How the COVID-19 pandemic demonstrated the value of actuarial thinking

1 Introduction

1.1 How the COVID-19 pandemic demonstrated the value of actuarial thinking

The COVID-19 pandemic was a time for actuarial thinking.

The pandemic made most of us consider, albeit fleetingly, the value of a human life. Just how to trade off life expectancy versus working years in a poorly performing economy. In hindsight Australia’s and New Zealand’s (near-) elimination strategies are envied around the world. Happily, those calculations were fleeting for most, and the actuarial skillset is so much broader than that.

The media painted a deary vision of queuing to buy bread with food stamps in the years to come. But this was a tail case in a distribution of potential outcomes.

The world raced to build models of spread, outcomes and deaths. There was minimal data and a lot of extrapolation. The uncertainty in the forecasts was not always clear, or was not communicated.

Our browsers were flooded with beautiful visualisations of COVID-19 cases in different countries, rates of spread and lately vaccination rates.

1.1.1 We saw all the things actuaries are really good at, being critical to policy decisions

Actuarial thinking is commonly described using words around analytical approaches, problem solving, consideration of risk, range of potential impacts and the interaction of risks. The overlap of finance, economics, business, independent ethical advice all come up.

These are all accurate, and would have added demonstrable value in the context above.

In addition, from within the industry, we see the people it attracts, and how they embody all those descriptors, but also a deep sense of caring about the world. Of thoughtfulness, consideration, and diverse interests. Reading widely, and not just reading, but comprehending, assimilating the information and being ready to apply it to a new situation.

To me the actuarial thinking has to encompass the people drawn to the profession too. It is these things are not quite so replaceable by automation too.

We all had different experiences of the pandemic, but some common key themes which are highly relevant to actuarial thinking are:

• We need to use data to inform good decisions, ideally real-time data
• Communication is critical, and this includes ranges of potential outcomes and likelihoods:
  • We needed to consider the long-term impacts and costs of different scenarios, lock-downs, opening up too soon and further lock-downs, lost lives, lost livelihood, economic scaring from unemployment, underemployment.
  • We needed to understand the uncertainty around forecasts and projections, and the risks of using data from other areas that may not be directly applicable.
• We need to value input from experts (e.g. seeing our leaders rely on health advice).

These are all actuarial skillset problems, and watching these considerations be crucial for policy decisions which could have massive impacts on individuals, businesses, states and countries was inspiring and nerve-racking.

2 Future implications and responses

The pandemic demonstrated the value of actuarial thinking in a much broader context than is traditionally considered.

Two aspects to take away from this are:

1. Providing great actuarial advice. A reminder that we must continually work to give the best advice in the best way, as the professions evolves, the context changes and recipients vary and their expectations may change.
2. Actuaries can be adding value to important policy discussions.

2.1 Providing great actuarial advice

We are trained to communicate clearly, we learn the importance of early warning and notification and not keeping things secret. We learn the value of data and the important role it plays.

These things are not static though, the world is not static, the context is not static, the recipients to whom we communicate evolve and change. The pandemic highlighted the importance of the following areas we know we are important to good actuarial advice. We should continue to develop these skills to reflect the evolving nature of the context and the recipients.

2.1.1 Communication and clarity

Never before have we seen so much interest in models, forecasts, data and statistics. Maths and modelling has never been so mainstream. Large datasets were made freely available. In this context we saw the importance of communication and clarity. Of the receiver of the information understanding what it means, understanding the uncertainty of forecasting off individual data points, of taking information from experience in a different country. A reminder that we must always be clear in the data reliances, the limitations of our analysis and the range of potential outcomes.

We were reminded that whistle blowing and early communication are important. Without Dr Li Wenliang (the most prominent whistle-blower) the COVID-19 epidemic may have been worse.[1]

2.1.2 The use of data so popular and rising, we need to bring those less familiar along with us

The actuarial profession is well trained in working with data. We understand how powerful data can be in providing insight, but we also are trained to appropriately protect the data and the potential pitfalls.

The pandemic saw a heightened mainstream interest in data and use of it to inform decisions. There were reminders that no data is perfect. While likely unavoidable in the circumstances, imperfect data essentially shut down South Australia in November when contact tracers were provided with incorrect information.[2]

We must look after personal data carefully. The release of contact tracing apps drew intense public scrutiny. A timely reminder that in the profession we are trusted with large datasets, with personal information. We need this to do our jobs effectively.

We must not break this trust. We must remember to follow best practice, to not hold more information than we need, to store it securely and to treat it ethically[3].

2.2 Actuaries can (and are) adding value to important policy discussions

While the pandemic did create some new policy challenges (namely recovery from the COVID-19 pandemic), the larger effect was changes in public interest. Social security payment rates were widely discussed. Mental health considerations were front of mind. Thousands of people rough sleeping were housed temporarily in hotels. We celebrated reduced carbon emissions as a rare positive side-effect of lockdown.

Actuaries are already making valuable contributions to important public policy debates such as climate change, Australia’s aging population (for example[4]) and intergenerational inequity (for example[5]).

Climate change is an issue which frequently appears top of the list in public policy issues.

The pandemic provided fascinating data points on climate effects. Around the world lockdowns dramatically reduced carbon emissions, with daily CO₂ emissions 17% lower in April 2020 compared to April 2019[6]. However, lockdowns and the associated reduction in carbon emissions are a temporary effect. Some argue the most alarming point is how little emissions dropped given the world essentially ground to a halt.

These data points are extremely useful in understanding the scale of the policy changes required to make permanent changes to the course of climate change.

The Paris climate agreement is to limit global warming below 2℃. In an Australian context, this means the same sort of decrease in carbon emissions we saw in 2020, each year until 2030.[7]

The Actuaries Institute has a public position on climate change and the Australian Actuaries Climate Index[8] has resulted in national news coverage[9].

This places us well to provide ongoing input and advice into the design of climate policy during the COVID-19 economic recovery.

2.3 Areas for further insights

The pandemic highlighted some key aspects of public policy that make the actuarial profession well suited for providing input in public policy.

2.3.1 General input into public policy

During the pandemic, policy decisions were made necessarily rapidly. At times they were necessarily made of the back of minimal data and with significant uncertainty. The risks were large and consequences very public – for example, Ruby Princess passengers being allowed to disembark in NSW[10].

Actuaries are well trained in using sparse data to provide projections of outcomes. The actuarial profession understands the importance of tail risk and communicating the limitations of analysis. These are crucial aspects to policy decisions.

Government needs to be able to make evidence-based decisions. This often has to based off limited information. Actuaries are well placed to assess limitations, assess materiality and advise on the use of information from other sources (e.g. other countries or jurisdictions) as well as explore the interactions of different risks and factors. With this skillset, Actuaries are ideally placed to help support policy develop within required time frames – which can be short or long.

Actuaries are also trained to use data to look back in time and see what happened in the historical data. These skills can be used to understand what policy changes worked in the past. While randomised control trials are ideal for evaluation of what works, they are rare in social sciences. As such, actuarial skills such as understanding limitations, materiality and interactions of effects or risk are valuable. 

Lockdowns provided step changes in environments which can be explored for their impact on outcomes by actuaries to support policy development. For example:

• School achievement – the 2020 school year looked very different to other years. It also looked very different across the country. What can we learn from this about how different kids learn and achieve in different environments?
• Childhood obesity – again 2020 looked different, walks became an international pass time. Restaurants were shut and our eating habits changed. There were a range of different experiences, what can we learn from this to help reduce childhood obesity?

The areas are vast, and actuaries should not do this alone, specialist knowledge is crucial. Through the pandemic we saw all political leaders deferring to advice from health experts. This was a valuable reminder of the importance of leaning on experts.

2.3.2 Input into specific public policy areas highlighted by the pandemic

In addition, there are three policy areas highlighted by the pandemic to which actuaries can contribute unique and valuable analysis and insight:

• Mental health
• Social security
• Homelessness.

2.3.2.1 Mental health

The pandemic, lockdowns, economic impacts, isolation and ongoing uncertainty have made people feel anxious, stressed and worried. This has increased the mental health risk among the full population. Government and not-for-profits have been working hard to provide additional support and resources.

Safe Work Australia released preliminary information on COVID-19 related workers compensation claims. Around a third of claims lodged were for COVID-19 related mental health issues.[11]

Mental health has been a focus in the insurance industry for a number of years. The Actuaries Institute has published a popular green paper on Mental Health and Insurance.[12]

We know that mental injuries have impeded the recovery of individuals and driven claims costs higher in both workers compensation and compulsory-third-party insurance.

The actuarial profession has spent time gaining an understanding of the importance of (as noted in the Green paper):

• Data collection, analysis and analysis
• Mentally healthy workplaces
• Early treatment and recovery.

These factors are now more important than ever. The actuarial profession is well placed to advise government (and corporates) on the importance of the above three factors and how to implement them.

The Government response to the pandemic included adding new items to the Medicare Schedule to support telehealth consultations. Access to psychological therapy sessions was extended to additional sessions.[13]

NSW and Victoria make up the majority of MBS MH service use. But had very different experiences with Victoria having far more severe and extended lockdowns. They naturally made more use of telehealth. Actuaries can help support policy by analysing the impacts of this on outcomes.

2.3.2.2 Social security

The pandemic saw many Australians access social security for the first time. Interest in payment rates had never been higher. Jobseeker payment rates, which have been argued to be too low for years, were temporarily raised $150 per fortnight. The Government has just announced an ongoing increase to the Jobseeker rate of $50 per fortnight, a third of the temporary increase.[14] There is much debate about what an appropriate rate is. On one side people must be incentivised to work, and currently there are claims farmers cannot fill labouring jobs from the local market. On the other side, the rate is extremely low and places people in poverty, this can create an entrenched cycle of disadvantage.

Actuaries are well placed to advise on payment rates and social security design. Social security is essentially a government insurance product, a pooling of risk. This is a core domain to Actuaries. We know how to model and forecast payments, the interactions of risk and the long-tailed nature of payments. Actuaries have modelled the long-term costs to support an investment approach in New Zealand[15] since 2013 and Australia since 2015[16].

We are now well placed to support the government in policy decisions around payment rates, indexation, and potential consolidation of the array of supplementary payments that can be received. Being external to the government may help allay the concerns that the process is too political.[17]

With such an influx of first-time social security recipients in 2020, and some ongoing uncertainty around the labour market recovery, now is a crucial time for Actuaries to provide advice around payment patterns, lifetime costs and providing advice to support policy design.

Additionally, there are a number of policy questions to explore retrospectively around the jobseeker and jobkeeper payments during the pandemic. These have a few aspects:

• Impact of jobseeker payment rates – what can we learn about the impact of payment rates, from a step change to having the rates significantly higher than usual?
• Longer-term impacts on jobkeeper – what can we learn about longer-term employment outcomes for those supported by jobkeeper compared to those not eligible (e.g. permanent residents (but not citizens), and those on temporary Visas)?
• Forensics – identifying areas of non-eligibility for payments.

All of these areas are well suited to actuarial thinking. Learnings from the changes to payment rates or jobkeeper will necessarily be limited in that there is no perfect counterfactual to compare to. However actuarial problem solving can help make the most of the data we do have and inform future policy.

2.3.2.3 Homelessness

Homelessness has gained traction as a policy issue over the last five years. The pandemic saw huge amounts of funding to support thousands of people sleeping rough into accommodation, such as hotels, during the pandemic. Reporting suggests a third of these have since been successfully supported in longer-term housing [18]. There are many calls for a Housing First type approach to homelessness in Australia. The policy response to COVID-19 came closer to a Housing First approach than is typical in Australia. The actuarial profession would be well placed to explore the long-term costs and benefits of this policy response. This could help to inform future policy decisions.

Homelessness is at the end of the scale in terms of severity, but it is reflective of greater issues in housing policy in Australia. Increases in social housing have been far out stripped by population growth, creating more strain.[19] There are many calls for increased large-scale expenditure on social housing. With interest rates at all times lows, this may be an attractive option to government in the COVID-19 economic recovery.
Housing has similarities to welfare payments with long-term cash flows suited to actuarial modelling. Actuaries are well placed to provide modelling of social housing, having forecast the costs for the New Zealand investment approach [20]. In Australia there are complexities in the interplay between where the costs sit between state and federal governments. Actuarial thinking will be of use in untangling these interactions and obtaining a fair sharing of fiscal costs. 

3 Conclusions

Actuarial thinking is highly valuable across a wide range of domains. The pandemic demonstrated how the core actuarial skillset is applicable and incredible useful across a wide range of contexts.

There are important policy discussions and decisions to be made in coming years. The actuarial profession can and should get involved in these. We are uniquely placed to use our skillset to advise on key policy issues such as climate change, the aging population, mental health, social security and homelessness.

While we bring expert analysis and problem solving skills, we shouldn’t be the only voice, we should be part of a collection of experts with specific domain knowledge.

This may be uncomfortable – the people I have met in the actuarial profession have so much to offer to all areas of life. I am consistently surprised by the depth of knowledge my colleagues have on all sorts of topics. Actuaries are curious but sometimes slightly shy individuals. We may need to get comfortable being uncomfortable speaking up in public policy debate.

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