“The Great Risk Transfer” baffled the journalists who were conspicuous by their absence at this breakfast meeting.
Pension Age reported “IFoA to investigate transferring of risk onto consumers” as if the actuaries were campaigning for Which?
Professional Pensions reported the “IFoA launches investigation into DC”
IPE, while accurately reporting the title “UK actuarial body to dig into ‘the great risk transfer’, thought actuaries were excavating “the trend for financial planning risk to be transferred from institutions to individuals”.
Infact , the actuaries have been troubled for some time by the prevailing trend to individualise risk taking. To my shame I had been ignoring correspondence fro them, thinking it was promotional material when in fact it was asking for my opinion.
Here is an extract from a letter last year
The Presidential team here at the Institute and Faculty of Actuaries (IFoA) recently identified that there appears to be an ongoing trend for the transfer of various risks from governments and institutions to individuals, a trend which lies behind a range of relevant issues for the actuarial profession, such as:
Pension accumulation – the shift from DB to DC provision and transfer of investment risk
Pension decumulation – the Freedom and Choice agenda and transfer of longevity risk
General insurance – the granular pricing of products leading to a reduction in pooling
Social care – lack of protection against the risk of catastrophic care costs
Investment – prevalence of non-advised decision-making leaving individuals exposed
Like the journalists, I was missing the point. The IfOA were not just investigating the symptoms, they were after the cause. The big question is
Why are we dumping risk on individuals which we used to shoulder collectively?
Myra Harrison gave us a political insight
In a captivating video, Myra Harrison gave us a perspective from down under, putting the question in a political context. She identified five prevailing trends
DB/DC; As individuals we need to take a greater responsibility for capital accumulation
Long term care; Governments are looking to offload responsibility for social and medical care of the elderly onto the elderly and their families
Gig economy; employers are moving away from security of employment , offering short-term contracts or work under self-employment
Back to work; an expectation that those out of work have responsibility to find work , rather than have work found for them
Privatisation ; an acceptance that the private sector has an increasing role to play in healthcare
Harrison characterised this trend as a “rejection of structural explanations for behavioural explanations”, the new social contract was being driven by market liberalism.
For Harrison, this trend started in the late eighties and continues to this day, I was sitting next to one of the architects of CDC, he looked depressed.
Is big data “Mitigating risk” or “leading us down the garden path”?
There were further presentations on promoting numeracy and on what Pensions Wise was doing nudging people towards better outcomes. Unfortunately the numeracy presentation was undermined by the answer to one of the exam questions being wrong (if you are presenting to actuaries get your maths right) and the MAPS presentation was spoiled by the granular information being unreadably small. As with so much that has come out of MAPS, we were denied the detail.
Much better were the presentations from the floor which told us what was being discussed at each table. These reverted to the practical issues confronting actuaries today (see above) but also covered concerns that big data could be abused, nudging us to harm. Actuaries voiced concern that much insurance purchasing was through inadequate web-based searches and that regulation was not keeping up.
One actuary went so far as to claim that “greed” was short-circuiting the proper use of information.
What are these actuaries up to now?
Between now and the end of April, these actuaries are going to be setting down their concerns and what we can do to mitigate the risks they see in this long-term trend towards “the democratisation of risk”.
Having been absolutely hopeless in responding to calls to help shape the agenda, I will try to do better and both promote their efforts and add my (non-actuarial) tuppence worth.
I think the people who turned up on a January Friday morning to discuss this topic are heroes and the best hope that society has of getting some top-class thinking on a subject that is so big, the journalists can’t get their head round it, so obvious that we wonder why we’ve never thought before in this joined up way.
Whether you are an actuary or not, you are invited to add your thoughts to their call for evidence
(I’ve done mine and it only takes a few minutes)