Global pandemics and climate change pose risks to actuarial quality
News types: Codes and Standards Announcements, Guidance
Published: 11 June 2020
Today the Joint Forum on Actuarial Regulation (JFAR) has issued an updated Risk Perspective which identifies 8 ‘hotspots’ intended to raise awareness of the risks to high quality actuarial work in mitigating risks to the public interest. 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.”
Notes to editors
- The FRC’s mission is to promote transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
- The Joint Forum on Actuarial Regulation (JFAR) was established in 2013 by the Financial Reporting Council (FRC), the Institute and Faculty of Actuaries (IFoA), the Financial Conduct Authority (FCA), the Pensions Regulator (TPR) and the Prudential Regulation Authority (PRA). The JFAR is a collaboration between regulators involved in actuarial work to co-ordinate, within the context of its members’ objectives, the identification and analysis of public interest risks to which actuarial work is relevant.
Since 2014, the JFAR has published its Risk Perspective and this is the fifth such report. The report will be supplemented by online content. The Risk Perspective sets out the collective view of the regulators on risks to high quality actuarial work arising from current issues. It is intended to raise awareness of the risks and potential mitigations, seek views on the risks identified, and guide the JFAR’s future work.
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