2024 General Insurance Appointed Actuaries Forum

If someone were to summarise what has been happening in the General Insurance industry this year, they might liken it to George Lucas’ attitude on the Star Wars prequel films.

When asked about George Lucas’ directing style, many of the actors on the films would say the same thing. “He was great to work with,” the late Carrie Fisher would say, “George Lucas was WONDERFUL to work with, but he never really spoke. He just said ‘faster!’ or ‘more intense!’ ” And that was basically the general vibe from the 2024 General Insurance Appointed Actuaries Forum. While the topics of this year’s session technically were not new, as they were included in last year’s plethora of risks, the general vibe is that some of these risks are only getting more prevalent, more developed, more complicated, more impactful – in other words, faster and more intense!

The session began with a welcome from 2024 Actuaries Institute Senior Vice-President Win-Li Toh, who encouraged discussion and noted that a key reason for this forum was to figure out how to serve the profession better.

Adam Searle – organiser and host again for this year’s forum – revisited the large list of 2023 risks and issues, noting that many were still the same while others progressed further, including ongoing political tensions, IFRS17 now mostly being implemented (albeit with teething issues), the FAR coming closer, and AI being…well, AI.

And that brings us to the three deep dive presentations that were given…

What emerging risks are globally important, and what’s their impact?

Nick Sordon from SwissRe kicked things off with BHERs – Big Hairy Emerging Risks. Faced with the impossibility of providing proper coverage of emerging risks on a global scale in a mere 15 minutes, the focus instead appeared to be on a few particular risks that have been growing in notoriety but are not really able to be quantified yet.

Firstly, Artificial Intelligence, and how despite the different types of models – whether narrow (fulfilling a specific purpose in a defined context) or general (universal models, like the ubiquitous ChatGPT or Google Bard, now Gemini), or the further differences between machine learning, deep learning, and generative models – there is currently no general definition of AI that enjoys widespread consensus.

On the regulation front, the EU seems to be ahead of the pack with the EU Artificial Intelligence Act, the first-ever comprehensive legal framework on AI, in force from 1 August 2024, while the US saw an Executive Order to establish new standards for AI safety and security in October 2023. Australia does not yet have a standalone AI specific legal framework, instead currently having a patchwork of existing legislation. Otherwise, most countries don’t have any comprehensive AI laws. And while this may come for many counties, there’s the risk that the regulatory approaches could diverge.

But perhaps most interesting of all are the rare and even unique risks that emerge with the rise of AI – deep fakes and associated litigation, AI washing (because green washing is so last year), medical and software errors, discrimination, hallucinations…there is bound to be another black swan or two in this pond.

Secondly, microplastics and microbeads, and how the environmental and health impacts are significant and appear to be growing, despite being a decent skin exfoliator (just like how asbestos was a great heat insulator…).

Built to resist biodegradation, the focus over the last decade has been to ban these substances, with the US seeing President Obama sign a bipartisan bill back in 2015 to prohibit the selling and distributing of products containing microbeads. Yet it is estimated that Australians each ingest a credit card worth of plastic each week, with the largest intake source being from bottled water, followed by beer, information that will likely be misused by many at their next social event. The insurance implications are varied, with a 2022 Minderoo Foundation Report finding potential to trigger claims for bodily injury, third party property damage, environmental liability, and misleading behaviour (e.g. greenwashing).

Thirdly, per- and polyfluoroalkyl substances, or PFAS (although also PFOA, PFOS, and likely other acronyms), and how pervasive and detrimental to human health these “forever chemicals” are. While some sources had a high profile in the media, their presence is in all manner of common use goods, from still being in many non-stick cookware items, to fast food packaging, water resistant clothing, cosmetics, photography materials, firefighting foam, stain resistant furniture, and even microwave popcorn bags.

It is so pervasive, that the National Institute of Environmental Health Sciences found PFAS in the blood of 97% of the US population. Manufacturers are phasing out the use of PFAS substances, but they are still in wide use. BPAs were seen as an alternative, but were found to be just as problematic. What is particularly unsettling is that unlike other latent claims like asbestos and its most deadly associated disease mesothelioma, there is no signature identifiable disease that emerges, instead resulting in an increased likelihood of cancer, reproductive issues, and a plethora of other health issues.

Amongst the earliest litigation was against DuPont – for a dramatised version of event, see the captivating Mark Ruffalo in the 2019 film Dark Waters. Since then, litigation for compensation has been largest in the US (not surprising), but has also been happening in Europe and Asia Pacific. In Australia, there have been government class actions and property damage claims. Interestingly, expert advice released by the Australian Health Department in February 2024 states that “PFAS has not been shown to cause disease in humans” and is “unlikely to cause significant negative health outcomes”, although they have recommended limiting exposure to PFAS as a precaution. And ultimately, on a global level, there is no consensus for safety thresholds for these chemicals.

How has AASB 17 implementation been going?

Anne Driver and Kaise Stephan from Deloitte spoke on AASB 17 Post-Implementation Insights, drawing insight from personal experience and a global survey performed in late 2023.

From surveying insurers globally, the top implementation pain points for finance and actuarial functions were:

• Meeting the ledger close timetable – there was a great deal of stress in the reporting cycle process, even for those who only write a few lines of insurance classes or where implementation had minimal financial impact;
• The extent of manual workaround needed – many still had to rely on manual elements after implementation, with some even having to divert back to previous overrides;
• Data quality issues – where subledgers or systems required significant data granularity; and
• Transition to business-as-usual – this was a much bigger challenge than people expected, with having to embed the new process, putting results up through the chain of command, and more iterations than expected. There were few stakeholders that wanted to get rid of previously used metrics, with many still using what was done under the previous standard in parallel to the new process, resulting in more work.

These global results are echoed in Australian insurers, where, many had adopted an interim “tactical” solution in light of subledger systems not being fully ready.

However, the largest challenge for insurers has been around the risk adjustment – what approach to use, and what level is appropriate. The majority of insures appear to be applying a Cost of Capital (CoC) or a Value at Risk (VaR) / Confidence Level approach, some even using both. In Australia, the VaR approach seems more consistent with methods used under AASB 1023 for general insurers, while the CoC approach seems more prevalent for life insurers. Confidence levels vary widely corresponding to different risk appetites, but are generally within the 65%-95% range, with general insurers seeing a slightly narrower range.

So what’s next? From a global survey, 94% of insurers still need to remediate IFRS 17 in the short to medium term, 83% will start looking at developing and enhancing forecasting/planning tools, and 67% still need to address issues with data quality. These are again echoed in Australian insurers, where the focus is on continuing to enhance and automate reporting tools, revisiting existing subledger solutions, remove manual workarounds, and address data quality issues. Suffice to say that it seems most insurers still have a way to go before AASB 17 is considered Business-As-Usual.

What will FAR change, particularly for actuaries?

Yiwen Chen from King & Wood Mallesons finished off the presentations with a look at the Financial Accountability Regime (FAR).

Although already active for Authorised Deposit-taking Institutions as of 15 March 2024, the FAR commences for insurance and superannuation entities on 15 March 2025. So, what’s the difference between the FAR and the previous Banking Executive Accountability Regime (BEAR)?

• The BEAR only applied to ADIs, while the FAR applies to ADIs, general insurers, life insurers, private health insurers, registrable superannuation entities, and licensees.
• The BEAR was only regulated by APRA, while the FAR is jointly regulated by APRA and ASIC. Although as the stricter helicopter parent, it’s likely that ASIC will be more focused and take more actions.
• Under the BEAR, there were no public prosecutions or investigation, while there is much more of this expected under the FAR.

The FAR aims to improve the risk and governance culture of financial institutions, encouraging entities and accountable persons to act with honesty and integrity, act with due skill, care and diligence, and take reasonable steps to prevent matters that would (or would be likely to) adversely affect the entity’s prudential standing or reputation. What are reasonable steps? All the sorts of good stuff you’d expect – appropriate governance and risk management, safeguards against inappropriate delegations of responsibility, appropriate procedures for identifying and remediating problems, and appropriate actions to respond to non-compliance.

But one of the primary purposes of the FAR is, as the name not-so-subtly suggests, to ensure there are accountable persons for key functions. Importantly, this means no joint responsibilities among multiple stakeholders. The actuarial function is a prescribed responsibility, and therefore it would make sense that an internal Appointed Actuary or Head of Actuarial would be deemed an accountable person. However, there is still some uncertainty around whether an external Appointed Actuary would be classified as responsible person – would an internal stakeholder that oversees the external Appointed Actuary instead be the accountable person for the function? What if they’re not actuarial? Importantly, there’s nothing in the FAR to prevent an external Appointed Actuary being seen as the accountable person.

What is the Actuaries Institute doing to support the profession?

Elayne Grace spoke about the state of the profession, noting that actuaries are a self-regulated profession in Australia, and the important role the Institute plays in maintaining professionalism. Professional support and career and personal management are key, along with the upcoming establishment of Lifelong Learning to refresh the profession’s training and Continuing Professional Development framework.

Suzanne Patten brought to light the ongoing role of the General Insurance Practice Committee (GIPC), noting the focus on building capability of the “future actuary”, as well as the continuing future focuses on publications, consultations, insight sessions, and a soon-to-be established General Insurance Colloquy as a forum for general insurance actuaries to meet, discuss, and opine on industry issues more regularly.

Matthew Webster then gave a brief mention of the General Insurance Reserving Working Group, including its role in assisting actuaries in performing general insurance reserving work with suitable rigour and efficiency by understanding current practice in Australia, forming views on good practice, and supporting actuaries in achieving good practice.

A Q&A session then took a deeper dive into some issues and, as always, there was not enough time for the vigorous discussion and occasionally contentious questions that took place, including further discussions of the ongoing impacts of forever chemicals and the difficulty of identifying manufacturer liability, challenges on the value vs insights of IFRS 17, and AI aggregation risk.

But one thing was clear – if 2024’s risk landscape is the George Lucas of the General Insurance industry, directing things to only get faster and more intense, then the actuarial profession is the Anakin Skywalker in Episode 3, finding a way to cut through each and every emerging (aka youngling) risk that they face.

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