Although employer-provided retirement plans are a relatively recent phenomenon in the private sector, dating from the late nineteenth century, public sector plans go back much further in history. From the Roman Empire to the rise of the early-modern nation state, rulers and legislatures have provided pensions for the workers who administered public programs. Military pensions, in particular, have a long history, and they have often been used as a key element to attract, retain, and motivate military personnel. In the United States, pensions for disabled and retired military personnel predate the signing of the U.S. Constitution.
Like military pensions, pensions for loyal civil servants date back centuries. Prior to the nineteenth century, however, these pensions were typically handed out on a case-by-case basis; except for the military, there were few if any retirement plans or systems with well-defined rules for qualification, contributions, funding, and so forth. Most European countries maintained some type of formal pension system for their public sector workers by the late nineteenth century. Although a few U.S. municipalities offered plans prior to 1900, most public sector workers were not offered pensions until the first decades of the twentieth century. Teachers, firefighters, and police officers were typically the first non-military workers to receive a retirement plan as part of their compensation.
By 1930, pension coverage in the public sector was relatively widespread in the United States, with all federal workers being covered by a pension and an increasing share of state and local employees included in pension plans. In contrast, pension coverage in the private sector during the first three decades of the twentieth century remained very low, perhaps as low as 10 to 12 percent of the labor force (Clark, Craig, and Wilson 2003). Even today, pension coverage is much higher in the public sector than it is in the private sector. Over 90 percent of public sector workers are covered by an employer-provided pension plan, whereas only about half of the private sector work force is covered (Employee Benefit Research Institute 1997).
Author(s): Lee A. Craig, North Carolina State University
Publication Date: 16 March 2003, accessed 8 Oct 2022
Professionalization leads us to an interesting dilemma. Actuarial culture and, for that matter, organizational culture got insurance companies to where they are today. If the culture were not moderately successful, then the company would not still exist. But this is where Prospect theory emerges from the shadows. It is human nature not to want to lose the culture that enabled your success. Many people nonetheless thirst for the gains earned by moving in a new direction. Risk aversion further reinforces the stickiness of culture, especially for risk-averse professions and industries. Drawing from author Tony Robbins, you cannot become who you want to be by staying who you currently are. Our professionalization, coupled with our risk aversion, creates a double whammy. Practices appropriate to prior eras have a propensity to be locked in place. Oh, but it gets worse!
By the nature of transformation and modernization, knowledge and know-how are embedded in the current people, processes and systems. The knowledge and know-how must be migrated from the prior technology to modern technology. Just like your computer’s hard drive gets fragmented, so too do firms’ expertise as people change focus, move jobs or leave companies. The long-dated nature of our promises can severely exacerbate the issue. Human knowledge and know-how are not very compressible, unlike biological seeds and eggs. In a time-consuming defragmenting exercise, information, knowledge and know-how must be painstakingly moved, relearned and adapted for the new system. This transformation requires new practices, further exacerbating the shock to the culture. Oh, but it gets even worse!
The transformation process requires existing teams to change, recombine or communicate in new ways. This means their cultures will potentially clash. Lack of trust and bureaucracy are the most significant frictions to collaboration among networks. The direct evidence of this is when project managers vent that teams x, y and z cannot seem to work together. It is because they do not have a reference system to know how to work together.
The Society of Actuaries (SOA) leadership and staff work closely with the Diversity, Equity, and Inclusion Committee (DEIC) to support the journey to increase diversity in membership and in the actuarial profession, as part of the SOA’s Long-Term Growth Strategy.
We strive for transparency and accountability in our DEI efforts and are committed to sharing our demographic data and long-term goals to support our pledge and responsibility. We have collected member voluntary demographic data since 2015. With this data, we present an infographic for the pathway from aspiring actuaries to members with ASA or FSA designations.
Before we get into the different approaches, why should you care about knowing multiple ways to calculate a distribution when we have a perfectly good symbolic formula that tells us the probability exactly?
As we shall soon see, having that formula gives us the illusion that we have the “exact” answer. We actually have to calculate the elements within. If you try calculating the binomial coefficients up front, you will notice they get very large, just as those powers of q get very small. In a system using floating point arithmetic, as Excel does, we may run into trouble with either underflow or overflow. Obviously, I picked a situation that would create just such troubles, by picking a somewhat large number of people and a somewhat low probability of death.
I am making no assumptions as to the specific use of the full distribution being made. It may be that one is attempting to calculate Value at Risk or Conditional Tail Expectation values. It may be that one is constructing stress scenarios. Most of the places where the following approximations fail are areas that are not necessarily of concern to actuaries, in general. In the following I will look at how each approximation behaves, and why one might choose that approach compared to others.
The more fundamental changes affect the measurement of future services (previously termed as “Reserves”). Many insurance accounting regimes have tried to stabilize their financial statements over the years; therefore, they calculated their reserves based on historic information—locked-in assumptions for insurance parameters as well as historic interest rates. The latter, however, are not in line with the use of market values for the asset side of the balance sheet, which is now perceived as the only fair-value representation for the different stakeholders. Therefore, the measurement of the liabilities in IFRS 17 will always be based on current assumptions.
Due to the compound effect over many projected years, the regular update of assumptions (particularly interest rate or discounting assumptions) can make long-term liabilities much more volatile.
As you begin (or consider) volunteering with Society of Actuaries (SOA) Education, you may have questions. As a long-time SOA Education volunteer and past general chairperson of SOA Education, perhaps I have answers that will help.
My volunteer journey began in 1993. I had just obtained my FSA when I got a call from SOA volunteer Bruno Gagnon, FCIA, asking if I wanted to get involved in SOA Education. It’s been an incredible journey of learning, support and networking since. I hope your volunteer journey is just as rewarding.
WHAT BENEFITS DOES VOLUNTEERING BRING? The most interesting aspects of this endeavor are of a different nature. For example, the first privilege was to work with subject-matter experts who were highly regarded and respected in the industry and learn from them. This could be from a technical and leadership point of view. It was rewarding to see a group of volunteers with similar interests working together efficiently while having fun. The members had specific roles and would not hesitate to help their colleagues when needed. Over the years, SOA Education volunteers have shown they can adapt to change quickly. The adjustments that were put in place during the pandemic are a great example.
A member volunteer can gain experience and look for opportunities to grow in their role and take on different responsibilities. The possibilities are diverse, allowing a member to become an expert in their role or a leader within the exam team, depending on their interests, skills and circumstances.
Having participated in all the possible levels within the SOA Education volunteer structure, I honestly can say the experience has been challenging at times—but always highly rewarding. I would relive the journey at any time, as I made very dear friends along the way.
James Belich’s new book, “The World the Plague Made: The Black Death and the Rise of Europe,” shows the depth and longevity of the controversy over the sources and impacts of an era-defining scourge. Belich, an Oxford University historian,suggests that what is now known as the Black Death was so consequential that its effects equal those of the Enlightenment, the Reformation, the Industrial Revolution, and the Renaissance. It’s a staggering implication, but he makes a decent case for it in this bold, tremendously researched work. From illustrating the plague’s effects globally to showing how central it was to Europe’s ascension, Belich demonstrates that the medieval pandemic influenced many aspects of human life.
Once called the Great Death or the Great Plague, the pandemic lasted hundreds of years and was so deadly that it is still popularly referred to simply as the Plague. “The Black Death Pandemic, beginning in 1345, persisted for more than three centuries and involved about 30 major epidemics in all,” writes Belich. What’s more, it “did not always behave like the modern pandemic,” he writes further on. “It killed far more people, for one thing.” Belich’s book implicitly underscores that, compared to the devastation of the plague, Covid-19 is relatively insignificant.
Just how many deaths was the Black Death responsible for? Despite centuries of debate on the subject, there is no consensus. The common belief is that the first wave killed between 25 percent and 33 percent of Western Europeans. (The historian Barbara Tuchman advanced the one-third estimate in her best-selling 1978 book about the 14th century, “A Distant Mirror.”) Belich suggests that the number was far higher. In the first strike alone, the population of Western Europe was cut in half, he writes, citing studies about the death rates in England, France, Italy, and Scandinavia. Many places didn’t return to their pre-plague population levels for some 250 years. (Despite his claims, the true extent of the toll is still widely contested.)
In Belich’s view, what made the plague different from other major historical events and catastrophes was that, while it decimated the human population, it left the material world untouched. It “doubled the average amount per person of everything,” from horses to housing, he writes. For a time, this meant more resources for survivors and greater access to luxury goods, better living conditions, and higher wages for workers.
In health insurance, with the continual spike in Medicare, we forecast a huge shift towards this area and Medicaid in 2022, and beyond. With the way that the market has evolved, it’s possible that actuaries with experience in Medicare will be in-demand, especially as bid season is fast approaching. Alongside proficiency in risk adjustment, the Society of Actuaries (SOA) recently added a new exam for predictive analytics.
As always, for the property & casualty sector, the key modelling skillsets going into 2022 is R and Python. With the rise in cyber and ransomware attacks, this might result in a boom in cyber insurance and simultaneously the specialists, minimum of 2-3 years in underwriting, to better service this demand. In addition to fluency in modelling, designations from Associates of the Casualty Actuary Society (ACAS) and Fellowship of the Casualty Actuary Society (FCAS), has importance to employers and therefore significant currency in the market.
Why is the insurance industry now facing increased scrutiny on certain underwriting methods?
Insurers increasingly are turning to nontraditional data sets, sources and scores. The methods used to obtain traditional data—that were at one time costly and time-consuming—can now be done quickly and cheaply.
As insurers continue to innovate their underwriting techniques, increased scrutiny should be expected. It is not unreasonable for consumer advocates to push for increased transparency and explainability when insurers employ these advanced methods.
What is the latest regulatory activity on this topic in the various states and at the NAIC?
Activity in the states has been minimal. In 2021, Colorado became the first (and so far, only) state to enact legislation requiring insurers to test their algorithms for bias. Legislation nearly identical to the Colorado law was introduced in Oklahoma and Rhode Island in 2022, and it is likely other states will consider similar legislation. Connecticut is finalizing guidance that would require insurers to attest that their use of data is nondiscriminatory. Other states have targeted specific factors, but most have adopted a wait-and-see approach.
The NAIC created a new high-level committee to focus on innovation and AI, but it has become clear that a national standard is not likely at this time.
Author(s): INTERVIEW BY STEPHEN ABROKWAH, Interview with Neil Sprackling, president of Swiss Re Life & Health America Inc.
Arlington, VA – Two newresearch reports designed to guide the insurance industry toward proactive, quantitative solutions to identify, measure and address potential racial bias in insurance pricing were published by the Casualty Actuarial Society (CAS) today.
“These two new reports in our CAS Research Series on Race and Insurance Pricing continue to provide additional insight into industry discussions on this topic,” said Victor Carter-Bey, DM, CAS chief executive officer. “We hope with this series to serve as a thought leader and role model for other insurance organizations and corporations in promoting fairness and progress.”
As the professional society of actuaries specializing in property and casualty insurance, the CAS is committed to diversity, equity and inclusion in actuarial work. To this end, the Society is releasing a series of four CAS Research Papers, which support the CAS’s Approach to Race and Insurance Pricing. This approach was adopted by the CAS Board of Directors in December 2020 and includes four key areas of focus and goals: basic and continuing education, research, leadership and influence, and collaboration. Each paper in the series addresses a different aspect of race and insurance pricing as viewed through the lens of property and casualty insurance.
Defining Discrimination in Insurance. This report examines terms that are being used in discussions around potential discrimination in insurance, including protected class, unfair discrimination, proxy discrimination, disparate impact, disparate treatment, and disproportionate impact. The paper provides historical and practical context for these terms and illustrates the inconsistencies in how different stakeholders define them. It also describes the potential impacts of these definitions on actuarial work.
Understanding Potential Influences of Racial Bias on P&C Insurance: Four Rating Factors Explored. The paper examines four commonly used rating factors to understand how the data underlying insurance pricing models may be impacted by racially biased policies and practices outside of insurance. The goal is to highlight the multi-dimensional impacts of systemic racial bias, as it may relate to insurance pricing. The four factors included in the report are: Credit-Based Insurance Score (CBIS), geographic location, homeownership and Motor Vehicle Records.
These four research reports are just one way the CAS supports evolving actuarial practices and strengthens the knowledge of its members. The papers demonstrate the Society’s recognition that actuaries—who are responsible for setting insurance rates—must be a voice in an ever-evolving dialogue. The CAS understands that this work is critical to maintaining the Society and its members’ public trust.
In a groundbreaking TED-style talk, Dominic Lee, ACAS takes the audience on a multisensory journey beyond the boundaries of traditional insurance. He presents a framework for the actuarial profession to step into the future and claim its rightful place as a dominant force in the world of risk: Reimagine, Embrace and Explore.