This year, a new “Systemic Risk” has been included within which the JFAR considers the potential impacts of the current pandemic on actuarial work. The report found that Systemic Risk has both health and economic impacts and poses a threat to actuarial quality as it affects the scenarios normally used in actuarial models. The JFAR will shortly consider what further work it might undertake to better understand and address the risk.
This analysis used the Actuarial Risk Identification Architecture (ARIA) methodology and identified Climate Related Risk as the top ‘hotspot’, potentially the ‘defining risk of our times’. Actuaries have an important role to play assisting others to mitigate the worst effects of climate change.
Other risks include:
Ageing Population and Affordability
The risk of failure to allow for changing costs of mortality, morbidity and family support systems due to future experience deviating from projections.
Unfair outcomes for individuals
The risk of actuaries not acting in the best interests of customers which may result in unfair
treatment of some subgroups in favour other subgroups that are financially more profitable.
Geopolitical, Legislative and Regulatory Risk
The risk that actuaries are unable to consider, or plan, for the potential for political, legislative or regulatory change at an international or national level
Technological Change and Competence In New Areas
The risk that actuaries entering new fields may not have a deep enough understanding of the statistics or that they may not adequately understand Artificial Intelligence (AI) models or other disruptive advances
Impact Of Undue Commercial Pressure
The risk that actuaries may be placed under significant pressure to adopt inappropriate assumptions or models to achieve desired commercial outcomes
Effective Communication
The risk of actuaries failing to adequately explain the risks and potential adverse outcomes to decision makers or to others impacted by the actuarial work.
Sir Jon Thompson, CEO FRC said: The current Coronavirus pandemic highlights the importance of identifying and managing risk. It will understandably introduce additional risk and uncertainty into the work of actuaries. The Risk Perspective takes a holistic view of this and other key risks to the quality of actuarial work. Actuaries, employers and users of actuarial work are encouraged to collaborate effectively to understand and mitigate the risks to high quality actuarial work and to explore opportunities in the public interest.”
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