risk. The quantifiable risk is calibrated and assessed by a VaR approach under Pillar I. The unquantifiable risk is qualitatively assessed under Pillar II. Control risk is the risk that the internal management and governance of the insurance company is ineffective or invalid, and as a result, the inherent risk is not identified and controlled in time. The control risk capital is calculated by a scoring system under Pillar II. System risk is the risk caused by the external environment and macroeconomy and is a global risk in the insurance system. It is normally un-hedgeable. There are four types of system risk capital, i.e. the risk capital to adjust counter-cyclical effect, capital requirement on Domestic Systemically Important Insurers (D-SII), capital requirement on Global Systemically Important Insurers (G-SII) and other capital adjustment to defend the system risk.
Stress testing is another important quantitative measure of solvency. If the solvency ratio is an indicator of a company’s current solvency, stress testing reveals the sustainability of a company’s solvency. We include mandatory, voluntary and reverse scenarios in stress testing . Regulatory measures are instruments to enforce Pillar I regulation. Two solvency ratios are monitored:the core solvency ratio (Tier 1 core capital/ minimum capital requirement) and the aggregated solvency ratio (own fund/ minimum capital requirement). A company with an aggregated solvency ratio below 100% will have different regulatory measures applied to rectify the problem according to its specific risk exposure. Whilst a company with a core solvency ratio below 50% for a number of consecutive periods will have more serious measures applied, like suspension of new business, takeover and restructure by the regulator or moving to bankruptcy / liquidation.
Pillar II – Qualitative Supervisor Requirements Under Pillar II, CIRC focuses on four risks, which are important but difficult to quantify currently given companies’ technical capabilities and data availability. These four risks are operational risk, strategy risk, reputation risk and liquidity risk. As well as the regular supervision measures like analysis and examination, the CIRC intends to apply the following two supervisory assessments under this pillar: 1. Integrated risk rating (IRR): CIRC comprehensively evaluates an insurer’s overall risk rating based on both quantitative results under Pillar I and qualitative risk assessments under Pillar II, which will classify a company into four levels of risk, with different regulatory measures applied according to the risk level. 2. Solvency Aligned Risk Management Requirements and Assessment (SARMRA): The companies’ own solvency
©GuoZhongHua+ Lewis Tse Pui Lung–shutterstock.com
Pillar I – Quantitative Assessment
Review continued
We are standing at a major crossroad in China’s insurance history, heading towards an era of a much more open and competitive market.
management (COSM) plays an important role in the C-ROSS regime. CIRC will set up minimum standards of risk management for insurers and periodically evaluate their implementation. These standards will include governance structure, internal controls, management structure, processes, and assess insurance companies’ risk management capability and risk profile. One key feature of Pillar II is to motivate companies to establish a comprehensive enterprise-wide risk management framework. This is achieved by introducing control risk capital, which is determined by the result from SARMRA assessment under Pillar II and serves as an adjustment to the minimum capital under Pillar I. The control risk capital is a reduction to minimum capital for companies with a well-implemented risk management framework and an increase for companies with poor risk management.
©ArtisticPhoto+ imageshunter–shutterstock.com
Pillar III – Market Self-Discipline Mechanism Pillar III incorporates three aspects: the insurance company’s public information disclosure; the regulator’s public information disclosure; and the insurance company’s credit rating. All these will require a more transparent disclosure and enforced supervision on insurance companies from media, investors, rating agencies, financial analysts and the general public, thereby maximising the market self-discipline mechanism. Self-regulation complements the C-ROSS system, and overcomes any limitations in supervisory resources.
Beyond C-ROSS implementation We are standing at a major crossroad in China’s insurance history, heading towards an era of a much more open and competitive market. The regulatory environment will be risk-oriented with scientific quantitative assessment and comprehensive qualitative assessment. The market self-discipline mechanism will play an important role.
Timeline of C-ROSS
The industry will see strengthened market reform, particularly through market entry and exit, investment channels and premium rates. Companies with superior risk and capital management strategies will enjoy improved capital efficiency, higher returns on capital and more competitive advantages. Last but not least, customers and investors will be better protected by increased disclosure and transparency. We are confident that C-ROSS will drive the market reform of China’s insurance industry, enhance capital efficiency, inject vitality, exploit the market potential and strengthen risk management awareness and techniques. Ultimately we envisage a more mature insurance industry with increased business development opportunities within China for international insurers. Zhao Yulong is the Deputy Director of Finance (and Solvency Regulation) Department of China Insurance Regulatory Commission.
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Comment
Sachi Purcal sachi.purcal@mq.edu.au Peter Carroll peter@petercarroll.com.au
Micro-insurance in the Philippines Is Australian style community rating a good model for developing health micro-insurance in the Philippines?
I
t started at the regular seminars in applied finance and actuarial studies at Macquarie University, where Sachi’s interest in microfinance intersected with Peter’s experience in the Australian health insurance system. It resulted in the two of us heading to the Philippines in June 2013. Geographically, the Philippines consists of more than 7,000 islands, clustered in the West Pacific, south of China, east of Vietnam and north of Indonesia. The terrain is volcanic and the climate tropical, with frequent earthquakes and cyclones. Hopping on a plane in Sydney and emerging soon after in Manila is not quite the culture shock you might expect. Sure, the scenery is crossed by concrete highways large enough for fighter jets to use, and there are roadside shanties and guards with crisp uniforms and big guns. But the AmericanHispanic culture is familiar, English is widely understood and spoken often. The people of the Philippines trace their lineage to prehistory. Magellan dropped by in 1521, just thirty years after Columbus reached the Americas, and the Spanish colonised the islands soon afterwards. They ruled for the next three centuries, the predominant religion became Roman Catholic and Manila became a centre of the trading between Asia and South America. The struggle for independence reached the point of revolution during the late 19th century and, in 1898, the islands were ceded to the USA by the Spanish for a price tag of $20 million. They were occupied by Japan in 1942 and re-occupied by the USA in 1945, after Manila had been virtually flattened by bombing. The country became a fully independent republic soon afterwards, with an elected President and bicameral legislative Congress. Although some legacy of Spanish occupation remains, today the American influence is evident everywhere, in the popular culture, clothing and fast food, local television and film, and the popularity of sports like basketball, boxing and ten pin bowling.
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Comment continued
©joyfull–Shutterstock.com
Sachi Purcal, Ivy Suan, Mia Pang-Rey and Peter Carroll, on the campus of the University of the Philippines
To western eyes, Filipino politics appears to be family based, with names like Marcos and Aquino, rather than split on left/right or labour/capital divides. It reached a nadir under the corrupt rule of Ferdinand Marcos and his wife Imelda when their government caused the assassination of a rival politician, Benigno Aquino, in 1983 and then defrauded Aquino’s wife Corazon out of victory in the 1986 Presidential election. A group of students set out in protest from the campus of the University of the Philippines and were joined spontaneously by millions of ordinary citizens who marched with them through the streets of Manila and peacefully surrounded the Presidential Palace until its occupants fled in helicopters and President Corazon (Cory) Aquino took office in their place. This was arguably the first ’flower power’ revolution and was the model for others, culminating in the fall of the Berlin Wall and collapse of the Soviet Union three years later in 1989. It was in the very building where that historic student march commenced where we were provided with offices, and worked on the health micro-insurance project with two others members of our research team, local academics Mia Pang-Rey and Ivy Suan. For the next fortnight, we were shepherded through the program of visits and interviews Mia and Ivy had organised. This was punctuated with regular samplings at the local restaurants, especially at Mia’s favourite, Chocolate Kiss, and was sustained with regular infusions of the ubiquitous San Miguel beer. The people of Manila do enjoy their food: their constant smiles may well be attributable to this. But many Filipino people are poor. The resident population is around 100
million, with the official GDP totalling just one fifth that of Australia. There is also a large ‘informal’ economy, much of which undoubtedly escapes official reckoning. But even in greater Manila, where many of its 20 million people have no doubt been drawn to improve their standard of living, wages and prices are so low, and the shanty housing, cheap taxis, and countless small roadside enterprises are perpetual testaments to economic conditions that are very different from those in Australia. Some 12 million people, many from among the most highly educated, have left the Philippines to live and work overseas and to repatriate part of their earnings back home to support their families. So we set off on a fortnight of meetings and explorations in this fascinating place. While we were recording interviews with executives of insurers, HMOs and NGOs, health service providers and officials of government health programs, Mia and Ivy were collecting documentary evidence to complement our learning. Our visit to a government hospital in Quezon City, near the university, was an emotional experience even for Mia and Ivy, and made the challenges real for all of us. In this capitalist and predominantly Catholic country, where children and families are most precious, we were continually told that the main two concerns of its citizens were affording good education and proper health care. The questions constantly before us were: what kind of health financing system was feasible and what could we possibly offer from our own lucky circumstances that could be of use to these industrious and generous people? We learnt there are some 1,700 hospitals July 2014 Actuaries
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throughout the Philippines, of which 60% are privately owned and cater largely for those in the formal economy. There is a continual ’brain drain’ of doctors and nurses, trained in the Philippines, who leave and work in the USA and other Western countries. Of those doctors who remain, many practice from hospital settings, where they provide services to both inpatients and outpatients, and most seek to advance themselves by investing in private hospital ownership. There are also numerous clinics, from where nurses, midwives, community workers and traditional healers practice. Pharmaceuticals are costly and are financed largely from private out of pocket expenditures - many people find them too expensive, a particular problem for those who must rely on under-resourced government hospitals. Private health insurance operates on the US pattern. It is an employee benefit, provided on a group basis by the major companies, using traditional risk-rated products. Familiar US organisational models, including Health Maintenance Organisations (HMOs) and Preferred Provider Organisations (PPOs), are used to manage service delivery and costs, and claims are monitored closely. Exclusions, especially for unpopular diseases such as HIV/AIDS and psychiatric illnesses, are commonly imposed to keep down the premiums paid by the sponsoring employers. This private insurance system is an adjunct to the ‘formal’ economy and caters almost exclusively for those within the 30% of the population who receive regular incomes and pay taxes.
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There is another 30% of the population who are so poor they can access, without charge, government health care services relatively seamlessly. But in between those in the formal economy and the extremely poor are about 40% of the population who occupy an ’informal’ economy where, for one reason or another, they feel hampered from readily accessing government services and who cannot access the private insurance system. It is this middle group that we suspect might aspire to some new form of health insurance that would facilitate access to affordable private health care services. This, we believe, is the primary market – and opportunity – for health micro-insurance in the Philippines. For a health insurance product to penetrate this mass market on any substantial scale, it needs to focus on the benefits most desired – modestly priced private hospital services. Facilitating demand for such directly paid services would encourage private hospital investment and introduce stronger price signalling across the health services market. This would stimulate supply in the private sector and also allow some private contributions into the public sector where the services are inevitably under-resourced. Existing insurers do express interest in the mass market within the informal economy. We believe the forms of health insurance offered by these existing insurers, based on individual rating and actuarial pre-funding, would have major issues with complexity and on-costs, trust and acceptance if simply migrated into the
micro-insurance market. This is especially so where distribution relies on one-to-one intermediation. In our view, consideration should be given to trialling Australian style private health insurance, with community rating and pay-as-you-go funding. This offers both simplicity and efficiency, and the opportunity for deep penetration. The Australian health insurance system started with small scale initiatives by not for profit community organisations, such as friendly societies and trade unions. It developed in a synergistic way with the growth of the hospital systems, both public and private. It achieved a high level of market penetration without relying on sponsorship by large employers, intermediation or on actuaries. And it has consistently returned between 80% and 90% of its premium revenues in the form of health benefits to policyholders and their families. Insurance that is community rated and unfunded may be efficient at converting premium expenditures into benefits to consumers, but it is actuarially unstable. That instability becomes troublesome, however, only once the market has matured and competition among insurers intensifies. Intervention becomes appropriate when the market is saturated and insurers turn their attention from finding new customers to cherry-picking among the better risks of their competitors. The health insurance market in Australia was formally established in 1954 and operated for several decades and achieved penetration levels as high as 80% of the population before instability became a serious problem. Actuarial management and risk equalisation were introduced only in the 1980s, after the market had been disturbed in a major way by Medicare. So is it financially feasible? Could an affordable premium finance the payment of benefits at levels sufficient to access the private hospital services being sought by those within the informal economy of the Philippines? Our earlier research had indicated that the health care experience of Filipinos was significantly different from that in Australia. Where Australians go to hospitals to have babies, Filipinos generally do not. Australian hospitals treat the disorders of a long and affluent life where, in the Philippines, with its younger population and higher overall mortality, the burden of infectious disease and injuries are the more significant health
©joyfull–Shutterstock.com
Comment continued
Comment continued
MICROFINANCE
©Stephane Bidouze–Shutterstock.com
M concerns. Even for a disease such as Dengue, admission to a hospital generally occurs only when home remedies and local clinic treatment has proven ineffective. Comparing averages across the two populations, we estimated that hospitalisation rates in the Philippines are about half those in Australia. Plugging our estimates of local actuarial parameters into profit testing and financial projection models, we demonstrated that a community rated premium of Php100 per month (about A$2) would, for each hospitalisation, finance an envelope of payments that we believe is sufficient – for example, a mix including a Php2,000 lump sum on admission, Php1,200 per day during admission, and a payment of Php10,000 on death of the policyholder. Such outlays could contribute substantially to charges for health services, and to meet associated administration costs of claims. From our interviews, we believe that level of premium is likely to be affordable and appealing within the target population, and that the payments on claim are likely to be sufficient to purchase relevant items within the private health services market and to provide an attractive level of financial support to the families of policyholders who are hospitalised. Testing indicated that the financial relationships were sensitive mainly to hospital admission rates and lengths of stay, and relatively insensitive to lapses and mortality. Our modelling is necessarily based on sparse information, and on observations made without any experience in the Philippines of the particular design features we have suggested. The emergence of private insurance of any kind affects the behaviour of policyholders and of health professionals exposed to it. The practicalities need to be tested and the establishment of pilot schemes would be a helpful next step. The first such pilot scheme commenced in a community of several hundred people on the outskirts of metropolitan Manila in April 2014.
Acknowledgement: This article and associated research has been financed in part from a grant to Dr Sachi Purcal of $15,000 by the Institute of Actuaries of Australia in November 2012.
icrofinance refers to the provision of financial services to people who do not have access to mainstream banking due to poverty or social exclusion, particularly in rural economies. Its objective is to assist customers to improve their lives through self-reliance, access to capital, and tools for financial risk management. It has a long history, including church sponsored pawn shops in mediaeval Europe, and community based thrift institutions, such as credit unions and friendly societies, in post-industrial Europe. A notable recent success has been the Grameen Bank formed in the 1970s in Bangladesh, which now serves millions of people. Replicating that particular model has proved difficult in less densely populated communities and in different cultures.
MICRO-insurance
M
icro-insurance is insurance that targets a similar market to microfinance, that is those populations who, for reasons of poverty or social exclusion, cannot access mainstream insurance services. In many communities, accessing health services is a particular concern among poor people, because of the economic consequences of poor health of a parent.
Community Rating
C
ommunity rating generally refers to a system of pricing that ignores the health status of policyholders and charges a common price based on the average risk characteristics of the community in which it applies. It often also includes guaranteed issue and payas-you-go funding. These characteristics simplify administration and reduce the need for complex marketing and distribution. Community rated systems often achieve high levels of efficiency, with a high proportion of the premiums being returned to policyholders as benefits. However, community rating is actuarially unstable and in practice often requires measures to counteract indirect methods of giving preference to low risks – known as cherry picking – and to rebalance the claims experience among insurers with different mixes of risks – known as risk equalisation. These latter issues however usually do not cause serious problem early in the development of community rated markets, and can be addressed as markets grow and mature. July 2014 Actuaries
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Review
Jas Singh jas@sklactuarial.com.au John Killick john@sklactuarial.com.au
Careers
in Asia
– An Update Authors Jas Singh and John Killick, along with Jenny Lyon, all from SKL, recently visited Singapore, Malaysia and Hong Kong with the aim of connecting with actuaries in the area. Here they share their experiences.
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Š Iakov Kalinin+Ronnie Chua–Shutterstock.com
Actuarial W
e have recently visited Singapore and Hong Kong to update ourselves and understand the key challenges and opportunities in the market. It was exciting to be talking to organisations that are focusing on growth rather than expenses. They are not only seeking growth in their existing markets but can see huge potential in the South East Asian countries such as Indonesia, Vietnam, Thailand and even Cambodia and Myanmar. Hong Kong remains the regional hub for life insurance companies and Singapore tends to have a more general insurance and reinsurance focus although some general insurers are moving their regional offices to HK. Many of the people we spoke to identified Indonesia as a key growth market given the current small level of insurance coverage and an immense population. There are very few actuaries in Indonesia and the government has identified the need for a rapid increase in the current levels (someone mentioned 1000 in the next year although it is not clear to me how this could be achieved or how solid this number is). The nature of the work in Asia varies according to the country you are based in; however it is fair to say that there is still a focus in life insurance on more traditional products which require actuarial skills to support them. Actuaries in Australia do not always get the opportunity to work on these products and there is a need for strong technical knowledge when working in some of the Asian markets. The business model can also be different, for example some companies have a significant and influential agency force which contributes to decision making in the business and where the actuary may need to become involved in negotiations and work with individuals from quite different backgrounds. This of course is one of the opportunities which working in a different environment offers for personal development and to help build different skills. The focus of the work can be wide ranging, from company due diligence and acquisition, product review, pricing and development, claims and fraud investigations, valuation and of course if you are in a role working across different countries you may have interaction with a range of regulators. Whilst it is generally recognised that being sensitive to cultural differences is important, it became even clearer to us that knowing your
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market is important as the cultural differences vary significantly from country to country. Whilst we were in Asia, Jenny Lyon gave presentations in Singapore, Malaysia and Hong Kong with a particular focus on leadership and managing your career. Developing skills such as the ability to influence your clients or others in your organisation as well as contribute to negotiations, business decision making and to present your ideas clearly, are all important in contributing to a satisfying and successful career. It was noted at one presentation that there was often a focus by presenters on stepping outside traditional areas and yet there are many actuaries who enjoy working in the actuarial field and who want to develop skills to increase the value they can add to their businesses within traditional fields. This is an important point as the value actuaries can add to individual’s lives through providing protection and investment products can’t be underestimated. A visit to Asia is always a reminder that there is a lot of world outside Australia and there are plenty of opportunities for career, travel, lifestyle and more. We returned energised and keen to encourage people to consider alternatives elsewhere in the world. If you would like to discuss any of these reflections further then please contact us at jas@sklactuarial.com.au or john@sklactuarial.com.au.
Some reflections from our conversations with Australians who have made the move to Asia: Salaries
When thinking about salaries remember that you need to consider how you will live in the country you are moving to. You won’t be able to reproduce your lifestyle so it is useful to understand both expected living costs as well as income. Tax is often lower in Asian countries so make sure you understand how this works.
Experience
Experience is valued highly in Asia as well as qualifications; recognise this in the way in which you present your skills and knowledge.
Family
Make sure your family is keen and ready for the adventure before you progress too far with a potential job. Making sure they are happy will contribute to the success of an overseas move.
Patience
Don’t be too focused on the initial salary. In our experience the benefits will come over the medium to long-term once you have proven yourself in the new markets.
Take a Risk
An overseas move feels like taking a risk but not moving outside your comfort zone to get the learning and development such a move can give you could also be considered a long term risk to your career.
Attendees at an Insights session in Singapore
July 2014 Actuaries
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Alissa Holz aholz@rgare.com
No Fork Required An Australian Traveller in Asia’s Insurance World – Vice President and Chief Pricing Actuary (Asia) at RGA Alissa Holz shares her Experience
The market’s history Although Asia includes some of the world’s oldest civilisations, the region’s life insurance history is far shorter. Life insurance has been sold in Asia for the last two centuries. Initially, the market consisted of multinational American and European companies, selling mostly to expatriates, with domestic insurers entering later and focused more on the local populations. Reflecting this history, today’s Asian life insurance market is a mix of domestic and multinational companies. Many Asian countries have seen significant expansion in wealth and very material improvements in access to health care, which has spurred growth in the life insurance industry.
Demographics The differences in the underlying demographics of the countries should not be understated. According to the World Health Organisation, Japan in 2013 had 32% of its population over 60 years old, whereas in the Philippines, only 6.3% were over 60 years old1. These differences are driving differing products, sales channels and distribution practices. There are efforts to develop products targeting seniors in much of North Asia, while juvenile products remain very popular in other markets. For three of the world’s most populous countries – China, Indonesia and India – the wealth of actuarial data available 16
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for issues can be breathtaking. Equally stimulating and challenging, however, can be the dearth of data in other areas. Simply acquiring an accurate picture of population mortality rates by age can be quite challenging in certain countries or regions.
‘A good traveller has no fixed plans and is not intent on arriving.’ – Lao Tzu
Products In Asia, living benefit and health insurance products are exceptionally popular, and the market for Cancer Only products is strong as well. Many of these products are offered with premium guarantees and continue for the life of the policyholder. These products are also often frequently bundled with savings products, with premiums payable as a single payment, with a limited payment period (with the cover continuing), or with continual payment. Several Asian countries with significant Muslim populations are also seeing growth in takaful2 sales. Interestingly, many markets in Asia, even wellestablished ones, do not sell products that differentiate by smoker status. This is a standard rating factor in Australia and in many other countries. Non-Asian actuaries often question the lack of segregation of policyholders to more precise premiums. The issue, however, is not simple. The reluctance to alter the rating factors is pragmatic. Distributors lack appetite for differentiated products, and given the potential difficulty in gaining product approval from regulators for smoker-distinct rates, this is not a top priority for the market. Additionally, in many Asian countries, the proportion of people (particularly males) who smoke cigarettes is relatively high. To have appropriate smokerdistinct rates may require additional medical testing, as a simple non-smoker declaration may not align with an insurer’s views of what constitutes a non-smoker.
©Elenadesign–Shutterstock.com / Alissa Holz
A
lthough I work and live in Sydney, my role is entirely focused on Asia, which means I am constantly learning the many subtleties of the insurance cultures I encounter. I am, of course, under no illusion I will ever understand it all. Understanding the appropriate seating arrangements for meetings in Japan alone could take the rest of my working life. However, with the Asian century upon us, and this being the energetic Year of the Horse, now is a good time to take a ride through Asia’s insurance landscape.
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Companies are aware that if another player were to start offering smoker-distinct rates the market could change – and quickly – but for now it is an interesting point of difference.
at points unfamiliar to me. One Lakh, for example, equals 100,000 rupees, but is notated as 1,00,000 rupees, and one Crore equals 10 million rupees, but is notated as 1,00,00,000 rupees.
Languages
Regulations and Risk
Each Asian country has its own regulations, business culture and market practices. The different languages can also be an issue, as policy documents and sales aids must be produced in local languages, and translations can be of varying quality. For any multinational company or professional working in this area, linguistic clarity is vital, as a mistranslation could result in covering items or individuals that were not intended. There are also business terms specific to life and health insurance that mean different things in different countries. For example: ‘Permanent Disability’ can range in definition from a broad ’inability to work’ requirement to a very tight ’paralysis or loss of limbs’ requirement. ’Full Underwriting’ can mean complete medical testing and a full family history on every individual, or no medicals and a set of standard questions that exclude family history. I seem to be constantly asking, "What do you mean by ’x’?"
Like insurance regulators all over the world, Asian regulators continually watch their markets to consider capital adequacy requirements, assess new products for market appropriateness, and supervise companies to ensure market stability. Each country’s regulatory body has its own rules and interacts differently with the insurance companies under its purview. Some are hands-on in the product development cycle, while others tend to focus more on company and industry capital and risk. Because of some high-profile data breaches in Asia and elsewhere, data privacy is causing a significant amount of work for insurance companies that do business in the region. Although actuaries love the idea of ’Big Data,’ insurance companies around the world need to address increasingly significant and explicit data privacy issues. In some countries, this has already restricted the ability of data analysts and actuaries to work remotely with the data an insurance company has collected, and could also restrict the ability of multinationals to access their own data across borders. The strategic importance to insurers of utilising their own data appropriately will mean, for some time to come, a continued focus balancing the use of the data they capture with their obligations to respect their customers’ privacy.
Currencies Most might think currency issues would be straightforward. However, in Asia, they can have interesting complexities. Policyholder assets and liabilities can be in many currencies, including ones other than that of the country where the policyholder resides. To meet consumer demand, many insurers in Asia will write business denominated in currencies from other countries – quite frequently in US dollars, but in other currencies as well. This business needs to be well-managed: companies must carefully manage their exposures to currency fluctuations, and more complex financial underwriting controls may be required to assess appropriate insurable interest at the time the policy is sold. Currencies also can confuse an actuary, especially when it comes to the manner in which numbers can be expressed. In India, monetary amounts can be stated in Indian Rupees (INR), Lakhs or Crores, and the (,) in the Indian system is placed
I would recommend trying a cake or tea made of Sakura (cherry blossom) in Japan and tasting the Jeju black pig in Korea, but I don’t feel the need to seek out chicken gizzards or loofah again. Finally, as I spend a fair amount of time travelling between Australia and Asia, I have a few simple travel recommendations: • Take direct flights where possible; they will get you where you are going quickest. • Always pack a change of work clothes in your carry-on bag, in case your luggage doesn’t arrive. No one wants to be the only one in a meeting wearing track pants.
Overall The Asian life insurance industry is exciting and dynamic, with a wealth of opportunities for companies and individuals willing to seek them out. The changing dynamics in many Asian countries requires innovative and collaborative thinking about the opportunities and ways to mitigate risks. I am exceedingly grateful for my Australian actuarial education and that most Asian business people speak English, as I speak no Asian languages. Fortunately, numbers and data transcend language. And I can use chopsticks. 1
2
http://www.un.org/en/development/ desa/population/publications/pdf/ageing/ WorldPopulationAgeingReport2013.pdf Takaful is a Shari’a (Islamic Law) compliant alternative to conventional insurance.
Miscellany I have been constructing a predictive model of expected air conditioner temperatures in our Asian offices. Most of the offices I visit are in the Northern Hemisphere, so in July, while Sydney shivers with cold and wet, Hong Kong is uncomfortably hot and humid. Unfortunately this gives me no clues as to what to pack for any business trip. Right now, the air conditioner settings in many of the Asian offices I visit seem to be inversely correlated with whatever I am wearing that day, and seem to have little relationship to the temperature outside or any other variable. (I am open to suggestions on any additional variables I can test.) No commentary on working in Asia could be complete without mentioning food! July 2014 Actuaries
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Tim Howell tim.howell@zurich.com.my
An Equatorial Perspective Experiences in Malaysia Tim Howell, Director, Actuarial Service Centre Asia Pacific at Zurich tells of his move abroad.
Working in Asia The actuarial profession is very well respected in Asia with the Chief Life Actuary generally reporting at executive level to the CEO, and taking an active role in matters such as strategy and risk management, as well as the usual areas of capital management, pricing and financial reporting. My role in Kuala Lumpur, Malaysia involves supporting the life actuarial valuation and reporting for a number of countries within the Asia Pacific region. Over the last two years we have built a team of actuarial professionals with accountability for actuarial model development and regular group reporting. Geographically, Malaysia is at the centre of Zurich’s businesses in the Region – for example, Singapore and Jakarta are reachable within a one or two-hour flight. This has meant that as well as it being the location for our actuarial centre, Kuala Lumpur is often used as a hub for Regional events and functions. One example is our 18
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Zurich Regional Actuarial ‘Summer School’, where we brought together actuarial students and other interested Finance professionals from around this Region into Kuala Lumpur for a week of learning and networking. The event was organised by my team with the support from our European colleagues and Hong Kong Regional office. It was a big success and it certainly shined the spotlight on Kuala Lumpur. It has been an excellent time to be in Asia with Zurich and to contribute to the growth we are experiencing in the region. A key part of my role has been recruiting, developing and leading a high performance team. In my experience, the actuarial talent in Malaysia is very strong. The team has strong communication skills and is fluent in multiple languages i.e. English, Bahasa Malaysia (Malaysian), Mandarin, and Cantonese. The team members are highly motivated and have either completed or are pursuing professional qualifications with internationally recognised actuarial bodies. Most students follow the North American Society of Actuaries path or the UK’s Institute and Faculty of Actuaries path. Whilst the number of Malaysian actuarial students following the Australian path seems to rank third (from my collegiate pool – not a statistical sample) it is pleasing to see the increased activities from the Actuaries Institute Australia in Malaysia.
Further, the Actuaries Institute Australia’s recent reductions in fees to recognise exemptions will make a meaningful difference for actuarial students. The Actuaries Institute Australia is sharing experience on leadership development with the Actuarial Society of Malaysia and is tailoring communications for overseas members. Both of these initiatives are great for engagement.
Talking actuarial On the topic of language, my team interacts with colleagues in South East Asia (Indonesia, Singapore and Malaysia) through to Japan on a regular basis. Personally, my language skills are generally food oriented… restaurant names or my favourite dishes. Actually, recognising the inadequacy of my language skills has been helpful. We work in an international environment and the awareness of cultural differences and similarities is important. The familiar language in my office is Mandarin, however it is not uncommon in Malaysia for Mandarin, Bahasa Malaysia, Cantonese and English to be intertwined in a conversation. In a business context we all need to have a common language. English is the common thread in our multinational organisation, however a flexible approach is important. In performing our work we have been required to
©Efired–Shutterstock.com
I
t has been just over two years now since I moved with my family from Sydney to Malaysia. Initially there was some scepticism when faced with taking a leap and testing both my experience and my family’s in a new environment. However we are very glad we took the leap and have absolutely no regrets!
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understand Indonesian regulation in Bahasa Indonesia (Indonesian) and spreadsheets with Japanese characters. The desired outcome is always to achieve a common understanding and effective two-way communication is required in every case. Logic, mathematical reasoning and cashflow projections are generally universal. When working across borders and cultures it is helpful to develop illustrative examples, have open communication, and share knowledge and resources. Short-term assignments and secondments can be very effective. Face-to-face meetings remain the most effective means of communication and are important for developing relationships.
Observations on product propositions and markets Similar to a number of areas in Asia, the in-force life insurance premium in Malaysia is heavily weighted towards traditional business (both participating and non-participating) whilst investment-linked business is a key growth area. Life Insurance Association of Malaysia (LIAM) statistics illustrates total life insurance in-force premium growth of 12.8% in 2013, individual traditional premium growth of 4.8%, and individual investment linked growth of 14.5%. The group in-force premium growth was 117.7%, however this is from a smaller base. Bundling of investment and protection features is common in a number of markets. For example, annual premium investment-linked business will generally have compulsory death cover, a multitude of rider options and upfront charges. Medical products are commonly sold through life insurers and term products are generally level premium. The product design clearly differs to the major new business products in Australia and is shaped by the markets, distribution channels and regulatory environment. Markets are usually segmented and this perhaps cannot be any more obvious than in Malaysia where the market is split between Traditional and Takaful (also known as the Islamic insurance). During my time here, there have been a number of mergers and acquisitions in both Indonesia and Malaysia. The transactions have resulted in increased multinational presence in the markets. Tied agency distribution is prevalent in a number of markets with IFA, group and bank distribution seen as growth areas.
Bank distribution in particular has been identified as a theme for a number of recent transactions. Technology take-up in the region is high and this may also have implications for distribution. The regulatory environment will also influence the product propositions. From an actuarial perspective there are cost of capital implications that are dependent on the regulatory capital requirements. There can be further regulatory driven implications which include tax concessions for certain products or the level of government support, e.g. government support for medical expenses. The pace of regulatory change in the region is increasing. In the last couple of years we have seen changes in local statutory reserving (Indonesia has moved to a gross premium valuation of life insurance reserves and introduced Risk Based Capital), increased focus on Risk Based Capital (Singapore is currently in a QIS process for RBC2) and developments similar to ICAAP in Australia (ORSA in Singapore, ITCL in Malaysia). Establishing and embedding risk appetite and enterprise risk management are other key initiatives. There has also been increased regulatory focus on financial advice including the Financial Advisory Industry Review (FAIR) in Singapore starting from 2012 and the new Financial Services Act (2013) in Malaysia – which are similar to FOFA in Australia or Treating Customers Fairly in the UK. It is likely regulatory convergence will continue, however localised differences will remain.
Australian experience (market and regulatory) and professional qualifications make Australian actuaries well positioned for opportunities in Asia.
Cosmopolitan Malaysia Kuala Lumpur is a cosmopolitan city and it has been a good experience settling here with my family. There is always an initial adjustment period when moving to another country. However, with a sense of adventure and a bit of research we were soon at home. We have developed great friendships in Malaysia both with locals and expatriates from around the globe and our network has also expanded beyond financial services to include individuals working in other prominent industries including oil and gas, IT, education, engineering, manufacturing and construction. We have enjoyed the cultural experience and have a deeper understanding and appreciation for the Malay, Indian and Chinese traditions – it is never too long between festivals (and public holidays) in Malaysia. The pace of development is clearly visible and, at times, audible. The food is unrivalled and is a central part of any gathering. We even enjoy the predictability and warmth of the weather, 32 degrees every day with a wet and dry season. The storms in the wet season are quite spectacular! The time in Malaysia has been fantastic for the whole family and I will always hold this country and its people with great regard. For me, as a lasting memento of our time here, we now have a Malaysian born addition to the Howell family.
Tim Howell (in background) with colleagues in KL
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Arjan van Veen arjan.vanveen@credit-suisse.com
Asian Insurance
– Still a profitable high growth market for the next decade?
H
istorical growth strong
The Asian insurance market has outgrown most other markets globally over the last decade; underpinned by strong economic growth and development, and aided by positive demographics, especially a rapidly emerging middle class. The Asian life insurance market totalled around US$1tn in premiums in 20131, with most markets still mainly focused on ‘savings’ style products rather than mainly 'insurance' style products like Australia. Excluding Japan and Australia/NZ, total premiums for the rest of Asia totalled ~US$450bn, having grown at 13.5%2 p.a. over the last decade - relative to 7% p.a. for Australia/NZ, 3.5% p.a. for Japan, 2% p.a. for North America and 5.5% p.a. for Western Europe. The Asian general (P&C) insurance market remains much smaller than the life market, with total premiums of just over US$400bn3 in 2012. Excluding Japan and Australia/NZ, total premiums for the rest of Asia totalled US$225bn, having grown at 15%4 p.a. over the last decade - relative to 12% p.a. for Australia/NZ, 3.5% p.a. for Japan, 3.5% p.a. for North America and 6% p.a. for Western Europe.
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Data sources: 1 . Swiss Re, local regulatory data, 2 . to end of 2013, 3 . Swiss Re. 4 . To end of 2014.
©ArtisticPhoto–Shutterstock.com
Differing products, distribution and profitability Product types, distribution channels and profitability vary considerably amongst the 14 major markets in the region. For life insurance, products still are mainly savings orientated, with traditional participating products dominant in many countries. The rise of unit-linked products was severely impacted by the Global Financial Crisis, as investors switched back to what are considered safer forms of investment. For general insurance, the main market segment is motor insurance (see Figure 1); which for example in China represents over 75% of the market, with the retail home insurance (either building or home and contents) almost non-existent. The independent agency / broker channel is still in its infancy in most of Asia, with tied agency forces and bancassurance being the major methods of distribution for life insurance. Bancassurance is becoming an increasingly important distribution channel, with upfront prices paid by insurers for long term exclusive distribution deals having gone up materially in the last few years (for example, AIA Group paid US$800mn upfront for a 15 year exclusive distribution deal with Citibank in Asia in late 2013). For general insurance, the direct market is still evolving gradually, with only the Japanese, Korean and Australian markets being dominated by the direct channel. Agents and dealerships are still material distribution channels in many of the remaining Asian markets. Profitability also varies materially by market in both life and general insurance across Asia. For life insurance, markets that have historically offered high long-term guaranteed products (i.e. Taiwan, Korea and Japan), have struggled with profitability as interest rates have fallen, with new business margins also still lagging despite consolidation in these markets.
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80%
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0%
Aviation
Vietnam
India
A&H
Philippines
Hull & Cargo
Malaysia
Marine
Indonesia
Thailand
China
Liability
Japan
New Zealand
Property
Australia
Taiwan
Korea
Motor
Other
Figure 2: Asia P&C 5yr average combined ratio (%) by country 140%
140%
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120%
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80%
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60%
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40%
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0%
0% Vietnam
Philippines
Indonesia
India
Malaysia
Thailand
China
Japan
New Zealand
Australia
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Korea
Singapore
HK
Figure 3: Asia Life 10yr CAGR (% p.a.) and growth forecasts
P remium growth (10yr C aG R and growth %)
25.0%
Developed
Developing
Emerging
20.0% 10yr
2014
2015
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10.0%
5.0%
0.0% Vietnam
Philippines
Indonesia
India
Malaysia
Thailand
China
New Zealand
Australia
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Korea
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Hong Kong
We remain positive on both the growth and profitability outlook for both the Asian life and general (P&C) insurance markets over the next decade. However, this does vary quite a bit by market; with some requiring major structural change (i.e. India) and others needing insurers to adapt their business models and products for rapidly ageing populations (i.e. China). China and India represent 75% of the population of Asia and are therefore key to the future growth and profitability of the Asian insurance markets. India has major issues in the profitability of its insurance industry for both life and general insurance due to government participation in the market and overzealous regulatory initiatives (which on the life insurance side have shrunk the industry materially). Unfortunately, we see little likelihood of change in the near term. Conversely, Chinese regulators have on various occasions prevented the insurance sector from spiralling into unprofitable cycles; with the key issue being the focus on volume (generally at the expense of margins) by a large part of the market (including the large SOEs). We see a huge medium term opportunity in the general (P&C) insurance market in many of the developing and emerging Asian markets as they de-tariff and consolidate. There will be a shift towards direct channel sales; with companies like IAG, AXA and Allianz already positioning themselves for this. We see this opportunity as having largely passed in most of the life insurance markets; with companies like AIA and Prudential the larger of the regional insurers having led the charge, now enjoying significant competitive advantages (especially scale) in the key distribution channels. Whilst China and India will continue to drive growth for the region (see Figure 3), we see the South East Asia market as the key drivers of profitable growth in the region nearer term.
100%
Singapore
Overall outlook still strong – but varies by country
Figure 1: P&C Asia P&Cpremium insurance premium mix by segment (%) Figure 1: Asia insurance mix by segment (%)
Hong Kong
The Hong Kong and South East Asian markets have the most attractive new business margins in Asia, especially for scale insurers focusing more on 'insurance' sales. Many of these markets also have higher levels of unit-linked sales (with insurance riders), which also have lower capital requirements. Part of the reason these markets are more attractive is due to higher market share of international insurers and the continued dominance of tied agency forces. We see little pressure on margins in the near term given the distribution and (bundled) product mix in these markets. For the general insurance market, profitability is quite varied by market (see Figure 2), with weaker markets suffering from lack of rational competition (e.g. India), tariff distortions (e.g. Malaysia) or natural catastrophes (e.g. Thailand, New Zealand, Japan). Overall, this market is much more fragmented across Asia due to its smaller size, tarrification and regulation.
Figures 1 – 3: Source: Local regulators, Credit Suisse July 2014 Actuaries
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Dimitri Semenovich dimitris@cse.unsw.edu.au
An Analytics Minded Actuary’s * Guide to MOOCs Open Online Courses
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©Slavoljub Pantelic–Shutterstock.com
* Massive
he limitations of traditional actuarial education when it comes to the broader business analytics have been previously highlighted in this magazine by Adam Driussi of Quantium. Indeed, so called ‘analytics’ form a bewildering accretion of ideas developed over more than a century (e.g. scientific management, biostatistics, statistical quality control, operations research, financial economics, machine learning and so on). Further, it is quite demanding, though by no means impossible, to be conversant on such a wide range of topics and to appreciate the broad similarities. While the actuarial profession has enjoyed not inconsiderable success in this area in Australia, it is important to realise that the Australian market has been fortuitously sheltered due to the absence of strong graduate programs (in the North American sense). Australian Masters almost exclusively cater to career changers and in the case of PhD degrees, there are no substantial advanced coursework requirements. Combined, these ensure that only a small percentage of students get a solid technical background outside of their immediate specialisation.
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Can the actuarial profession develop an effective and globally competitive data science or analytics qualification? The topics in question easily span half a dozen university schools and departments (including statistics, finance, econometrics, applied maths, computer science, industrial engineering and others), making a substantive discussion of a suitable curriculum a challenge in itself. The situation is, however, far from hopeless. The great benefit of modern communication technologies is that an individual learner is no longer held back by institutional limitations. Some superb materials from the leading universities have been made publicly available over the last 10 years and the pace is decidedly picking up. There have been, perhaps, three main waves in the Internet facilitated open education to date. Back in mid 1990s, instructors in universities worldwide began making their notes available online. With increased bandwidth and proliferation of digital recording equipment, more and more courses have been made accessible in the form of video or audio recordings. Noteworthy initiatives include MIT Open Courseware, Stanford Engineering Everywhere and webcast.berkeley. Over the last few years, drawing inspiration from the popularity of the MIT Open Courseware initiative, a new format of online courses has become increasingly popular. MOOCs go beyond videos and lecture notes and offer a somewhat interactive experience with discussion forums, multiple choice quizzes and automatically, or peer graded, assignments. Leading providers are Coursera and edX, with over a hundred universities participating. While serious questions about accreditation and the overall MOOC business model remain, it is now possible to piece together a fairly comprehensive curriculum in analytics or data science that is taught by great researchers who also happen to be exceptional teachers. Of course, textbooks and monographs have been available for centuries and it can be argued that the material was always accessible in some form to anyone within reach of a university library. There seem to be strong indications, however, that for someone engaged in self-study, additional informal insight provided by the best
Online courses could help develop a broad fundamental understanding of computing and mathematical modelling – which it could be argued will be core analytics skills for addressing a variety of future business problems.
professors can significantly boost the rate of success. This is especially true in mathematical modelling and related topics, as textbook presentations tend to be overly formal and difficult to decipher without being given the right key. Indeed in my own experience the interactive features of the MOOCs have been easily overshadowed by the personality of the professor; yet the additional structure is not entirely without benefit and can provide an additional impetus towards completion. Recognition of learning via open courses is likely to remain an unsolved problem for some time and I believe this is the main area where the Actuaries Institute could differentiate themselves. It is relatively straightforward to design independent assessment for the material contained in courses that are already publicly available and such an initiative has potential to attract students, especially if credit is given towards the Fellowship designation. In what follows I give an outline of some particularly noteworthy graduate and undergraduate courses that could help develop a broad fundamental understanding of computing and mathematical modelling. These could be argued to be core analytics skills for addressing future business problems, with the increasing number of processes and low-level operational decisions subject to automation. To access any of these, a quick Google search by course name will take you to the relevant pages.
1. Analytics at web companies To get an impression of what the future might hold, it might be worthwhile to review some of the courses offered by people with experience implementing analytics solutions for the leading web companies. Examples include CS281B Scalable Machine Learning
at UC Berkeley [25] by Alex Smola (formerly of Yahoo) and Big Data, Large Scale Machine Learning at NYU [26] by Yan LeCunn (currently at Facebook). In particular the first course offers an interesting insight into the importance of understanding systems, numerical methods and statistics to develop analytics solutions at web scale. Prerequisites for these broadly include linear algebra, basic probability and statistics and, ideally, convex optimisation and an introduction to machine learning, as discussed next.
2. Mathematical background and numerical computing In some sense, the lynchpin of applied mathematics is linear algebra. The majority of computational procedures for solving mathematical models ultimately reduce to iteratively solving systems of linear equations. An excellent introductory treatment of linear algebra is given by Gilbert Strang in MIT 18.06 [2]. The material is further developed in MIT 18.085 and 18.086 [4], demonstrating a very broad range of applications across engineering subfields. The observation that the differential operator can be discretised as e.g. a tri-diagonal matrix (the so called ‘finite differences’ method) is the key connection between linear algebra, traditional calculus (in the form of integral and differential equations) and computing. Another take on the material is given in Stanford EE263 taught by Stephen Boyd - in addition to basic linear algebra, the course gives highly intuitive exposition to least squares regression, regularisation, singular value decomposition and linear dynamical systems (which can be viewed as a generalisation of a wide class of time-series models in the Part I syllabus). Somewhat July 2014 Actuaries 23
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A possible course sequence to gain general familiarity with modern analytics.
off the usual track, the material above should provide sufficient background to appreciate the technology behind modern robotics platforms, such as those formerly developed at Boston Dynamics, now part of Google (MIT 6.832 Underactuated Robotics [12]). Finally, the Fourier transform is one of the most famous special cases of a linear operation– an intuitive introduction to the subject and its multitude of applications, including the Central Limit Theorem, is given in Stanford EE261 [17].
3. Optimisation Beyond differential equations, one of the main applications of linear algebra is in mathematical optimisation or mathematical programming. Optimisation based models are pervasive in analytics, whether it be maximum likelihood estimation, empirical risk minimisation, Neyman-Pearson hypothesis testing, optimal control, Markowitz portfolio theory or option pricing. Prof. Stephen Boyd's course EE364A Convex Optimisation [19,20] not only gives a solid grounding 24 Actuaries July 2014
in the theory but also considers many of the abovementioned examples. Convex optimisation is widely seen as the foundation of modern statistics, machine learning and signal processing. Familiarity with theory and algorithms will enable the practitioner to identify and implement solutions to a very wide range of problems across industries. There is also an interesting connection between mathematical optimisation and classical algorithms studied in undergraduate computer science courses (e.g. MIT 6.06 [7]) – many of the problems such as sorting, shortest path, max flow &c. turn out to be special cases of linear programming (itself a special case of convex optimisation). The follow up course EE364B [21] provides more detailed background on scalable and distributed optimisation as well as the clearest introduction to the General Equilibrium theory of microeconomics you are likely to find. The background for these courses is limited to linear algebra, MIT 18.06 [2] and EE263 [18] – Introduction to Linear Dynamical Systems, and basics of multivariable calculus (gradient, Hessian) – MIT 18.02 [1].
Comment continued
4. Probability, statistics, machine learning, information theory There are few unequivocally great introductory probability and statistics courses publically available, at least at the moment. MIT 6.041 [9] is a useful probability refresher. A worthwhile follow up is MIT 6.262 [10] Discrete Stochastic Processes. When it comes to statistics, or at least a take on the topic that is more attuned to analytics applications, Stanford Statistical Learning [21] is a solid introduction from the authors of the well-known book. A closely related subject area is machine learning, with the introductory course by Andrew Ng, CS229 Machine Learning [23], and a much more in depth treatment by Alex Smola, CMU 10-701 Introduction to Machine Learning [24]. So called ‘deep networks’ are a recent ‘hot’ topic in machine learning, providing state of the art performance for many recognition tasks. This material is covered in NYU Deep Learning [27]. Information theory provides perhaps one of the most successful and widely used applications of probability. There are also important connections to statistics and machine learning (as efficient compression requires effective conditional probability estimation). MIT 6.450 Principles of Digital Communications I [11] is an excellent course by the pioneer of digital communications Rob Gallager, who invented one of the most effective known coding schemes and was a founding engineer at Qualcomm where he designed the first 9600 baud modem. Information theory is an essential foundation of all digital information processing technology. Another excellent discussion of information theory is given in the course taught by David MacKay at Cambridge [36]– Information Theory, Pattern Recognition and Neural Networks, bringing together topics from coding theory, statistics and machine learning. Convex optimisation provides a very helpful background for the courses in this section even if it is not explicitly alluded to.
5. Programming There exists a very wide range of high quality introductory programming courses. Perhaps the Stanford sequence deserves a particular mention, CS106B Programming Abstractions and CS107 Programming Paradigms [15,16]. Alternatives include the introductory courses at MIT, MIT 6.00 and MIT 6.01 [5,8], and YouTube videos of UNSW
COMP1917 Higher Computing [13] (Richard Buckland is an ex-actuary and has won multiple teaching awards). MIT 6.001 [6] (now superseded) is the most celebrated introductory programming course of all, with the textbook Structure and Interpretation of Computer Programs used in dozens of top universities. While Scheme, the language that it uses for teaching programming concepts, has for a long time been considered less than practical, over the recent years there has been a dramatic resurgence of popularity of the related body of ideas called functional programming, underpinning many of the latest big data technologies. Beyond the introductory courses, Programming Paradigms [17] gives a useful overview of design choices behind a variety of programming languages and University
Over the recent years there has been a dramatic resurgence of popularity of the related body of ideas called functional programming, underpinning many of the latest big data technologies.
of Washington – Programming Languages [31] offered on Coursera by the University of Washington, provides a more advanced grounding in the functional programming paradigm. An introduction to Scala, an increasingly popular compatible replacement of Java, is available from its creator on Coursera by searching ’EPFL – Principles of Functional Programming in Scala’ [32]. No such list would be complete without an algorithms class – MIT 6.06 [7]. Conceptual links with optimisation or mathematical programming offer a connection back to the material in the earlier sections.
6. Finance, economics and social science While the exact relation between actuarial pricing and financial economics is not clearly set out in the Part I curriculum in Australia, it has been understood in the academic literature for some time as the so called ‘incomplete markets’ setting. An introductory
discussion of the modern theory of finance (CAPM, option pricing &c.) from this more advanced point of view is given in John Cochrane’s (University of Chicago) class Asset Pricing on Coursera [30]. A useful generalisation of the concept of an optimisation problem (see e.g. Stanford EE364A and CVX101) [19,20] is offered by game theory. Instead of considering a central planning problem where all the decisions are taken by a single agent, game theory looks at situations where there are multiple selfinterested parties involved. Coursera classes, Stanford/UBC – Game Theory and Game Theory II: Advanced Applications [28,29] provide an introduction to a range of topics, including auctions and mechanism design. Applications of game theoretic methods to the study of social insurance, optimal taxation and related ideas are given in the Harvard course Public Economics [34]. Problems addressed by business analytics are not dissimilar to those found in the social sciences, especially when it comes to identifying what is sometimes called actionable insights – a social scientist may instead talk about policy targets. While causal attribution is often times not necessary, it is important to be aware of limitations of analyses carried out purely on observational data. One example in social science where large-scale experiments have been possible is development economics. The course MIT 14.73 [35] offers an in depth discussion of considerations that go into designing a convincing experimental study. A broad introduction to the design of quantitative methods that are directly applicable to the question being studied is given in Gary King’s excellent methodology course at Harvard, Gov 2001 Quantitative Research Methodology [33].
Conclusion The courses referred to above are only a relatively small selection as higher education has never been more accessible than at present. The more individual members of the profession that become familiar with the existing modes of thinking in business analytics the easier it will be to collectively respond to the future challenges presented by the rapidly shifting technology landscape – both inside and outside existing practice areas. For a listing of references go to http://www. actuaries.asn.au/Library/AAArticles/2014/ MOOCsReferences.pdf July 2014 Actuaries 25
Leading Actuary Profile
Alice Crowley alice.crowley@hotmail.com
N
ational Disability Insurance Scheme actuary Sarah Johnson has always felt at home working in the human services industry. She encourages other actuaries to consider how they might be able to put their own passions into practice. With a natural interest in social policy and solid technical experience, Sarah is well prepared to shape and steer the future of the NDIS.
A calling for social policy
A Social Actuary: Putting Passion Into Practice An interview with Sarah Johnson, Scheme Actuary for the National Disability Insurance Scheme (NDIS)
26 Actuaries July 2014
Sarah had always been good at maths and when it came to electing majors at university, actuarial studies and economies seemed the natural fit. As part of her university scholarship she had the opportunity to work across three different placements. “Throughout university I worked at HIH, PricewaterhouseCoopers (PwC) and ING. During my time at PwC, I worked with actuaries in the human services industry and realised I could use my skills in social policy – an area which I love. I really enjoyed the work and after I graduated, I accepted a graduate role with PwC and I stayed there for around nine years. “I started as part of a very small team lead by John Walsh (a Partner at PwC who mentored me, and the leading actuary in health and human services) and over the years we built that team up to a 20 person actuarial health and human services team with a big focus on disability reforms and broader social policy reforms, including funding options and policy evaluation.
Leading Actuary Profile continued
“During that time, I completed my actuarial qualifications. I wasn’t always that keen to finish the course because social policy didn’t seem to fit within the study areas of general insurance and investment. But at the time, John Walsh strongly encouraged me to see it through and that was some of the best advice I ever received. “I was lucky to find a sector I was passionate about and the technical skills that I gained throughout my studies helped me bring a lot to the human services industry. I have the actuarial qualifications to thank for that,” she said. In 2010/11, Sarah was seconded to the Productivity Commission to work on the inquiry into Disability Care and Support, which then led to the government announcing it was going to set up a task force to implement the NDIS. “I continued to work at PWC for another two years until November 2013 when I was appointed as Scheme Actuary of the NDIS. The decision was simple, I had a huge interest in social policy and after working so closely with the scheme, I wanted to see the Productivity Commission’s vision brought to life. For me the best way to do that was to work for the scheme, rather than just act as a consultant. I needed to be in the thick of it.”
Tackling the challenges of the NDIS head on When Sarah was asked to take on the role of Scheme Actuary for the NDIS, she knew this was her chance to build the financial sustainability framework the scheme requires to maintain its viability. Sarah acknowledges the challenges that come with the role. All of which, she believes, can be overcome. According to Sarah, the main challenge is moving the scheme from a welfare model to an insurance model. “The welfare model involves the Government spending money to provide services to those in need. The focus is on output and delivering services and there is no focus on the broader and longer term outcomes. “The insurance model is much more about the person and providing them with the services needed to support them over a lifetime. Under this model there is more of a focus on financially sustainable outcomes and better outcomes for the person with a disability. “The NDIS is an insurance model and there are a variety of people with a variety of skills and experience working on it. Some of these people previously worked with the welfare model so instilling the insurance model and principles and changing how people think is a particularly big challenge,” Sarah explained.
Spend time on the soft skills According to Sarah, her soft skills such as communication and multitasking are essential for success and she encourages all actuaries to work on these rather than simply focusing on their technical skills. “The role requires multitasking and good time management skills as we’re balancing the implementation
An actuary who has a deep understanding and a passion for an industry and can apply their technical actuarial skills, is able to make a real difference and improve that industry. I see a huge potential for actuaries to influence the shape of Australia’s human services sector. of a national scheme with trial sites, a national office and numerous other stakeholders to report to. Communicating the impacts and results of the scheme is also vital. “My advice to younger actuaries is to develop their soft skills. Of course you need to build your technical skills but there comes a point in your career where your technical skills are largely a given and it’s the other skills that make you stand out,” Sarah said. Given the unique skill sets of actuaries, Sarah believes there is a huge opportunity for the profession to contribute to and shape the future of the NDIS and the Australian human services industry more broadly. “The insurance model traditionally relies heavily on actuarial expertise and there is a role for us in ensuring the scheme continues to operate under this model. “It is important to remember the NDIS is still in infancy stage. We will need qualified and talented actuaries to work on the scheme to ensure it remains financially sustainable. By drawing more attention to the human services industry and introducing the sector at an education level, the profession will have the skills and understanding to keep it alive. “I believe that once an actuary has a deep understanding and a passion for an industry and then applies their technical actuarial skills on top of that, that actuary can make a difference and improve an industry. I see a huge potential for actuaries to influence the shape of Australia’s human services industry,” she said.
A different social side As a young girl, Sarah always wanted to be a professional tennis player. It’s safe to say that the Australian human services industry and the actuarial profession are lucky that she decided to only play socially. Now, tennis is one of many hobbies Sarah makes time for despite her highly challenging role. “For me, I love travelling and I’ve visited most continents and each year I try to take a few weeks to go somewhere new. I love playing sport including tennis and team sports such as touch football. I also enjoy having dinner with friends and socialising. “Everyone needs to have interests outside of work. Whether it is friends, family, sport or art, to have a full life you need to make time to enjoy these sorts of things as well as work,” Sarah concluded. July 2014 Actuaries 27
Comment
Kaise Stephan kstephan@deloitte.com.au Caroline Bennet cbennet@deloitte.com.au Mathew Ayoub mayoub@deloitte.com.au Senthooran Nagarajan senagarajan@deloitte.com.au
Actuarial Transformation W
hat is an Actuarial Transformation?
Actuarial Transformation represents a fundamental change to the operating model of an actuarial team. An Actuarial Transformation involves increasing process and cost efficiency, improving and maximising the use of technology and data, transforming the culture of the team, and critically analysing the team structure. A transformation involves the use of tools and frameworks enabling the Chief Actuary to become a catalyst for change and a strategic business leader, rather than as a manager of a function. To illustrate some practical examples, an Actuarial Transformation can benefit the organisation through: • faster financial close; • headcount saving; • transfer of resources to more value-adding activities; • better analytical capability; • stronger control environment and reduced operational risk; • more efficient regulatory compliance; • enhanced service to organisational customers (e.g. underwriting, finance, claims); • increasing Actuarial department footprint in organisational and strategy development and execution.
Four faces of a successful Chief Actuary
28 Actuaries July 2014
©monarx3d–Shutterstock.com
The successful Chief Actuary The requirements of the Chief Actuary’s stakeholders are changing. Accuracy and technical correctness are no longer the sole objective. While technical correctness is important, stakeholders want business partners who can provide advice and insights rather than mere reporting. A transformation can help the Chief Actuary and the actuarial function deliver a platform that provides greater value to the business in terms of insights and services at lower costs. We view the four faces of a successful Chief Actuary as a Steward, Operator, Catalyst and Strategist. In our view, a successful Chief Actuary needs to be a good 'Steward' and 'Operator' as a foundation but also have focus on the 'Catalyst' and 'Strategist' areas. The actuarial function of the future will be led by Chief Actuaries who drive change and participate in business strategy in their organisations. They will be Catalysts and Strategists for change rather than recipients of it, constructively challenging the status quo.
Comment continued
Global Survey To understand the nature of Actuarial management challenges and issues being faced by actuarial functions and the C-suite, Deloitte’s global actuarial team members conducted an ‘Actuarial 2020’ Survey covering Life, General and Health insurance and reinsurance companies across various countries. The survey included a wide range of questions relating to the Actuarial function including: • team size and structure; • the level of efficiency and effectiveness of the Actuarial people, processes and systems including data warehousing; • areas requiring the most improvement and/or change; • drivers of change in the business in the past and expectations of future drivers of change; and • alignment of the Actuarial team culture and strategy to the overall organisation. The survey was addressed to the head of the Actuarial function such as the Chief Actuary and over 100 responses were received, covering Australia, Canada, Denmark, Hong Kong, South Africa, Sweden, UK and USA.
Actuarial Management Themes Emerging Based on the survey responses, we identified seven key themes impacting the actuarial function: 1. current actuarial functions are at their full capacity but not using their full potential; 2. key drivers are bad data and technology; 3. operational and process efficiencies are not in their optimal state; 4. overcoming constrained resources to transform the nature of actuarial work; 5. aligning the actuarial function to the business and its strategy; 6. the need for actuaries to be catalysts for change; 7. creating perceptions we want for the collective actuarial profession/function. It is important to note that these themes are inter-connected and organisations addressing one issue need to be aware of the implications on the other aspects. Increasingly, actuarial functions are primarily fulfilling a compliance or regulatory purpose which we term as ‘operational’ with declining levels of involvement in strategic
and business roles. Almost every Actuarial functions respondent of the survey indicated Strategic that over the last three to five years regulation has been the key driver of change in their business and expect Embed Strategic this will continue for the next three to Drive Strategy Behaviors five years. Less than 10% of respondents indicated product development, business development or expansion would be a driver of change. This is Actuarial surprising in light of a separate CFO Function survey which indicated that CFOs are looking to grow their business in the current economic conditions and are seeking strategic input into these growth plans. Carry Out Measure Risk & Across a number of survey Operations Financial Metrics responses, Chief Actuaries identified a number of barriers which are Operational identified as preventing Actuarial functions from being a strong Future State Current State contributor. Smaller actuarial teams are more impacted by the external environment and management buy-in while while keeping its reputation for high for larger teams the key barriers were time standards and technical excellence. The and resource constraints. Almost all teams profession would benefit from introducing raised bad data and inefficient technology elements of commerciality and agility into as a barrier for improvement or positive the actuarial mindset. change. To achieve this, the focus of actuarial There are tools and frameworks advice and contribution must evolve. As a available to address the aforementioned profession, the message to the actuaries’ seven themes identified separately and in stakeholders must evolve from the ‘what’ combination. to the ‘so what’ then on to the ‘so what next’. We view this evolution as a continuum rather than a step change in the sense that Conclusions individual actuaries, actuarial teams and the Historically the actuarial function was an entire actuarial profession need to have a influencer of insurance company strategic continued line of sight to our stakeholders’ direction. Currently, actuarial functions are continually changing needs. often focussed on operational, rather than An Actuarial Transformation can help strategic outcomes. The actuarial sphere of organisations realise the full value potential high influence is in reserving and pricing of actuarial functions. It is key to identifying which is protected through insurance what changes are needed and how best to regulations and historic involvement. implement these changes in a manner that Our view is that actuarial functions is consistent with the organisation’s needs are highly focussed on the operational and culture and consistent with the bespoke aspects of running their function, but that issues facing the actuarial function and its transformation will be required to ensure people, processes and systems. future relevance and influence. Further information is available in The challenge for the actuarial profession the authors’ presentation and paper is to build on existing strong technical from the Financial Services Forum, May skills and knowledge of insurance products. 2014 available on the Actuaries Institute Historically, the profession made significant website. We will also be publishing a contributions to the areas it was involved ‘Point of View’ expanding on the seven key in through a mix of technical skills, product themes identified and how organisations knowledge and training. can address these themes to create their The business environment is changing Actuarial function of the future. however. The profession will need to change July 2014 Actuaries 29
Comment
Colin Yellowlees cyellowlees@rgare.com
The Winner’s Curse land. Given the difficulty of valuing the drilling rights, some estimates are likely to be higher than the true value while some estimates will be lower. The winner of the auction will be a party whose estimate was too high and can be described as ‘cursed’. The ideal circumstance for the Winner’s Curse to operate is when it is difficult to determine the intrinsic value of an item up for auction, the item has a similar value to each party and the feedback on the true value of the item is slow or inadequate. While this concept can be relevant to actuaries in other areas (e.g. reinsurance tenders, acquisition of insurance companies etc.), the remainder of this article will examine the Winner’s Curse in the context of the Group Risk market.
A
lthough the term may be unfamiliar, the Winner’s Curse is a subject that many actuaries have come across in one form or another and implicitly understand without having investigated in depth. Understanding the subject of the Winner’s Curse is important in some actuarial fields, in particular, Group Risk.
The Concept The Winner’s Curse was developed as part of auction theory. It is where, given the right circumstances, there is a tendency for the winning bid to exceed the true value of the item obtained through the auction process. In 1971, the Winner’s Curse as a concept, was first described by Capen, Clapp and Campbell in their paper ‘Competitive Bidding in HighRisk Situations’. The paper examined the sale of oil drilling rights. The background to the original idea is simple: consider a number of parties who are bidding for the drilling rights of a particular parcel of land. If the drilling rights are worth the same to each party, then it is a common value auction where each party is trying to estimate the value of the 30 Actuaries July 2014
©Kostsov–Shutterstock.com
Group Risk For Group Risk schemes, the selection of the insurer is usually determined through a tender process. In any tender, a large weighting is given to the price offered by the tendering insurers. The winning insurer is often the one that offers the lowest premium. In the tender, each insurer will determine a premium based upon their best estimate of the future claims cost by using historical claims information. A variety of methods can be used to determine the best estimate of future claims. Each insurer will use their own internal models, take into account a wide range of information and involve considerable application of judgement. As pricing is carried out independently, no two estimates that are determined by insurers will be the same. Assuming that each insurer’s best estimate of the expected future claim costs is unbiased, then some estimates would fall below the expected claims cost, whilst others above. If the insurer that wins the tender offers the lowest price, then we would expect that their best estimate would be below the true expected claims cost, all other things being equal. The implication is that, unless tendering insurers build in margins to take the Winner’s Curse into consideration, then, all other things being equal, the winning insurer is likely to underprice and their premiums will not return the expected profit margin.
Comment continued
A Simple Model A simple model with a few basic assumptions can show that a tender can result in the lowest price being materially below the true expected claim costs. A tender based only on price, will result in a premium that is likely to be too low. Consider a situation where the unbiased best estimate of each insurer is normally distributed about the mean with a given standard error. In this situation we obtain the outcome shown in Chart 1 from the simulations of a hypothetical tender. Chart 1 – Outcome from tender where: true mean loss ratio = 85%, standard error of best estimates = 10%, insurers include 15% margin in premium and actual price required for 15% margin is 100.
100% 105%
interpretation of data; choice of the experience period; segmentation of data; credibility formula to blend with an insurers standard book or risk rates; the book or risk rates themselves; IBNR methodology and parameters; allowance for IBNR tail; use of subjective information and judgement; allowance for product design changes; costing of profit shares.
• • • • • •
The magnitude of the Winner’s Curse is partly determined by the likely range of the best estimates determined by insurers – which depends upon how accurately each insurer can estimate the expected claim cost.
Other Factors As well as parameter risk there are other factors that we need to consider that may result in the price or best estimate departing from the true mean. Some of these are: • cognitive biases; • third party pressures; • market dynamics; • operational risks.
In Conclusion Possible standard error or range of prices is difficult to determine, however, from experience I have seen some tenders with a very wide range of prices. From this, and other experiences, I conclude that the Winner’s Curse is a material issue in Group Risk that needs to be considered. During periods of strong competition, actuaries need to bear in mind the likely consequence of the Winners’ Curse, which, on average, will result in outcomes being worse than expected. For now the Group Risk market is very different to what it was a few years ago when there was strong competition for business. However, the insurance cycle will turn and become more competitive again and we will need to balance the impact of strong competition with the difficulties of pricing.
5
6
7
No. of Companies
8
9
10
Chart 2
100% 95% 90% 85%
Expected Loss Ratio
105%
The expected loss ratio in Chart 1 is based upon the winning price. The loss ratio will be higher than 85% when the price is below 100. Chart 1 demonstrates the main premise of the Winner’s Curse. That is, in a market where participants price using best estimate loss ratios, the expected long-term outcome will be worse than the best estimate. 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% It can also be seen that, as the number Standard Error (%) of participants increase, the expected loss ratio increases and the average margin falls well below the 15% used by each company for pricing.
95%
4
Chart 2 – Outcome from tender where true mean loss ratio = 85%, number of companies = 5, insurers include 15% margin in premiums and actual price required margin is 1 for 2 15% 3 4 5 6 100. 7 8 9 90%
3
85%
2
80%
1
100% 105%
Magnitude The magnitude of the Winner’s Curse is partly determined by the likely range of the best estimates determined by insurers. The range of best estimates will depend on how accurately each insurer can estimate the expected claim costs. To see how the level of uncertainty 1 magnitude of the Winner’s affectsChart the Curse, we can use a simple model to vary the standard error whilst holding all other factors constant. Expected Loss Ratio
85%
90%
95%
The extent that the above factors increase variability in the best estimate, will increase the impact of the Winner’s Curse.
Chart 2 shows that, as the standard error of the best estimates increase, the expected future loss ratio also increases whilst the expected margin reduces. This is because an increase in the standard error reduces the bottom end of the range of best estimates from insurers. Similarly, as the standard error reduces, the expected loss ratio reduces and is closer to 85%.
80%
Expected Loss Ratio
Chart 1
• • • •
No. of Companies
Parameter Risk
Chart 2
100% 95%
Expected Loss Ratio
105%
Further Reading
90% 85%
One of the reasons that no two insurers will calculate the same best estimate claims cost is parameter risk. Parameter risk is the risk that the true mean of the expected future claims costs are not estimated accurately. It includes mis-estimation arising from the choice of model, calculation of parameters used in the model, assumptions relied upon and the required use of judgement. In Group Risk pricing, some of the sources of parameter risk are:
10
1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
Standard Error (%)
• Yellowlees (2013), The Winner’s Curse in Group Risk, Actuaries Summit 2013 • GIRO (2000), The Winner’s Curse: The Unmodelled Impact of Competition, Report of the Winner’s Curse GIRO Working Party, August 2009 • Thaler (1988), Anomalies: The Winner's Curse, Journal of Economic Perspectives
July 2014 Actuaries
31
Event Report
Ashish Ahluwalia ashish.ahluwalia@finity.com.au
Catastrophe T Risk Seminar On Your Watch 3 June 2014 | Amora Hotel Jamison Sydney
32 Actuaries July 2014
he Actuaries Institute held its first Catastrophe Risk Seminar during June. The seminar was organised as an Institute effort to help the General Insurance industry in developing its understanding of catastrophe modelling and the inherent uncertainties in those models. Under LAGIC, Boards must have greater oversight of the catastrophe modelling results used in the catastrophe risk management process. Ultimately, Boards must be in a position to sign off on the Probable Maximum Loss (PML), which is at the heart of insurers’ catastrophe risk management frameworks. APRA expects Boards to have a deeper understanding, than there has perhaps been in the past, of the uncertainties in the models as well as a view on whether the modelled results sufficiently capture all the insurance costs an insurer might expect from an event. For example, not all models will allow for costs such as post event demand surge inflation (whitch has been a significant factor following recent events such as Hurricane Katrina and the Christchurch earthquakes). Insurers need a structured approach for a holistic assessment of their exposures. In short, Boards must be satisfied that the PMLs used in their reinsurance purchasing decisions are a reasonable representation of the actual costs they would expect to occur. Ultimately it will come down to Appointed Actuaries and senior management of insurers to help Boards develop their understanding of the models and enhance the frameworks by which the PML is determined. The aim of the Catastrophe Risk Seminar was to bring together a range of perspectives from both the scientific and insurance communities so that the industry can continue on its journey toward having more transparency and consistency in the catastrophe risk management process. Speakers on the day came from a variety of disciplines, reflecting the diverse skillsets that must be brought together in the process of managing catastrophe exposures. Mark Leonard and Andy Pitman gave some scientific perspectives on the latest thinking around earthquake and weather perils in Australia. Rick Thomas provided some global perspectives on climate modelling techniques. Mark and Rick highlighted the high level of uncertainty inherent in the science, and also gave some guidance on the strengths and weaknesses of the existing scientific models. Ben Miliauskas, Jeremy Waite and Michael Lonergan gave their perspectives as users of models for the quantification of catastrophe risk. Ben and Jeremy spoke about the various cat models in use, and specific pros and cons of the many models. Importantly, they also set out some of the questions the models can’t answer – which should serve as useful consideration points for Boards when making decisions about the PML. Michael gave an insurer perspective on using models as part of an insurer’s catastrophe risk management framework.
Event Report continued
Daniel Smith
Will Gardner
Plenary 3: Andy White, John Caroroll, Ty Birkett and Andrew Huszczo
Ty Birkett
Andrew Huszczo
Plenary 4: Blair Nicholls, Ian Laughlin, Nick Hawkins and David Hancock
Ben Miliauskas
David Hancock
Rick Thomas, Andy Pitman, Mark Leonard and Will Gardner
Blair Nicholls
John Carol
Michael Lonergan
Jeremy Waite
Andy White
July 2014 Actuaries 33
Event Report continued
Nick Hawkins
Mark Leonard
Andy Pitman
Ian Laughlin
Ty Birkett and John Carroll spoke of the role of reinsurance in managing catastrophe risk. Andrew Huszczo spoke about how AAs can begin to step up and take on the responsibility APRA has placed upon them to review the model results, and how to go about working in areas that sit outside of the traditional skillset of actuaries. The day was rounded out by a robust panel discussion between Ian Laughlin (APRA), and Nick Hawkins (IAG) and David Hancock (Tower NZ). Ian reiterated the expectations APRA has of insurers. David and Nick spoke on how insurers can work with their Boards to establish appropriate risk management frameworks and draw upon various sources of information and knowledge into that process – both to act as a cross check, but also to assist in developing a more rounded understanding at senior levels within organisations. It was clear from the discussion that as much as insurers need to ensure they have a robust view of their exposures and risk concentrations, there is a lot insurers can also do to then use that information in actively managing those risks and exposures. The day certainly gave plenty for the attendees to think about next time they review the results of their cat modelling. Importantly, the issues raised and the knowledge shared should empower AAs, Directors and management to ask the right questions (and not be afraid of asking those questions). The industry is clearly beginning to rise to the challenge that APRA has set it. In some ways this is just the beginning of that journey, and different participants will be at different points of the journey. However, days like the Catastrophe Risk Seminar can only help the industry move along the journey path that much faster.
Back: Evelyn Chow, Ty Birkett, Blair Nicholls, Will Gardner, Andrew Hulme Front: Lisa Pronesti, Elayne Grace, Richard Yee, Ashish Ahluwalia, Liz Gemmell
Scott Hawkins
Daniel Smith and Andrew Hulme
Sponsored by
Supporting Partners
Lunch 34 Actuaries July 2014
Daniel Smith and Kevin Gomes
Under the Spotlight
Brnic Van Wyk brnic.vanwyk@qsuper.qld.gov.au
Brnic Van Wyk Title… Senior Manager, Investment Liabilities Organisation… QSuper Limited Summarise yourself in one sentence… I am an authentic, outgoing, fun loving and opinionated obsessive-compulsive My interesting/quirky hobbies... Playing golf and over many years still managing to keep my handicap greater than my age My favourite energetic pursuit… Now that I live in Queensland, attempting surfing The sport I most like to watch... Rugby union (my blood is green!) The last book I read... Freakonomics (still busy) My favourite artist / album / film… Queen – it’s a pity I never got to see Freddy Mercury (a)live I don’t go to the movies often, but I recall Shawshank Redemption and Weekend at Bernie’s The person I’d most like to cook for… My partner, who’s a qualified chef I’m most passionate about… Always being passionate, whether at home, at work, with family and friends or just alone What gets my goat… Pretentiousness I’d like to be brave enough to… Start my own business Surfing Noo sa in Winter
In my life I’m planning to change… The way the Australian superannuation system provides for post-retirement consumption needs Not many people know this but I… Am a Fellow of three actuarial institutes: Australia, United Kingdom and South Africa Four words that sum me up… I answered this already?! What I wanted to be when I grew up… Grown up! I was always the smallest in my class Why and how I became an actuary… Why? I was told that’s what people do who are good at maths, and I didn’t fancy medicine. How? Attempted exams for about 15 years! Where I studied to become an actuary and qualifications obtained… Where? In my study. Qualifications? B.Com degree at the University of Pretoria, South Africa and completed fellowship by correspondence through the Institute of Actuaries in the UK My work history… 14 years as employee benefits consultant at Alexander Forbes in Johannesburg and the last five years in the Investments Division at QSuper in Brisbane What I find most interesting about my current role... The clean slate we are working from. Innovating and introducing new concepts is a challenging responsibility that demands the kind of thinking actuaries are trained for My role’s greatest challenges… The clean slate we are working from. Innovating and introducing new concepts is a challenging responsibility that demands the kind of thinking actuaries are trained for Who has been the biggest influence on my career (and why)… My parents. They always believed in me and supported me in everything and anything I did My proudest career achievement to date is… Eventually qualifying!
n On holiday in Cape Tow
10 years from now, I will be… Continuously improving on the member retirement outcomes we are responsible for. And I’ll be counting down the days for my children to start earning their own income! When I retire, my legacy will be… That I had fun while working on it Why I’m proud to be an actuary… It is an exclusive qualification that provides immediate recognition of skill and intellect globally The most valuable skill an actuary can possess is… EQ If I were President of the Institute, one thing I would improve is… The proportion of Institute members who actively participate in, volunteer for and contribute to Institute activities At least once in their life, every actuary should… Stand up in public and present something at a conference My best advice for younger actuaries… Understand that as an actuary the only guarantee you can provide is that your answer is wrong. There’s a 50/50 chance that the actual outcome will be more/ less than your calculation. It’s the law of averages If I could travel back in time I would… Do it all over again If I win the lottery, I would… Travel back in time! July 2014 Actuaries 35
The Actuarial Pulse
The Actuarial Pulse is an anonymous, web-based survey of Institute members, run on a monthly basis, giving members an opportunity to express their opinions on a mixture of serious and not-so-serious issues.
Solai Valliappan solai.valliappan@zurich.com.au
Working in Asia Report generated on 19 JUNE, 215 responses.
T
his month’s Pulse Survey focused on gauging your experiences and opinions on working in Asia. We left the definition of ‘Asia’ up to you, but for your reference the following Wikipedia page – http://en.wikipedia.org/wiki/ Asia lists the 49 Asian sovereign states and territories.
Q. Are you able to work in Asia as part of the company you work for? • Over 50% of respondents are able to work in Asia as part of the company they work for, and over 90% of these responded ‘Yes’ work either in private industry or a consulting practice. • Those members in the ‘No’ bucket had a larger weighting towards being employed by the Government or are retired. • It would be interesting to see how this question would have been answered 10-20 years ago as many companies are encouraging their staff to be more mobile and creating opportunities for them to do so such as secondments and short-term projects.
Q. Have you ever worked in Asia (apart from Australia)? Roughly a quarter of the respondents indicated that they had worked in Asia for part of their career. A further 30% indicated that they hadn’t worked in the region yet but would like to do so at some point and this was skewed towards the younger age brackets.
Q. In which country or countries did you work and for how long? • Over half of those that have worked in Asia have worked in either Hong Kong or Singapore with the time frames ranging from six months to 16 years! A few consultants and those working in 36 Actuaries July 2014
private industry noted that although they may not physically be living in Asia, i.e. still being based in Australia or New Zealand, it hasn’t prevented them from engaging in transactions with parties based in Asia or taking on country responsibilities in this region. • Other countries mentioned in the responses included: Bahrain, China, India, Indonesia, Israel, Japan, Kazakhstan, Korea, Philippines, Taiwan, Thailand and Vietnam. • And a special regard to the retired gentleman who highlighted he had worked in Australia and New Zealand for 58 years – stellar effort!
Q. On a scale of 1-7 how would you rate your experience? • Approximately 80% of those who have worked in Asia rated their experience as being a four or better with the qualitative answers to the numbers answered in the questions below. • Upon examining closer at how these ratings stacked up against countries respondents have worked in – the countries mentioned in the higher ratings far outnumbered when and if mentioned in a lower rating, implying it could be circumstance specific or should maybe be drilled further in another pulse?
Quality of experience in Asia (1 = low, 7 = high) 35% 30% 25% 20% 15% 10% 5% 0% 1
2
3
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5
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7
©ssguy–Shutterstock.com
What would you like to know? If you have a questioN you would like to put to the membership, email it to editor@actuaries.asn.au
The Actuarial Pulse continued
Q. What were the best / worst aspects of working in Asia for you? • Best (in order of frequency) - Food, travel, different and interesting projects, low tax regimes, exposure to different markets, and people (one respondent mentioned he met his wife overseas!) • Worst - Being away from home/family, long hours, multiple languages, and smog
Q. What attracts you to working in Asia? Are there any particular countries? The most common themes were centred on: • experiencing a different culture; • expanding one’s horizons – both personal and professional; • working in countries experiencing high growth and have developing markets; and • working in a country where one’s ancestors are from. The most popular countries cited here were Hong Kong and Singapore… with several additional comments about their tax regimes.
Q. How likely do you think it is that you will work in Asia at some time in your career and why?
©Korkusung–Shutterstock.com
Those that did answer this question were clearly polarised in their responses. On one end there were those who indicated that they were ‘likely’ to ‘highly likely’ to work in Asia at some point in their career. Their reasons included: • working for a global organisation; • business hubs increasingly being based in the region; and • career goals; One respondent also stated their reason as “…because I want to and I will make it happen”. On the other end of the scale were those in the ‘unlikely’ to ‘highly unlikely’ camp and this was primarily as a result of family commitments. In the minds of those unlikely to work in Asia at any point in their career deterrents include: • “too attached to home”; • climate; • language barriers; • long hours and poorer work-life balance; • family (and young children); or • pollution.
Language
%
Mandarin
16.3%
Cantonese
14.9%
Japanese
4.2%
Hindi
1.9%
Korean
1.9%
Indonesian
1.4%
Tamil
1.4%
Gujarati
0.9%
Malay
0.9%
Malayalam
0.9%
Hebrew
0.5%
Punjabi
0.5%
Nepali
0.5%
Vietnamese
0.5%
A cross analysis was conducted looking at languages spoken and countries that would be most attractive to work in. However the data wasn’t statistically significant enough to show a link between languages spoken and wanting to work in the respective country where that language is spoken. Perhaps those who do want to work in Asia will do so regardless of the language because of the reasons mentioned above as to what attracts them overall.
Conclusion As we commonly read about Asia becoming the next power region and how it will become be an increasingly important part of how we do business here in Australia (and New Zealand) quite a few respondents have already experienced the region in some part of their career with others also interested to venture and work in the future. Perhaps in 10 years time Asia will be the next ‘London’ for those who want to go overseas for a few years as a ‘gap year’-like experience in their careers. We can also think more deeply about the Collaborative Workspaces Pulse by Candice Ming in May. With the evolving nature of workspaces you may not even have to leave your home, let alone the country.
Q. Do you speak any Asian languages? The following table shows the spectrum of languages the survey respondents can converse in. Approximately half of those that can speak another language indicated they can actually speak two or three – impressive! And a very special mention to one member who can speak five Indian languages! – Hindi, Malayalam, Tamil, Marathi and Urdu. July 2014 Actuaries 37
In the Margin
Genevieve Hayes inthemargin@actuaries.asn.au @murderandangst “I have discovered a truly marvellous proof of this, which this margin is too narrow to contain” – Fermat.
You are Here
“W
e’re lost,” said the Actuary. “What do you mean, we’re lost?” I replied, trying to remain calm. When you’re billions of kilometres from home, not to mention several thousand years away, the last thing you want to hear is that you’re lost. “I mean just that. We. Are. Lost. The navigational computer blew a fuse and now, whenever I try to query it, it keeps on insisting we’re at the 2017 Actuaries Summit, which I can assure you, is definitely not the case.” He pulled a screwdriver out of his back pocket and held it up. “I’m going to try to fix it, but while I’m at it, why don’t you go outside and have a look around? Who knows, you might find a sign that tells us where we are.” I thought the idea of finding a sign out there, in the middle of nowhere, sounded a bit far-fetched, but I decided to go outside anyway, if only to get some fresh air and stretch my legs. As a result, it came as a complete surprise to me when, as soon as I stepped out of the Actuary’s time machine, I literally tripped over such a sign. We had landed right on top of it and knocked it over in the process. The sign was in English, which was a relief, but it might as well have been written in Martian, for all the good it did me. It appeared that, wherever we were, the locals believed in presenting information in the form of puzzles. I thought about going back and asking the Actuary for help, but decided against it. Instead, I studied the sign for a few moments and then got to work. The Actuary wasn’t the only one who was good at solving puzzles. A: B: C: D: E: F: G: H: J:
Protective Headwear /Tree Speak Softly / Belonging to Him Unit of Mass / Record Land Mass / Prong Royal Title / Joke Lucky / Fish Client / Book Plume / Consume Croaky / Paddle
?
1
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A B
G1-C3-G5-B1-D6-E5 A6-F2 H4-J1-B6 A3-F9-H1-D4 C4-F1 E1-A5 E3-J2-C1-G7-B7-J5 F8-D2 G4-A1-E4 J4-D5-C5-B2-F4
C D E F G
Using the clues provided, identify nine words which can be fitted into the grid provided. Each clue gives a definition of the overall word and a definition of a shorter word contained within the overall word. Once you have filled in the grid, use this information to decipher the coded message presented beside the grid and figure out the Actuary’s location.
H J
The Puzzle Kings
Actuaries 189 Solution
The answers to the two puzzles presented in Actuaries 189 are as follows: Sam Loyd’s Puzzle: The exact time (between eight and eight thirty) when the angle between the six and the hour hand of a clock is the same as the angle between the six and the minute hand is 18 minutes, 27.69 seconds past eight.
38 Actuaries July 2014
Henry Dudeney’s Puzzle: The time when the hour hand of a clock is exactly 120 degrees ahead of the minute hand and the minute hand is as close as possible to being 120 degrees ahead of the second hands is: 54 minutes, 32.73 seconds past two. The winner of this month’s prize, selected randomly from among the eight correct entries that were submitted, was Thomas Wong, who will receive a $50 book voucher.
©Derter–Shutterstock.com
For your chance to win a $50 book voucher, email your solution (with working) to: inthemargin@actuaries.asn.au.
Ask Gae!
Gae Robinson gae.robinson@finity.com.au Gae answers serious and not-so-serious questions about life in the office, career, study and coping as an actuary in the real world
Cheerio How to cope?
can turn into a gallop unless something serious is done. So that’s your choice: address the problem, or… prepare to lose sight of your feet before too long. There are 13,993 different diets on the web, and a whole two of these have not been discredited by the medical establishment! (Did you know… there’s an Aussie diet called ‘kangatarian’? It’s vegetarian + kangaroo meat only. Sensational!)
Oh Gae, how am I going to get through the rest of my life without your advice?
W
ell, I hope this last column is going to help. Second, you’ll have ‘Bruce’. And third, I will be available for personal consultations at exorbitant rates! I’m going to leave you with a ‘care package’ which addresses some of the big questions you may find yourself asking in future years – at least, those I haven’t already dealt with. Think of it as an advice pre-load, to be stored away and consulted when the need arises. (And you’ve been saving all my other columns, right?)
©graphic created in Wordle
Why is my life always so busy? Work, study, family, checking Facebook, exercise, dating, creative pursuits, buying coffees, eating, personal grooming, commuting, Candy Crush, cleaning, uploading photos of your dinner, spiritual renewal… whichever combination of these you have chosen for your life, it almost certainly adds up to Too Much. And, to be brutal, you could lose one or two if you really wanted. But we don’t give things up – we go on cramming it all in, amassing huge sleep deficits and complaining to each other about the fact that we have no time. And a solution? I’ve been thinking about it, of course, and for years have been advocating the insertion of an additional eight hours in each day (after 6pm) – or, alternatively, a bonus ‘nothing day’ between Friday and Saturday. But to which authority do I submit my application? I’m not sure I really want to be an actuary any more… Of course you’re not – hardly anyone is. And doctors out there are wondering whether they should have been vignerons, engineers dream of alternative careers as stage designers, and politicians wish – well, goodness knows. As a profession generally, I don’t think we have too much to whinge about, with our cushy offices, good pay, and fancy calculators. But if you are personally unhappy, you need to take action! Life IS too short to spend 40 years in a career you don’t enjoy. Why does my weight creep up a little each year? You know this! Because, despite your best intentions and plans, you keep eating and drinking at 110% and exercising at 80%. And – to make matters worse – it is one of the many adversities of ageing that you need to eat LESS as you get older, which means the creep
“Why don’t I have a wonderful bigger, better house?” This problem eats away at many of us, and we really shouldn’t be reading the real estate section. It dawned on me a while back that no matter how nice my house is I will always see better ones that make me sick with envy. And therefore we have an intractable problem. On a positive note, I am planning to make friends with the owners of those other houses. Why do they keep making the actuarial exams easier and easier? Generations of actuaries have been asking this same question, after every change in the exam system (I estimate there have been about eight radical re-fashionings of the path to qualification since I got there 20 years ago). I think we could characterise the changes in recent years as attempts to reduce the collateral trauma to students’ lives. Inevitably, the changes won’t ever be complete. And, be assured, the exams will never be easy. Why didn’t anyone tell me how dramatically a newborn baby would change my life? She’s the most delightful creature ever, but… the lack of sleep! The pain! The dramas! The anxiety! We didn’t warn you because you wouldn’t have believed us. And it’s not so bad; most babies seem to become a little more civilised at three months. And you will start to get some semblance of your life back within five to seven years (provided you don’t have a second child). Will the Swans win the premiership this year? They ARE looking good aren’t they? (at least when I wrote this column seven weeks ago).
Finally Thanks for reading the columns, folks, and a big ‘mwah’ to everyone who has sent me feedback or questions.
“Be well, do good work, and keep in touch.” –Garrison Keillor
July 2014 Actuaries 39
Actuaries Taking the Lead
Martin Mulcare martin@etiam.com.au
The Importance of Reflection
I
Link to Leadership
Commitment to Reflection Time
A critical success factor for all great leaders is keen self awareness, whether it be thought leadership, people leadership or strategic leadership. If people are going to be successful leaders they need to be at least conscious of, and preferably understand, their own: • strengths and weaknesses; • preferences and values; • personality type; • communication style; • prejudices and biases; and • goals and objectives.
If, like many people, you don’t devote enough time to reflection, how can you set more time aside for this purpose? We should recognise that everyone is different and, in this context, the spectrum of E-types (extroverts) to I-types (introverts) is significant. Classic I-types may thrive on quiet time and it is simply a question of applying the discipline to thinking about one’s self that is necessary to generate more personal reflection time. It might be more difficult for classic E-types to undertake traditional quiet thinking time. Rather than battle the innate preference for ‘thinking out loud’, why not leverage it? Many E-types successfully use someone else (perhaps a mentor, a friend or their partner) to stimulate their selfreflection. Again, the challenge is to ensure that there is discipline to ensure that the subject matter is one’s self. In any event, without necessarily formally scheduling it, there needs to be a consistent time of day or a regular trigger to ensure that the reflection time is not overlooked – again. Whether this allocated time is spent on your own or with someone else, please honour your commitment to yourself.
Whilst feedback from other people is valuable in obtaining this insight, it is far more convenient to learn from oneself. Furthermore, feedback from other people is only likely to be useful if there is sufficient thinking time to ponder on the feedback and determine its application. The ability to objectively assess one’s own performance and behaviour is a great quality. This is even more relevant when the assessment is being made in an environment of criticism and defensiveness. It is not easy to put one’s ego aside in the self-assessment. It is, however, an ability that can be learnt and improved 40 Actuaries July 2014
if one is willing to commit the time and emotional investment. Coupling our self-assessment with feedback from other people, in periods of personal reflection, can provide powerful insight into how we relate to other people. It may also shed light on how we are perceived by others and that may then be weighed against how we perceive ourselves. All of this learning can feed into our capacity to develop quality relationships, in business and outside business. The link between learning and leadership, and how to develop reflection time as a valuable habit for students, is explored further in the paper Developing Future Leaders: The Role of Reflection in the Classroom by Cynthia Roberts. Available here: http:// www.leadershipeducators.org/resources/ documents/jole/2008_summer/jole_7_1_ roberts.pdf
©CWA Studios–Shutterstock.com
“Follow effective action with quiet reflection. From the quiet reflection will come even more effective action.” – Peter Drucker
In the first plenary session at the 2014 Financial Services Forum both Chris Cuffe and Glenn McGrath spoke about the value of reflection time. I might expect that from Chris Cuffe but when Glenn McGrath, a tough and uncompromising character, recommends reflection then it might be worthwhile exploring the concept… Reflection means different things to different people but generally I am referring to periods of thinking time where the focus of our thinking is our self. Already we can see a problem. Spare time is scarce and thinking time is a rare luxury for many people. A generation ago there was plenty of thinking time – travelling on public transport; waiting for people; enjoying a quiet lunch or coffee break. Now those opportunities for reflection are likely to be crowded out by mobile phones, emails and texts, noise or music (or both). So why is reflection time important?
Actuaries Taking the Lead continued
Retrospective v Prospective Reflection
©kentoh–Shutterstock.com
Most of the discussion so far has implied that the reflection time is devoted to thinking about experiences that have happened. Certainly the sense of learning and the search for feedback is tied to actual events. A short, relevant video can be viewed at the below web address on YouTube on the value of combining actions with reflection: https://www.youtube.com/watch?v=vL2U xS7PIKA&list=PL6D49B0A1514CA357&inde x=6On Even if it is only a few minutes, there is great value in considering what has worked and what has not worked in a recent activity. Perhaps you can use the walking time after a meeting or a conversation to quickly but effectively think about these questions: • Did I achieve the outcome I was seeking? • What did I do well? • What might I do differently next time? For some people, the preoccupation with the latter question is not always healthy. Some balance is important lest the reflection time become a personal mental beating. If you know that your perfectionist streak leads you to be too self-critical in your self-assessment you might like to try a little trick with pronouns that Michael Grinder advocates. He recommends a change of reference point in the latter question. By all means, in your mental Q&A, ask “what did I do well?” But then ask, “what might (insert your name) do differently next time?” The subtle shift to the third person, even though we know you are still thinking about you, often softens the impact (but not the value) of the self-criticism. For example, “I was happy with how well I listened at the beginning of the conversation but Martin shouldn’t get too carried away with his stories next time. He’s a bit like that some days…” But not all reflection time should be retrospective. Whilst required less frequently it is important to set some time aside to consider where you are going, not just where you have been. Again this might be sitting by yourself or speaking to someone
else, depending on your preferred style, but the subject matter is the future: your goals, your aspirations, what you want to be, to do or to have. Some people like the idea of devoting some time to these questions at New Year, others on their birthday and others at times of symbolic significance. It is the prospective aspect of reflection that is really critical for effective leaders. All great leaders have had a sense of purpose and I doubt that their individual sense of purpose ‘just kind of happened’. This is particularly true of thought leaders. Whether their sense of purpose was communicated loudly (e.g. Martin Luther King’s oration) or more quietly (e.g. Steve Jobs’ mission at Apple), I am sure they all spent time thinking about what they wanted to achieve. The most effective leaders also reflect on why they want to achieve their individual goals and what that says about their values and beliefs. The clarity of their pathway - and the concrete foundation for that pathway – is usually compelling, if not inspirational, for their followers. These are not easy topics and that may be another reason why quality reflection time is rare. Not everyone is comfortable in contemplating what they want to achieve on this planet. The answer may be very disturbing – either because they are not happy with the extent of their impact or because they realise how far they are from achieving it. But I’m not sure that they are good reasons to avoid asking yourself the hard questions, at least occasionally.
Why Bother? I accept that the 21st century is not the best time to be promoting reflection time, given all of the demands on our time and all of the demands on our attention. However, I hope that you agree that the following benefits may warrant some attention to the subject: • Greater self-awareness that allows you to understand yourself. This empowers you to effectively leverage your strengths, your style and your values; • Valuable insight into how you impact on other people and how they both perceive and respond to you. This enables you to build and nurture quality relationships;
• A sense of purpose in your life. This provides the motivation and personal velocity that drives leaders to make a difference. Think about how much reflection time you currently have and, probably, how that might be increased in either quantity or quality. Think about your preferences and whether you need to set aside more quiet time or whether you need someone else to facilitate your self-reflection. Finally, think about the balance between your prospective thinking and your retrospective thinking. When are you going to personally ponder your future? I can assure you that no-one else will take the time to do it for you…
The Leadership and Career Development Committee reports directly to Council. It aims to promote the non-technical skills that will enhance members’ leadership capability and contribution to business, the actuarial profession and the broader community.
“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; Third by experience, which is the bitterest.” – Confucius
July 2014 Actuaries
41
Event Notice
Actuaries Summit Take the Lead 17-19 May 2015 Grand Hyatt Melbourne
Call for Papers and Presentations
T
Submissions
he 2015 Actuaries Summit will be held at the Grand Hyatt in Melbourne, delegates are guaranteed a thought-provoking and informative program, plus numerous networking opportunities to catch up with colleagues and make new contacts.
The Summit will appeal to a broad range of professionals, with a theme of Take the Lead, delegates will gain insights into what it takes to become a leader of tomorrow, in whatever context that means for the individual – new ideas, new ways of thinking and challenging the norm. There will also be plenty of opportunities to catch-up on the latest actuarial developments.
Please email your completed Submission Form, including your synopsis, to: events@actuaries.asn.au 2015 Actuaries Summit Submission http://www.actuaries.asn. au/Library/Events/SUM/2014/ SUM2015SubmissionTemplate.doc by Friday 12 September 2014.
The program is now being prepared and papers and presentations are invited on any of the listed topics (or a different topic). The deadline for submissions is Friday 12 September 2014.
It is important to lodge your synopsis by the deadline to ensure it is considered for the Summit program.
Get involved and lodge your submission by the deadline to ensure it is considered for the Summit program.
Contacts
Save the date for the Institute’s premier event, we look forward to seeing you in Melbourne in 2015.
Potential Topics General Insurance
Contact: Ash Evans ash.evans@taylorfry.com.au • • • •
Catastrophe modelling and mitigating natural disasters Advances in the general insurance market Claims reserving and capital management Risk margins and insurance risk concentration charges
Health
Contact: Kenneth Chua kenneth.chua@suncorp.com.au • • • •
What is the true cost of a $7 doctor fee? Vaccinations – Is it time we mandated them? Should we revisit community rating? The unknown – Should we be saving up for the ‘tobacco’ of the future?
Life Insurance
Contact: Shannon Lin shannon.lin@aia.com • • • •
What are insurance companies doing in response to rising claims costs? Reinsurance – In or out? Direct marking – Advisors in or out? Life insurance and technology – What are life insurers doing to capture young clients?
Legislation
Contact: Barry Rafe barry.rafe@au.pwc.com • •
Impact of new capital standards Stronger super and FoFA
42 Actuaries July 2014
… continued
If you have any questions please contact the committee member indicated on each topic.
Event Notice continued
Wealth Management and Superannuation Contact: Jeff Warner jwarner@australiansuper.com • • • • • •
How much do people need to retire and what products work? Do structured investment products deliver? How can we compare life stage products? Post retirement – the conundrum that won’t go away Lump sum or income at retirement? Why did the UK remove compulsory annuitisation? Member-engagement – What are funds doing? Is it working? How can actuaries assist?
Investments
Contact: Charles Wu charleswu@mediasuper.com.au • • • •
Investing in the post-retirement phase Outcome driven investing in a low growth environment Reassess alpha and beta – Is what you see what you get? Is there a role for impact investing?
Risk Management
Contact: Chao Qiao chao.qiao@au.pwc.com • • • • •
Bedding down and enhancing ICAAP Risk culture and risk appetite Risk interdependencies: aggregation and allocation; cascading of risk tolerances Operational risk Emerging risk
Banking
Contact: Chao Qiao chao.qiao@au.pwc.com • • • •
Capital requirements for banks (e.g. DSIB) Volume and cost of regulation Digital impacts on banking Capital impacts of banks owning insurers
Leadership
Contact: Lesley Traverso lesley.traverso@quantium.com.au • • • •
Leading technical teams – What are the challenges? How to motivate the highly intelligent How to be a professional leader – Small p A thought leader? What does that mean? How do you become one?
Data Analytics
Contact: Lesley Traverso lesley.traverso@quantium.com.au • • •
The Privacy Act – A help or a hindrance? Who can define ‘Big Data’ – How big is big? ‘Analyse This’ – What’s next?
Public Policy
Contact: Elayne Grace elayne.grace@actuaries.asn.au • • • •
Actuaries and Public Policy – What can we contribute? Climate Change – What needs to be done? How is the pooling concept of insurance changing with the increase of more personalised detailed information? What will be the impact of the falling uptake of advanced maths in Australian schools?
July 2014 Actuaries 43
Actuaries at Play
Cissy Zhang Senior Consultant, Life Insurance and Wealth Management team at EY cissy.zhang@au.ey.com
Cissy Zhang F
ashion is my art and my blog is my medium to connect people with the depths of fashion. I have always loved browsing through the editorial spreads of fashion magazines like Vogue and Bazaar and one day decided to create my own photos. It started out getting friends and family to help me take photos but I eventually developed a pretty good portfolio and am now collaborating with fashion photographers. My weekends are often booked out with photo-shoots. I love exploring new locations around Sydney looking for new places to take photos. It is a lot of fun but there is also a lot of planning required before a shoot. I need to envision a theme, style the outfits and find a location for the shoot. I will contact one of my trusted photographers and makeup artists and off we go to work on some photos.
44 Actuaries July 2014
Actuaries at Play continued
It takes about one to two hours to shoot each outfit, so we are pretty much dedicating a whole day to the photoshoot. So there is a little pressure for me to produce some good photos for everyone’s portfolios. My favourite photo-shoot so far has been a high fashion underwater shoot. I borrowed my friend’s backyard pool and brought along a white suit and, as always, high heels. My photographer told me that the trick was to look like I was not underwater. For hours I was submerged underwater, doing a few poses and then come back up gasping for air. It was hard work but the photos were amazing and well worth it. There are so many amazing photo locations around Sydney that I never noticed before – from the vast sand dunes at North Cronulla beach to the lotus pond at the Botanical Gardens. There is always a bit of magic to find if you search for it. I have also learnt how hard it is to execute a photo-shoot. It is funny how the photos you see in the end are always glamorous because behind the scenes it is very different. You’ll never see the side where I am burning under the sun in painful high heels or stepping on mouldy ground around a pond.
Recently I was invited to Mercedes Benz Fashion Week to see the runway shows. The runways were cinematic, creative and dramatic. It was a great week and I met many designers, stylists, photographers, models and other bloggers. Everyone there was very interesting with their own unique and sometimes crazy style of fashion.
July 2014 Actuaries 45
Actuaries at Play continued
Photographers: Harry ZY Naing Photography (harryzynaing.com) Felix Alim Photography (felixalim.com) Chris David Photography (chrisdavidphotography.com.au) De Anastacia Photography (deanastaciaphoto.com)
I never used to like being in front of a camera but now I admit I love it. And yes, this little hobby of mine does have the perk of landing me with free clothes and shoes. You can check out my blog at: www.idreamofbunnies.com Instagram @idreamofbunnies
46 Actuaries July 2014
Young Actuaries Program
James Morris james.morris@towerswatson.com
Developing Stronger Client Relationships
©Santiago Cornejo–Shutterstock.com
T
he Young Actuaries Program in Melbourne kicked off 2014 with an evening speaker session hosted by Towers Watson. The session, titled ‘Developing Stronger Client Relationships’, was designed to help attendees develop an area in which it can be difficult to gain experience through a typical analyst-type role – the ‘soft skills’. The speakers were two senior consultants at Towers Watson; Graeme Miller (Director, Investment Services, Australia) and Nick Callil (Head of Retirement Income Solutions, Australia). The 40 young actuaries in attendance were keen to hear some case studies and real-world stories sourced from the speakers’ combined consulting experience of over 50 years. So why is it important to develop a strong relationship with our clients – surely it’s just the quality of our work that matters, right? Good relationships, whether they be professional or personal, are about creating a connection or bond with another person. Graeme and Nick hypothesized that establishing a good rapport with a client helps both parties get the most out of the relationship through open and honest conversation and allows us to provide the best advice we possibly can. Graeme and Nick shared their ‘six tips for developing stronger client relationships’ with the group, accompanied by many anecdotes which helped to ground the discussion in real-world examples. The first tip was to ‘Be passionate about what you choose to do’ – enthusiasm is infectious and people who are genuinely engaged in what they do make for much more effective communicators. There are too many diverse opportunities that young actuaries could pursue to do something that doesn’t inspire you! The second tip was to ‘Communicate, communicate, communicate’ – maintaining an open line of communication with clients or other stakeholders provides much-needed context on both sides of the relationship. The client can derive greater visibility into the evolution of our thinking around the advice we provide, and we get additional insights into the clients’ organisation which can prove to be invaluable. Third on Nick and Graeme’s list was to ‘Be honest (but tactful)’ – your clients will thank you for this over the long-term, even when the advice you give them may be difficult to hear or doesn’t align with their views! The fourth tip was to ‘Be genuinely interested in your client’ – context is extremely important in the provision of any advice (actuarial or otherwise), and asking intelligent questions about your clients’ organisation can be a great insight into their thinking.
The fifth tip on the list revolved around ‘Avoiding the master/ servant mentality’ – depending upon the role that you are in, there can often be pressure from clients to change the emphasis of the advice in different ways. Whilst this can be an important part of the process, it’s important to retain conviction in those points that you believe are most important, and avoid simply becoming part of a compliance checklist. Last but not least was the notion that you should ‘Learn from those around you’ – even if you don’t work with clients directly in the role you are in, there will always be opportunities to learn and observe how others handle client interactions. The key take-away for the young actuaries was to embrace opportunities to interact with clients, internal or external, to be genuinely engaged and interested in learning – everything else will fall into place with enough practice! The Young Actuaries Program runs a number of events in Melbourne including evening speaker sessions and networking lunches. For more information please contact James on the email address at the top of the page.
Nick Callil and Graeme Miller present at the Young Actuaries Program session Developing Stronger Client Relationships
Stonger Relationships Checklist
1
Be passionate about what you choose to do
2
Communicate, communicate, communicate
3
Be honest (but tactful)
4
Be genuinely interested in your client
5
Avoid the master/servant mentality
6
Learn from those around you
●
Embrace oppotunities for client interaction and be genuinely engaged and interested in learning.
July 2014 Actuaries
47
Report
Katrina McFadyen katrina.mcfadyen@actuaries.asn.au
See What We See L
aunch
The See What We See campaign to promote the actuarial profession to C-Suite, Senior HR Executives and Recruiters was successfully launched on 15 April 2014 across digital and print publications, lift and lobby displays in buildings in Melbourne and Sydney CBD plus an electronic direct mail communication to the Business Spectator database. The campaign was the first of its type for the Institute and members had been consulted extensively prior to the launch. A media release announcing the campaign was distributed on 14 April 2014. Three online articles were subsequently published in AdNews, B&T and insuranceNEWS.com.au.
Above: copy of the advertisement used in the campaign.
48 Actuaries July 2014
AdNews 14 April 2014 Make way for the 21st century ‘rock stars’ - better known as ‘data scientists’. The Actuaries Institute shines a light on people in business who crunch away at data in its new campaign. It’s got the tagline: “The world isn’t black and white but business decisions are. When you need clarity in a complex world, you need an Actuary.” David Bell CEO of The Actuaries Institute said: “This campaign will show that actuaries can use their skills across all sectors, not just insurance and finance.”
insuranceNews.com.au 14 April 2014 Actuaries rock The Actuaries Institute will tomorrow launch an advertising campaign to promote the profession. One of the print and digital media adverts features the Harvard Business Review’s description of actuaries as the “rock stars” of the 21st century, providing analytical insights that can change business, industries and even countries. Institute CEO David Bell says the campaign shows actuaries can use their skills across all sectors. “Business leaders are inundated by information and they need skilled people who can transform data beyond the numbers into actionable business knowledge,” he said.
Report continued
B&T 14 April 2014 ‘See what we see’ The Actuaries Institute has launched a print and digital ad campaign to promote the role of actuaries in a challenging business world. The campaign was developed by OgilvyOne and has the tagline: “The world isn’t black and white but business decisions are. When you need clarity in a complex world, you need an Actuary.” It will run in The Australian and The Australian Financial Review. The campaign runs in April and during the final quarter of 2014.
Measuring success A series of metrics to measure the success of the campaign had previously been identified to Council. The overall results were measured quantitatively and qualitatively. OgilvyOne provided data on the performance of the digital advertisements and Institute HQ collected data on social media activity, Institute website traffic and other commentary. Clickthrough Rate Reach across digital media is measured by impressions and clicks. One of the most basic ways to measure the success of digital advertising campaigns is the clickthrough rate (CTR). To work out the CTR we need to know the advert’s impressions, its clicks and some very, very, basic division.
Below: NAB case study appeared in the Australian Financial Review on 15 April.
Impressions The digital advertising campaign was purchased by number of impressions. Every time our advert was displayed on a user’s screen, or every time a page loaded with our advert on it, an impression was counted
(regardless of clicks). So, how are impressions measured? Depending on the network or technology, the advert will either be accompanied by an invisible pixel or JavaScript code that alerts the advert’s hosting server whenever it is loaded. From an impressions point of view, our reach was 658,262 unique impressions. Clicks Did our advert make viewers want to learn or see more? A click is counted each time a user clicks on any part of an advert. By clicking on the advert the viewer is sent to another landing page on the Web. So, how are clicks measured? Most online advertising networks use some form of URL redirect to measure clicks. Before the user reaches the advert’s intended landing page, they briefly visit the advert network’s own URL for measurement. This usually happens so quickly that the user won’t even notice. Each advert has its own redirect URL, so each time that URL is loaded on the advert server, one click is counted, our reach was 3,261 unique clicks. CTR An advert’s CTR is the percentage of impressions that resulted in a click. So, how is CTR measured? This is where our basic division skills come into play… CTR = Clicks Impressions OgilvyOne advised that the CTRs for digital media adverts were well above industry benchmarks. The best performing placement in the display tactic was Business Spectator’s 300x600 ad unit, which had an overall CTR of 0.34% (benchmark 0.06%). The best performing placement in the mobile tactic was Fairfax’s 300x600 ad unit, running on the SMH/AGE tablet app, which had a CTR of 0.85%. The Electronic Direct Mail (EDM) from Institute CEO David Bell, which was sent to the Business Spectator database in week three of the campaign, demonstrated excellent performance with an open rate of 22.25 % (industry benchmark is 10-15%). From the 29,875 EDMs sent, 9,969 were opened with 6,646 unique opens and a CTR of 1.42%.
Social Media The print adverts in the Australian Financial Review and The Australian on 15 April 2014 generated positive commentary from Members via social media and the website, as did the lift and lobby displays. The Institute’s online communities (LinkedIn and Twitter) grew steadily during the campaign and commentary was once again positive. We will continue to grow the social media communities within the profession to encourage Member engagement and raise awareness of the profession in preparation for the second campaign rollout. I
July 2014 Actuaries 49
Report continued
Member Feedback
strongly encourage you to make use of the Institute’s platforms to promote your personal brand (and the profession’s) and join the Actuarial Professionals Australia LinkedIn Group and engage in discussion if you haven’t already http://www.linkedin.com/ groups?home=&gid=4988885
Engagement with relevant content on the Actuaries Institute website Traffic peaked on 15 April 2014 with a total of 482 page views (for the whole See What We See microsite). Traffic gradually decreased in the following weeks. However, engagement with Actuarial Advantage was steady, with visitors spending more time on these pages and, increasingly, exiting the site from these pages. In terms of overall interest, New South Wales has been the most popular, followed by Victoria, Queensland, ACT, South Australia, Western Australia, Tasmania and New Zealand. The table below sets out the web traffic statistics.
Other commentary Positive feedback endorsing the campaign was also provided by the Leadership and Career Development Committee and the Actuaries magazine Editorial Committee. At the recent Financial Services Forum, positive commentary on the campaign was also made by the presenters of concurrent sessions 7a Actuarial Transformation – The Future Actuary, 8d Actuarial Process Improvement and by Duncan West in Plenary 5 Digital Economy and Big Data.
Page
Page views
Unique page views
Throughout the campaign, Members were also invited to provide feedback via the See what we see website. Regular feedback was also requested through the weekly Bulletin. One comment was received from the website feedback form supporting the campaign. No comments were received via the weekly Bulletin. At HQ we took that to mean that ‘silence was golden’ and that those members who were aware of the campaign were happy with what they saw. From the data collected and the qualitative feedback received, we consider the initial rollout of the campaign to have been successful in achieving the goals of raising awareness of the profession to the external audience and generating pride within the profession.
Next steps We will meet with OgilvyOne soon to review the results of the initial rollout, discuss feedback, discuss their recommendations and start planning for the second rollout. Two new cases studies – one on financial condition reports and the other on welfare reform in New Zealand – have been completed. Additional case studies to further showcase the actuarial skillset will also be created in preparation for the second rollout in the final quarter of 2014 and Members will continue to receive regular updates on what’s happening. Here at HQ we are looking forward to shining the spotlight on the profession again later this year. Please email me at katrina.mcfadyen@actuaries.asn.au if you would like to pass on your feedback or request additional information.
Average time on page (seconds)
Bounce rate
% exit
Month
April
May
April
May
April
May
April
May
April
May
See what we see
1,688
1,278
1,329
1,060
90.31
77.00
72.35%
78.62%
60.25%
68.47%
Actuarial Advantage
138
91
102
68
34.00
55.00
13.33%
6.25%
7.25%
7.69%
Actuarial Advantage sub pages
465
391
335
294
78.00
145.00
52.17%
58.06%
21.29%
37.37%
Case studies
469
121
298
102
80.00
126.00
64.84%
66.67%
39.45%
41.32%
50
63
43
21
65.00
11.00
0.00%
0.00%
20.00%
12.70%
178
92
145
76
115.00
92.00
64.71%
42.86%
28.09%
28.26%
Contact us Actuaries explain what they do Actuarial Advantage Location
Page views
Unique page views
Average time on page
Bounce rate
% exit
NSW
314
224
179.94
58.51%
39.17%
VIC
143
115
94.53
69.70%
39.86%
QLD
63
49
70.83
50.00%
25.40% 16.67%
ACT
54
43
45.04
0.00%
SA
50
35
33.83
0.00%
8.00%
WA
50
39
38.14
42.86%
26.00%
TAS
34
30
20.85
66.67%
20.59%
NZ
33
26
65.96
60.00%
21.21%
Web analytics definitions Page views
total number of times pages were loaded
Unique page views
number of visits during which specific pages were loaded at least once
Bounce rate
% of users who viewed only that page and exited from that page
% exit
% of users who left the site from that page – either by closing the browser, typing a URL in the address bar or clicking a link to an external page
50 Actuaries July 2014
Notice
Welcome to New Members – May 2014 New Members – Australia
Joshua BROUSSE DE GERSIGNY
WA
Mohammad ULLAH
NSW
Le CHANG
ACT
Chrystal Winkie UNG
NSW
Qianyang CHEN
NSW
Patrick VILLANUEVA
NSW
Sameer Gopalji CHHADWA
NSW
Yuchen WANG
NSW
Daniel Dominic CIARLIERO
NSW
Dorothy Yuen Ting WONG
NSW
Lan DU
VIC
Mo YANG
ACT
Scott Colin HAMILTON
NSW
Edward James YELDHAM
NSW
He HAO
NSW
Fan ZHANG
NSW
Timothy Robert HILLMAN
NSW
Xing ZHAO
NSW
Alvin Young-Chou HUANG
NSW
Jiayuan HUANG
NSW
Dennis JIANG
NSW
Brendan Charles JONES
NSW
Mathieu Michael JONES
NSW
Godfrey Kit Jack AU
Hong Kong
Stuart Ronald Rex KING
QLD
Jinjuta BOONKLERM
Thailand
Gerrit Pieter KROON
NSW
Andrew Prosper Leo CURTIN
New Zealand
Ricky LIUNA
NSW
Ruofan JIA
China
Nanxi LOU
WA
Vidthiya Shalini JOEGANATHAN
Malaysia
Fraser MCKAY
NSW
Anthony Uon Kim LIM
Malaysia
Jing QIAO
NSW
Fatt Sheng LOW
Singapore
Fei REN
NSW
Pak Cheung LUI
Hong Kong
John ROBINSON
WA
Yijing SU
Hong Kong
Daniel ROSE
NSW
Yan Rou TAN
Malaysia
Harveer SINGH
NSW
Yue ZHAO
China
New Zealand CPD Tour Maximise Your Contribution
New Members – Overseas
Whether you are an expert in your field, recently embarked on your career journey, or still studying; attending the New Zealand CPD Tour with Matthew Michalewicz in Auckland on Tuesday 12 August or Wellington on Wednesday 13 August will put you in a great position to maximise your contribution. Register now at: http://www.actuaries.asn.au/NZCPD
12 – 13 August 2014
July 2014 Actuaries
51
CEO’s Column
President’s Column
Daniel Smith president@actuaries.asn.au @DanielSmithFIAA
Perception “Perception is reality” –Lee Atwater (US politician)… at least that’s what Google says.
W
hen your professional position is dependent on your reputation then perception is reality. Just ask people what they think about the reputation of, say, Tiger Woods, Robert Hughes and, to some extent (and not in a related sense), the Essendon Football Club. It is clear to me that involving lawyers does not encourage transparency, so I wouldn’t expect transparency if I was an Essendon supporter, and I don’t expect transparency as a non-Essendon supporter. There are times, however, when legal advice is required and transparency is the unfortunate victim. I am hopeful that the Institute will be able to steer clear of such situations going forward. Now I could spend an entire article going on about the ridiculous situation that we find ourselves in with Essendon and their historically belligerent President, plus the fact that for a government body dealing in confidential information ASADA seems to have more leaks than Julian Assange. I won’t do that, not because I don’t want to, but because it is not particularly relevant to our profession and a large majority of members would not give a <complete as you wish> about Essendon or even the AFL. Perception is very important though and there is a fine line between ‘being your own person’ and complying with the expectations of a professional and an actuary. Why am I raising this? It has become evident from responses to various reviews that are currently underway that individuals have very different perceptions of the Council, our education process, the role of Appointed Actuaries and the role of the Institute. Hopefully the results of these reviews and their dissemination to members will enable members to understand each of these important areas in terms of what is being done and why. The intent being to realign, as far as is possible, members perceptions with reality. In my previous article I promised an update on our June Council meeting. I, along with other Councillors, have received feedback that updates in the magazine tend to be too far past the Council meeting and have lost some relevance. Following our last Council meeting Councillors had an informal discussion about the performance of Council. We spent some time discussing the elements within Council that worked well and those that did not. Overall, the discussion was positive but there were a range of areas where the need for improvement was identified. One area for improvement, which members should have noticed, is in relation to the publication of the items considered by Council at its meetings. It was agreed that the delay between meetings and this article means that using the President’s Update is less than ideal. Thus, it was agreed that we would aim to have a summary of the meeting proceedings published in the members’ section on the website within two weeks of a Council meeting. Hopefully this will go some way to improving the transparency with which Council operates. I encourage you to read through the Council meeting summaries and to provide input into our governance and mission statement reviews which are both nearing completion.
52 Actuaries July 2014
David Bell david.bell@actuaries.asn.au @davidbell6461
Let’s Go Digital “The digital revolution is far more significant than the invention of writing or even of printing.” – Douglas Carl Engelbart (30.1.25 – 2 .7.2013), was an American engineer and inventor, as well as being an early computer and internet pioneer.
T
he influential economist Milton Friedman famously coined the phrase “We are all Keynesians now”, in reference to the reluctant embrace of more interventionist forms of economic solutions in the mid 1960s. Were he alive today, and tweeting, he might have had something similar to say about the inevitable embrace of the digital age and the pervasiveness of social media. Whether or not we all agree with the extent of Douglas Engelbart’s quote in the headline of this article, the digital revolution is a technological and social phenomenon that the Actuaries Institute needs to embrace and ‘get ahead of the curve’. And so we are. Led by the Institute’s Head of Communication and Marketing, Katrina McFadyen and Actuaries magazine editor Sharanjit Paddam, we are currently working on how best to use digital technology to take communication and interaction with Members to the next level. What we envisage is an enhanced digital relationship with Members, and the broader community. This will allow us to provide timely (sometimes real-time) news and information relevant to actuaries, and to the broader community interested in the work of the profession. The current way we communicate with Members still has the traditional emphasis on us sending information to you. We want to change that so that there can be ongoing, and multiple, conversations about important issues. We want to encourage you as experts in your practice areas to raise and comment on important issues. We will build in a strong editorial capability so that what is published under the Institute’s name remains of the highest quality, consistent with the high value placed on actuarial insight. Ultimately, of course, content will be the key. We want to ensure that everyone has a chance, and is encouraged, to
CEO’s Column continued
©Erin Aldersea
provide information, and be part of the conversation. So you ask – what does this actually mean? Well firstly let me reassure you that you will be able to continue to communicate with us in a way that you are currently used to. Our new approach, however, will be a wider and more integrated offering; it will include all of the following, and some more: • continuing to engage Members through active discussion on topics of interest using the Actuarial Professionals, ERM and YAP LinkedIn Groups; • launching additional customised LinkedIn Groups such as CERA, and practice area Groups to encourage discussion and engagement; • increasing Twitter activity by broadcasting more frequently on topics of interest to the profession and other external followers; • launching the ActuariesChat blog on the website to encourage discussion between Members to share knowledge and raise awareness of the work of actuaries; • launching the Actuaries Institute YouTube Channel to build the profile of the profession and promote it to external stakeholders; • developing digital versions of Actuaries magazine and AJAP to further engage Members; and • developing a ‘news’ capability that is relevant to the profession. We believe by doing this there are clear benefits. Firstly, by creating a vibrant online community, Members will have the opportunity to increase engagement with their peers, external stakeholders and the Institute. In addition, by actively engaging in this community and sharing knowledge, a sense of pride in belonging to the profession will be generated, regardless of location. It will also position actuaries as thought-leaders, and allow them to showcase and promote their skills. Our new approach will also make the delivery of information more efficient and effective. The timeliness of information delivery will improve, and information and news can be integrated across streams, e.g. with practice committee newsletters. We will be introducing initiatives gradually and we will keep you informed. We will, or course, seek your feedback and listen to what you say – the success of this project very much depends on member participation and engagement, underpinned by the business deliverables from the HQ team. If anyone wants to see an example of how a much larger organisation does this, you can visit ANZ’s excellent ‘Blue Notes’ site https://bluenotes.anz.com/
or so of you who gave of your time, I found the feedback very useful – thank you. I plan at least one more meeting this year in Melbourne in July, and at least four more in Sydney. I would also like to hold lunches in Canberra, Adelaide and Perth, this year, subject to demand. If you would like to join one of these sessions please contact me at david.bell@actuaries.asn.au.
The Institute’s 2015-17 strategy The Institute’s three-year strategy expires in 2015, and Council has agreed to bring forward the review of the Institute’s strategy for consideration and determination at year’s end. One of the key inputs will be taking account of Members’ views. We will let you know soon how you can have your say. Of course the Member lunches are one great way to provide your views to me.
An Actuaries Institute Foundation? It’s early days yet, but I would like to test Members’ thinking on setting up an Actuaries Foundation, the purpose of which would be to support worthy causes that are relevant to the profession. There is precedent in the UK with the delightfully named Worshipful Company of Actuaries hosting a charitable trust which makes donations to different charities. The US has The Actuarial Foundation which has four program areas including consumer financial education. The Actuarial Foundation of Canada supports youth education, financial literacy and research initiatives that are in the public interest. Please let me know if you have any thoughts on any of this at david.bell@actuaries.asn.au
Lunch meetings with Members At time of writing I had my first lunch catch up with Members in Melbourne, Brisbane and Sydney. For the fifty
David chats with members at the CEO Luncheon held on 27 May at PwC Melbourne.
July 2014 Actuaries 53
Notice
General Insurance Seminar
Insuring Tomorrow 17-18 November 2014 â&#x20AC;˘ Hilton Sydney
Early Bird
Registrations Open 1 September 2014
GIS Sponsors
GIS Supporting Partner
Enterprise Risk
Management Seminar
Capturing the Upside 19 November 2014 â&#x20AC;˘ Hilton Sydney
Early Bird ERM Sponsor
Registrations Open 1 September 2014 ERM Supporting Partners
CFA Societies Australia
54 Actuaries July 2014
Two key events you shouldn’t miss... The General Insurance Seminar is a two-day event held every two years and attracts close to 250 industry professionals from around Australia. The Seminar has built up a reputation for showcasing leading-edge thinking in the general insurance industry. How will tomorrow’s world will be different from today? The global economic landscape is changing, a data and social media revolution is underway, the climatic circumstances are uncertain and governments and regulatory bodies are adapting to the new conditions. How do actuaries see the effects of these changes in customer behaviour, in the economic environment, in the way we do business and how we relate to each other on micro and macro scales? The picture is emerging but always hazy. How will the actuarial profession help the general insurance industry insure tomorrow? The first day of the General Insurance Seminar, themed Insuring Tomorrow, will focus on broader insurance market issues with the second day examining more technical and operational issues. Join Facilitator Michael Pascoe for the General Insurance Seminar. Michael is one of Australia’s most respected and experienced finance and economics commentators with four decades in newspaper, broadcast and online journalism covering the full gamut of economic, business and finance issues. He is a popular conference speaker, bringing rare humour and plain language to the ‘dismal science’ of economics. Michael Pascoe
Immediately following GIS2014 the Enterprise Risk Management Seminar is an annual event that encourages a greater focus on ERM across all sectors and will explore why ERM is central to strategy in creating and sustaining value. Now is the time for ERM to come of age, with actuaries taking the lead. The Actuaries Institute will be holding the Enterprise Risk Management Seminar. With the theme Capturing the Upside, ERM2014 will explore why Enterprise Risk Management is central to strategy in creating and sustaining value. A discount registration will be on offer if you attend both GIS2014 and ERM2014. Don’t miss the cocktail function on the evening of Wednesday 19 November – a great opportunity to network and catch-up with colleagues in an informal and relaxed atmosphere. Find out more about both Seminars at www.actuaries.asn.au
250 professionals
Actuaries Institute Level 2, 50 Carrington Street Sydney NSW 2000 Australia t +61 (0) 2 9233 3466 | f +61 (0) 2 9233 3446 actuaries@actuaries.asn.au | www.actuaries.asn.au
15+
powerful sessions
+ new networking opportunities
Hilton Sydney
July 2014 Actuaries 55