16 July 2020
The Institute and Faculty of Actuaries (IFoA) has today (Wednesday 15 July) published its Great Risk Transter Interim Campaign Report. The campaign, launched in January 2020, was set up to investigate the increasing transfer of risk from institutions to individuals when it comes to planning their finances.
This latest report provides an overview of submissions to the campaign’s call for evidence which ran for three months to April 30th. The responses have confirmed our understanding of the extent of this trend, and show there is widespread concern about the impact of the Great Risk Transfer.
John Taylor, Immediate Past President at the IFoA, said:
“The IFoA is calling for a public conversation about which risks are worth taking and who should stand behind those risks. Over recent decades, institutions and governments have sought to de-risk in order to manage uncertainty. In trying to reduce or eliminate risk, they have often transferred it to their customers or citizens, who are less well equipped to manage it, often without understanding their needs or preferences.
“Many individuals will have been affected by the transfer of risk in more than one area of their lives. The evidence suggests that only a minority will be truly equipped to deal with the aggregate impact of these risks, and make the most of the flexibility and choice they are offered by taking them on. And it’s really important to note that those less able to afford to manage or mitigate the risks are disproportionately affected.
“Actuaries have experience and expertise in many areas where the transfer of risk has occurred such as pensions, investment and insurance. Responses to the call for evidence have helped us look beyond actuarial practice areas to examples in other areas of society where this trend is taking place. These have helped to expand our understanding about the root causes and societal implications of risk transfer, and will inform our recommendations for a meaningful change in UK government policy.”
The call for evidence was launched in January, but many submissions came in during and after the global spread of COVID-19. During the crisis, many governments have stepped in to bear financial risks in specific areas as they seek to support and protect workers and businesses. But most of these measures have been designed to provide a short-term boost so it’s unclear if this reversal will result in a long-term change in policy.
John Taylor continued::
“COVID-19 has introduced new challenges and more uncertainty, rocked markets, and forced the idea of individual risk management into the consciousness of populations around the world. As we work to rebuild the economy and society in the wake of the crisis, we have a unique opportunity to re-examine and perhaps re-invent, the way risk is shared between people, companies and the government.”
Responses to the call for evidence indicate that the Great Risk Transfer is manifesting across four main areas:
- Pensions
The closure of defined benefit schemes and the Freedom and Choice agenda in the UK have led to individuals taking on additional investment and longevity risk, as well as the risk that they do not save enough to fund the sort of retirement they aspire to. - Insurance
Advances in data science have changed the fundamental nature of risk pooling in insurance. This means that individuals’ insurance premiums are more directly linked to their risk profile. As a result, those considered ‘riskier’ by insurers (often through no fault of their own) face higher premiums, sometimes to the point where insurance becomes unaffordable, and individuals are forced to shoulder risks themselves. - Work
The changing nature of work is leaving many more people in insecure employment, increasing the pool of those in low-paid self-employment, agency, casual and seasonal work, or on zero-hours contracts. These workers do not have access to many of the benefits associated with traditional contracted employment, leaving them exposed to a range of employment risks. - Health
The privatisation of adult social care since the 1980s has coincided with decades of longevity improvements. Trends in healthy life expectancy have not kept pace with this, meaning more and more people require social care in later life. Additionally, during the COVID-19 pandemic there has been an increasing discussion about how the risk of further transmission should be shared between authorities and individuals.
The IFoA plans to run a series of roundtables in the autumn, to draw on the key themes identified in the call for evidence responses. We will consider where public policy can help to reverse the trend, in cases where it has gone too far, and how individuals can be equipped to deal with the new risks they face. We plan to issue our final report at the end of 2020.
~ENDS~
Contact
Sonia Sequeira, Media Relations Manager, IFoA
Tel: 07525 592 198
Email: sonia.sequeira@actuaries.org.uk
Notes to Editor
- The Great Risk Transfer Interim Campaign Report. Institute & Faculty of Actuaries. July 2020.
About the Institute and Faculty of Actuaries
The Institute and Faculty of Actuaries (IFoA) is a royal chartered, not-for-profit, professional body.
Research undertaken by the IFoA is not commercial. As a learned society, research helps us to fulfil our royal charter requirements to further actuarial science and serve the public interest.
Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.
Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s of London.
Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.
The IFoA is available to provide independent expert comment to the media on a range of actuarial-related issues, including COVID-19 and its long term consequences, mortality, pensions, life and general insurance, health and care, finance and investment, climate change and sustainability, systems thinking, uncertainty and judgement, and risk management.