Numbers will force social change

*The following article is a digest of Alan’s acceptance speech for the 2015 Actuary of the Year Award delivered at the Institute’s Injury Schemes Seminar in Adelaide in November 2015.

I firmly believe the increasing polarisation of income and wealth is one of the greatest threats to human happiness and the health of our civilisation. I think it will be one of the issues that most defines the 21^st century[1] . That’s why I’m honoured that the citation for my 2015 Actuary of the Year Award primarily focused on the work that I have led at Taylor Fry that brings actuarial skills to the world of Government social policy.

I’m particularly proud of Taylor Fry’s innovative partnership with New Zealand’s Ministry of Social Development on the investment approach to welfare – where our role has been to help design the initial framework, and to value the future cost of New Zealand’s working-age benefit system.

Design and innovation in the social sector requires hard financial and outcome evidence. The actuarial skill set introduces a long-term view; providing better visibility of lifetime pathways, costs and trends that can help governments design, innovate and manage their operations to the benefit of society’s most vulnerable.

One of the principal features of income inequality in Australia and other Western countries is the high number of people reliant on low levels of Government income support. In round numbers in Australia and NZ 10-15% of the population is on welfare – that’s 3-4 million people. These enormous numbers counter stereotypical notions of ‘dole bludgers’ who just don’t want to work.

Our valuations show that 75% of the estimated future cost of the NZ welfare system (the lifetime cost of current clients) derives from those who entered the system prior to age 20. A third comes from those who started before they reached age 18. The most recent valuation shows that nearly two-thirds of beneficiaries had a history with Child, Youth and Family – an indicator of abuse, neglect, and/or youth offending.

So we’re talking about very young people who have likely grown up in families without the life supports which many of us take for granted: without love, security, three hearty meals a day, a roof, home stability, health, education, warmth, motivated working parents. They have instead likely lived in families with one or more of: generational welfare dependence, substance abuse, crime, poverty, limited education, and mental and physical abuse. So it’s no wonder they might lack the confidence, the opportunities, and the skills to get employment and find themselves perpetuating the cycle.

They can become stuck in a system that is often too focused on efficiency and quick wins to invest the large amounts of money it would take to get them back on track. In some cases, it may take tens of thousands of dollars to turn things around for one individual. But with the right financial and evidence-based framework, it becomes clear that for some high-risk individuals, it costs far more money in the long-run not to make these investments.

As an example, I’d like to tell you a bit about the Triple Care Farm which is largely funded by the Sir David Martin Foundation. I think their work really embodies what we are all trying to achieve with the investment approach. That is, investing up front to improve long-term outcomes.

I was so impressed by the Triple Care Farm that I’ve helped them fundraise by abseiling off some Sydney skyscrapers – once in a tiger onesie, and most recently face forward in a pink tutu.

The Triple Care Farm takes in disadvantaged youths with drug and alcohol abuse problems – kids from some of the most difficult circumstances that you can imagine. Students of their program spend 12 weeks in residence on the outskirts of Sydney. It costs about $30,000 for each individual and the Farm can only take less than 100 youths each year.

If you ask the man in the street should we be spending $3 million per year on less than 100 kids to get their lives on track, most would probably think the idea crazy. But if we can prove that the $2,500 per week per person is a sound investment – saving years on welfare or in jail and the associated costs (of hundreds of thousands of dollars) and ultimately increasing the size of the economy and the tax take through their participation in the workforce – then the conclusion is obvious. Just listen to Amy who’s been through the program.

In 2013 the Triple Care Farm took 98 young people through their program, each of whom had a history of chronic substance abuse; 71% had attempted suicide, 52% had been recently homeless. Six months after the program only 23% had further substance abuse issues, none had attempted suicide, and only 7% were homeless.

But to build the case for these sorts of game-changing interventions, we need hard financial and outcome evidence that brings in a long-term perspective. We need monitoring and evaluation frameworks – to show what’s actually making a difference. This will give Commonwealth and State governments, NGOs, the private sector and the community the motivation to invest in our most disadvantaged people – whether through government programs and services, corporate and NGO programs, community generosity or social impact bonds. Through an evidence-based framework, the technological possibilities of analytics and data capture makes the 21^st century look very exciting indeed.

I believe as actuaries, we are well placed to contribute our skills to build evidence-based frameworks to aid design and innovation in the social sector – innovation that ultimately improves outcomes for the most disadvantaged members of our society. 

[1] In his acceptance speech Alan also considered climate change as ‘the other great threat in the 21^st century’.

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