2 minute read
President’s comment
JOHN TAYLOR
The Great Risk Transfer
JOHN TAYLOR is the president of the Institute and Faculty of Actuaries ost actuaries work in industries and organisations that help to protect people against various risks. But will this continue to be true in an age of freedom, choice and individualism? As we enter a new decade, the IFoA is taking stock of the previous decades’ signifi cant shift of actuarial risk from institutions to individuals. Where institutions such as employers, insurers and the state once off ered guarantees that protected individuals from longevity and investment risk, these appetites have reduced. As a result, individuals are directly exposed to more actuarial risk than before. We are calling this ‘The Great Risk Transfer’.
From one perspective, these choices can be seen as liberating. They give people the freedom to manage their aff airs in whatever way they decide. Indeed, this was promoted as a key benefi t of the UK government’s ‘freedom and choice’ initiative.
The downside, of course, is that it can be diffi cult for individuals to manage these risks. Mechanisms that enabled ‘pooling’ of risk might no longer be available to individuals, and individuals may lack the expertise to make good decisions.
Even as an actuary, I’m acutely aware of how diffi cult it will be to manage longevity M risk in my retirement, when that could last anywhere between fi ve and 35 years. (Coming from an area of Scotland with notoriously low life expectancy, maybe I needn’t concern myself too much!) More generally, people’s numeracy, fi nancial literacy and understanding of risk is low, and some social groups are better equipped to deal with the risks than others. This means that some groups, particularly those who are traditionally vulnerable, are disproportionately aff ected by this trend.
This is one of the ironies of The Great Risk Transfer. The institutions that have access to risk expertise are passing risk to a less capable group – individuals. While it’s understandable that institutions want to reduce their exposures, the consequences for individuals can be challenging.
So, this year we are launching a thought leadership campaign, The Great Risk Transfer. We’ll be looking at how this trend is manifested in the areas in which actuaries work: the shift from DB to DC pensions, the UK’s burgeoning ‘freedom and choice’ pensions agenda, global health insurance programmes, the increasingly granular pricing structures of general insurance, and the prevalence of non-advised decisionmaking among investment customers. On 31 January we launched a call for evidence, open to actuaries and other experts from around the world. We want to gather as much evidence as possible from your experience in your area of work, country or region. We want to understand what is causing the problem, as well as which groups within society are aff ected and how. We are also interested to learn whether this trend exists on a global scale and, if so, how it diff ers from the UK experience.
Crucially, though, we’re looking for solutions to how the problem can be overcome, and whether there are any barriers to doing so. The aim of this campaign is to gather evidence, convene debates and ultimately engage with policymakers about the innovative ways support can be provided to those who need it most in an increasin gly risky world.
