The Role of Actuaries in Public Policy

Actuaries have been major contributors to societal and economic growth and developments.

This has been largely delivered through the utilisation of technical skillsets in the context of everyday engagements, as well as active contributions to thought leadership and advice on areas of public policy. Such actuarial input encompass traditional financial sectors, in addition to emerging fields that involve risks and uncertainties, including health, data analytics, energy and the environment.

The contributions of actuaries to public policy were recognised during sessions at the International Congress of Actuaries (ICA) 2023. In particular, a panel discussion on “How are actuaries making a difference in public policy” chaired by Dr Anthony Lowe, Chair of the Institute’s Public Policy Council Committee, to explore the journey of actuarial involvement in public policy in Australia, the UK and Hong Kong SAR respectively.

This article summarises the panel discussion of successes and learnings.

What do you consider to be the most successful contribution to public policy?

Australia (Dr Hugh Miller)

A key insurance event in Australia was the collapse of HIH, which at the time had been the second-largest insurance company in the country. Dr Miller noted that actuaries played a very prominent role in the aftermath of this event, working with regulators to prevent such a collapse in the future, and this had driven an extensive period of stability.

Another example was the Cyclone Reinsurance Pool, which had significant actuarial involvement in its establishment. This is a reinsurance pool for insurance companies to transfer their risk for cyclones and cyclone-related flood damage, backed by a $10 billion Government guarantee. The ACCC has been directed by the government to monitor the pricing of insurers after partaking in the Cyclone Reinsurance Pool and ensure that any savings therefrom are passed through to policyholders in the interests of the public.

Moreover, the Actuaries Institute have also contributed to issues of intergenerational equity and inequality through recent Green Paper publications. For instance, “Mind the Gap – The Australian Actuaries Intergenerational Equity Index”^[1] examined how gaps are growing or shrinking between generations to assess the translation of wellbeing across areas such as housing and education. Such studies draw on areas of attention for the government and regulators as they explore issues of equity and societal development.

United Kingdom (Dr John Taylor)

Dr Taylor also provided several examples of successful actuarial contributions to public policy.

One such engagement was transiting from defined benefit to defined contribution pension schemes. At the time, trade unions had been reluctant to accept defined contributions, and the actuarial profession had stepped forward to find a mid-way point with a concept called “Collective Defined Contribution”, which has the effect of smoothing out investment return outcomes for individual members and pools longevity risks to reduce uncertainty levels. This scheme is said to serve over 150,000 people in the UK and is a key example of actuarial involvement and utilisation of their expertise on core concepts, including mortality, morbidity and investments.

The COVID-19 response group was also noted as an exemplar of putting forth the unique combination of objectivity and expertise that the profession possesses in cutting through myths and hidden facts in a world of misinformation and misunderstandings.

Actuaries also play a major role in explaining the financial implications of data to the public, especially in areas of ethics and professionalism, where other participants in data science might not be as instinctive to call out. In this regard, the IFoA has collaborated with the Royal Statistical Society to bring out an ethical gaze upon data science, including issues of human accountability, as well as raising policy questions with the government to raise awareness before it becomes a widespread issue.

Hong Kong SAR (Raymond Tam)

Similar to the UK, Mr Tam also noted that many big employers in Hong Kong had remained on defined benefit schemes prior to the establishment of the Mandatory Provident Fund, which was the key project that he had led in the role of the government actuary. Mr Tam reflected on working with the broader actuarial profession to develop certain criterion such that minimal changes were necessary to transition from defined benefit to defined contribution, while providing sufficient protection for employees.

What lessons have you learned from actuarial work in public policy?

Australia (Dr Hugh Miller)

Based on the actuarial work to date in public policy, Dr Miller reflected on key lessons that will continue to facilitate future contributions in this area. He noted that a combination of dedicated staff at the Actuaries Institute, and numerous working groups are ready to respond to issues.

Dr Miller further noted that actively seeking to engage with the government, including responding to requests for submissions, is a great way to promote the actuarial voice and oftentimes the government is very interested in hearing the perspective of actuaries.

United Kingdom (Dr John Taylor)

Dr Taylor highlighted the value of collaboration between staff at the IFoA and volunteer actuaries to determine priorities and ensure that consistent messaging is echoed. This facilitates thoughtful discussions on how to approach various issues, which include not only core actuarial areas but also broader issues such as climate risks, data and poverty.

External collaboration with other authorities in these areas will lead to more impactful deliveries in the public affairs area. Dr Taylor recognised that it was important to educate the public in understanding actuarial perspectives by explaining why things are key technical issues and why they are relevant to society and consumers. That is, actuaries often serve the role of connecting the technical to public policy. These require consistent efforts to build up a reputation and brand in these areas to ensure the profession can be engaged over the long run.

Hong Kong SAR (Raymond Tam)

With respect to Hong Kong, Mr Tam reflected on the implementation of Solvency II Standards. It was noted that existing resources from leading actuarial societies and institutes in other jurisdictions, such as the UK and Australia, were immensely helpful as examples and guidance for developments in Hong Kong.

Recent Areas of Public Interest

As noted by the panellists, actuaries have historically made significant contributions to public policy in traditional fields, which have been core to the profession and have also expanded impacts into wider issues of public interest to enhance societal developments. Actuaries are well placed to impact public policy, especially as the pace of technology accelerates and new global risks arise. As actuaries, we have the capability and thus the responsibility to contribute to society through public policy. Some emerging discussions where actuaries are well placed to contribute include:

• Recent economic phenomena, including inflation, interest rates and fiscal policies;
• Climate risk modelling and resulting implications for key sectors; and
• Cybersecurity and risks.

The full recording of the panel discussion is available at our ICA2023 Hub. 

References

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