The Great Risk Transfer is underway
Since the start of 2020, the IFoA has been exploring the transfer of risk from institutions to individuals.
In the 21st century, many financial risks that used to be borne by governments, financial services providers and employers are being transferred to individuals. This change is giving many people the freedom to manage their own finances as they see fit. But making these choices and managing these risks can often be extremely complex.
Evidence of this shift exists in a number of areas of public policy and actuarial work and amounts to a profound change in the way that individuals organise their life and finances. Meanwhile, levels of numeracy, financial literacy and understanding of risk are low, meaning large parts of the population are not well equipped to deal with the risks they now face.
This transfer of risk poses important questions about the changing priorities and responsibilities of the institutions that once managed those risks. In financial services, it means greater thought about how to ensure consumers are equipped to make decisions that are in their best interest. In public life, it means taking a close look at the relationship between citizens and the welfare state, and questioning whether the current balance of individual and collective responsibility is right.
Our interim findings
Since the start of 2020 we have been collecting evidence from actuaries and interested stakeholders about how the Great Risk Transfer is manifesting in practice, how this is affecting people, and what can be done to help those who may be disadvantaged by the trend.
The interim report sets out what we now understand about the extent of the Great Risk Transfer, and its implications for society, informed by the insights we have gathered through our recent call for evidence.
We see the Great Risk Transfer occurring across four distinct areas:
Through the rest of 2020 we will be working with experts in these areas to look in more detail at the regulatory and public policy recommendations that could help protect people against some of the more negative impacts of these risk transfers.
“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.
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.”
Immediate Past President of the IFoA
Our next steps
We have developed our understanding of the Great Risk Transfer, and confirmed the widespread consensus that this is an area that warrants further research.
The need to rebuild the economy and society in the wake of the COVID-19 crisis gives us a unique opportunity to re-examine, and perhaps re-invent, the way risk is shared. We will be using the second part of 2020 to look at how public policy can and should react to the Great Risk Transfer.
We’ll do that by asking:
- Is responsibility for risk currently sitting with the right parties?
- When is risk sharing preferable to risk transfer?
- What should the State’s role be?
- How can we incentivise institutions to innovate?
- How can communication and education be improved?
- Is regulation too rigid?
- Is conduct regulation impeding innovation?
To get involved in this conversation as it develops please get in touch! Email: Policy@actuaries.org.uk
At our launch event in January attendees heard from the Australian researcher Myra Hamilton, whose work engages with the Great Risk Transfer, not only from a financial services point of view but more broadly in terms of changes to our politics and society over recent decades.
Case study - Risk Individualisation in UK Life Insurance - by Arjen van der Heide
Dr Arjen van der Heide’s research explores how risk has been individualised in the UK life insurance industry over recent decades.
More about Policy and Public Affairs
The IFoA is a leading voice for the actuarial profession in the field of policy development and thought leadership.
Find out more about our work.
Filter or search events
A Trusted Profession
This free 1 hour CPD webinar is designed to meet the IFoA’s Stage 3 Professional Skills Training under the IFoA’s CPD Scheme 2019/2020 and is suitable for actuaries working in any area (i.e. it is not specifically aimed at Pensions, GI or any other technical discipline) and is interactive.
Modelling the structure and trends of cancer morbidity risk is important for pricing and reserving in related health insurance fields such as critical illness insurance and care provision. We model the dynamics of cancer incidence over time in different regions in England, using 1981-2016 ONS data. The modelling allows estimation of cancer rates at various age, year, gender and region levels, following a Bayesian setting to account for statistical uncertainty. Our analysis indicates significant regional variation in cancer incidence rates.
In this talk we will outline the steps Aviva took in pulling together our first large-scale disclosures on the exposure of our business to climate change published in March 2019; in line with the recommendations of the Taskforce on Climate-related Financial Disclosures. After touching on why insurers have such an important role in climate change, we'll cover a brief “how-to” guide for those who have not yet embarked on thinking about these topics before giving a case study of how the learnings from a TCFD disclosure exercise can be applied to investment portfolios.
The insurance industry currently underwrites customers with diabetes based on a range of factors, medical expertise and various medical studies. The work undertaken by the Diabetes Working Party would help the industry to approach this using current research findings to update and enhance how potential risk from diabetes is considered. This includes the need to understand the underwriting implications as treatments improve, and potentially to develop new products that are tailored to those with diabetes. This webinar will present our latest findings in the management of this important chronic condition which will include research in collaboration with the ARC.
This event is now fully booked. To join the wait list, please register here.
Get ready for the new CPD Scheme launching on 1 September. Join us for a discussion on what the new Scheme will look like in practice. There will be an opportunity to field questions to the IFoA Executive on how the Scheme’s requirements will affect you.
There will be a prestigious line-up of international speakers discussing the insurance and financial industry’s innovation and change in Asia. The conference will take place throughout September via an online platform. The webinars consist of plenary speaking sessions and a series of workshop sessions including Life, GI, Data Science, Sustainability, Risk Management and Investment.
This will be the perfect opportunity for you to discover,ask questions and be at the forefront of current and developing actuarial/financial topics and trends in Asia.
In this webinar we will provide an insight into enterprise-wide risk management in banking, showing similarities to the world of insurance as well as identifying differences. Just as insurance companies have to submit an ORSA, so bank’s have to submit their own equivalent, the Internal Capital Adequacy Assessment Process or ICAAP.
IFoA Webinar on Examination guidance for those candidates sitting Examinations in September, delivered by the Education Actuaries
This free 90 minute webinar is designed to support the IFoA CPD Co-ordinators, and others, involved in supporting our members to achieve their CPD requirements.
The programme will include an overview of the new CPD Scheme; specifically sharing with you key messages to support you implement and embrace the new CPD Scheme for our members within your organisation and regional community; how to arrange a reflective practice discussion; and an interactive reflective practice discussion learning exercise. In addition, delegates will gain information about accessing, and making the most of the IFoA event Toolkits which you can make use of to run your own in-house events and events for regional communities.