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Diversity of economic thought – why it matters

The Institute and Faculty of Actuaries’ (IFoA) Actuarial Research Centre’s (ARC) has today published an initial report on ‘Economic Thinking and Actuarial Practice’.

The report provides a picture of the current opinions of a range of actuaries and economic experts on the subject of economic thought, how the traditional concept of economic thought is changing and the likely impact this change could make on approaches towards long-term investment and risk. 

The report has been published against a backdrop of wider debate about economic thinking. Economists and policymakers alike are considering the relevance and application of traditional economic thinking in a world that is tackling significant global challenges, such as climate change, resource scarcity and increasing inequality both within and between countries. 

Industries reliant on actuarial input, such as pensions, life insurance and health and care, have historically used the same traditional thinking to support their decision making, with financial economics becoming prevalent in actuarial techniques from the 1990s to date. Given the importance of economic thinking to the work of many actuaries, Dr Iain Clacher, of Leeds University Business School, was commissioned by the ARC to undertake some initial research investigating how economic thinking is applied by actuaries in their work, and how it can impact upon the advice they provide.

The report provides a thought-provoking commentary on a snapshot of views from actuaries and economists who are experts in the field. It suggests the following areas for consideration by the actuarial profession: 

  • Build up a greater awareness and understanding of the emerging approaches to economics.
  • Understand the latest economic thinking for long-term investment, valuation and risk management.
  • Ensure that users of actuarial outputs are made aware of the distinction between projections (which actuaries make) and forecasts.
  • Engaging with regulators to help shape the regulatory landscape under alternative approaches to economic thinking.
     

Download the Report
 

Erik Vynckier, Chair of the IFoA’s Research and Thought Leadership Board said:

“This initial report by Dr Clacher gives the profession food for thought when it comes to the application of economic theory in every day actuarial practice. The IFoA considers the development of economics and its relevance to actuarial practice to be a key research priority and recognises Dr Clacher’s initial findings as an important first step. We now want to work with a range of experts to refine what further investigation we undertake, ultimately aiming to ensure that the profession is well placed to respond and adapt to the changing economic landscape.”

Find out more about this research on our ARC webpage.