Bred largely on analysing data, insurance actuaries can exhibit the value their profession offers “precisely where the data is incomplete, when the art of actuarial science comes in,” a leading peer has said.
Rade Musulin, principal at Finity Consulting in Australia, said issues such as global warming and Covid-19 challenged his profession to “actually think their way through the problem, noting Albert Einstein correctly foretold the existence of black holes without big data or supercomputers, and famously said ‘Black holes are where God divided by zero’.”
Sometimes actuaries “prefer just to get the numbers and run models,” but Musulin told InsuranceERM they should “also ask questions [such as] what is missing from my model, what scenarios may be missing and how can I use data from one place in another place? The answer will be different in almost every case but the point is to be in a position to ask the questions.
“You do not need to throw all your numbers out [and] start with a blank sheet, but we are in a world of more complication, so we need to be asking ourselves what our models may be missing.”
Answers to today’s epochal questions, around climate change, are “not necessarily in more sophisticated models of insurance data,” he said.
For instance, as climate change raises minimum temperatures in some parts of Australia – a finding from the latest Australian Actuaries Climate Index, for which Musulin is lead collator – he said pathogens may migrate to new regions. And faced with this development, health insurance actuaries might draw on existing data from areas with mosquito-borne diseases.
The index is “trying to raise awareness of things people need to think about, like trends outside their datasets. It does not necessarily mean the risk is worse, maybe just different Musulin said.
He also encouraged actuaries confronting climate change to think ‘systemically’ – echoing themes discussed by Deloitte actuary Rick Shaw in 2023,and in papers from the International Actuarial Association –“about how, with whatever numbers you’re producing, the system you inhabit is changing. We learned this through Covid, when supply chains were disrupted. All the modelling in the world for claims costs was not going to pick that up. You had to go outside and see what was going on in the world.”
Here, Musulin quotes the wisdom of Nicholas Taleb: “Past experience is a good indicator of ‘normal’ risk – but a bad bellwether of tail risk”.