Happy Sunday! Welcome to this week’s edition of the Insights newsletter, where we break down the “so what” behind the latest actuarial news.

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🌪️ Canada’s Catastrophic Summer: Record Claims Challenge Insurers

The Rundown: Canada's insurance industry is grappling with an unprecedented number of claims after a summer marked by severe natural disasters, including major floods, a massive wildfire, and a significant hailstorm.

The Details:

• Record Number of Claims: Insurers have received 228,000 claims for home, vehicle, and business damages, marking a 406% increase compared to the 20-year average.

• Major Catastrophes: Events contributing to the surge include floods in Toronto and southern Ontario with CA$940m in losses, and a wildfire in Jasper, Alberta, with over CA$880m in damages.

• Comparative Data: The total number of claims in 2023 was 160,000, with insurers noting that annual losses from severe weather have routinely exceeded CA$2bn in recent years.

• Ongoing Challenges: The IBC highlights significant hurdles in claim processing due to skilled labor shortages and supply chain issues, exacerbated by the volume of claims.

Why It Matters: Years with big weather events are becoming more common. One of the challenges for actuaries is working out how much weight to give to this in an actuarial model. Do you assume it was a one off, or do you assume it’ll continue in future years? This is where actuarial judgement comes in and an understanding about the make up of the product alongside external factors is really important.

🤖 AI and the Future of Underwriting and Actuarial Jobs

The Rundown: Recent research by hyperexponential highlights significant anxiety among underwriters and actuaries about their future in the face of AI advancements, with over two-thirds expressing concern about being replaced by automation within the next five years.

The Details:

• High Levels of Concern: 69% of underwriters and 67% of actuaries fear AI might replace their roles, reflecting widespread uncertainty about job security in the era of digital transformation.

• Skill Gaps and Investment: Despite 91% of insurance organizations investing in AI, there's an alarming concern among professionals about lacking the necessary tech skills to adapt.

• Potential for Burnout: A substantial number of professionals worry about burnout exacerbated by the current pace of technological change and the need to upskill rapidly.

• Opportunities for Upskilling: There is an urgent need for education on AI's potential benefits, particularly in automating mundane tasks and enabling a focus on more strategic and analytical work.

Why It Matters: My view is that we won’t be replaced by AI, we’ll be replaced by an actuary using AI. Stay curious, learn the basics of these new tools and don’t be switched off to the impact they could have. The actuarial industry will have to navigate these changes carefully, ensuring that AI acts as a complement to human expertise rather than a replacement.

🌍 Actuarial Analysis: Immigration's Role in Sustaining Social Security

The Rundown: The American Academy of Actuaries has released a new issue paper detailing the influence of immigration on Social Security's financial health, highlighting the significant yet limited role immigration can play in stabilizing the program.

The Details:

• Boost to Workforce: Immigration can increase the labor force, improving the current worker-to-beneficiary ratio of 2.7, which is crucial for the sustainability of Social Security.

• Financial Impact: While immigrants' payroll taxes are projected to exceed their benefits over the next 75 years, thereby reducing the actuarial deficit, immigration alone cannot resolve all financial challenges of Social Security.

• Long-Term Projections: The paper explores various factors, including labor market effects, mortality and fertility rates among immigrants, and potential changes in migration patterns.

• Urgency for Reform: With Social Security's trust funds expected to be depleted by 2035, leading to a possible 17% cut in benefits, the analysis underscores the necessity for broader federal reforms alongside considerations of immigration's benefits.

Why It Matters: This analysis serves as a critical resource for policymakers and the public to understand the complex interactions between immigration and Social Security. Actuaries play a pivotal role in forecasting and advising on these issues, offering insights that can guide effective policy reforms.

 📈 Healthcare Costs to Rise for Third Consecutive Year

The Rundown: Mercer’s latest survey predicts a 5.8% increase in health benefit costs per employee in 2025, marking the third year of over 5% increases, primarily due to the imbalance between healthcare worker supply and service demand.

The Details:

• Continuous Growth in Costs: Health benefit costs have been consistently rising, with projections initially indicating a potential 7% increase without intervention.

• Employer Strategies: To mitigate these rises, 53% of surveyed employers plan to implement cost-cutting measures, such as increasing deductibles, which can lead to higher out-of-pocket expenses for employees.

• Economic Pressures: Smaller companies, particularly those with 50 to 499 employees, anticipate even steeper cost increases of around 9% without cost-saving actions.

• Stable Employee Contributions: Employees are expected to continue paying 21% of health insurance premiums through payroll deductions, consistent with the previous year.

Why It Matters: The ongoing rise in healthcare costs highlights the challenge for employers to balance the sustainability of health benefits with the affordability for employees, necessitating strategic adjustments in benefits design to manage the financial burden effectively. Actuaries will see these come through in the cost of claims moving forward.

🔒 Call for State Support in Cybersecurity

The Rundown: Amid escalating cyber threats, insurance experts from Zurich and Marsh McLennan urge the creation of public-private partnerships to bolster defenses against large-scale cyber incidents, comparable in threat level to terrorism and flooding.

The Details:

• Rising Costs and Threats: The global cost of cybercrime is expected to skyrocket to nearly $24 trillion by 2027, with ransomware payments hitting a record £1.1 billion in 2023.

• Insurance Market Growth: The cyber insurance market, while growing, with a gross written premium projected to more than double by 2027, faces limits in its capacity to absorb the costs of significant cyber-attacks on critical infrastructure.

• Public-Private Collaboration: The proposed public-private partnerships aim to manage losses from "uninsurable" cyber events that could lead to widespread infrastructure failures.

• Technological Transformations: The demand for state involvement is driven by the digital economy's evolution, the integration of physical and virtual processes, and advancements in technologies like generative AI.

Why It Matters: As cyber threats grow in sophistication and potential impact, aligning public resources and private expertise is crucial to enhancing national and economic security against cyber-attacks. This strategy can provide a more resilient response framework, especially for large-scale or catastrophic cyber incidents. This will impact loss costs depending on the scope of the change in coverage in cyber policies.

Quick Hits

Apollo's Actuarial Acumen Leads to Expansion: Under CEO Marc Rowan's leadership, Apollo Global Management is on track to manage $1 trillion by 2026, leveraging actuarial insights to revolutionize its business model through strategic acquisitions like Athene.

According to Pinnacle Actuarial Resources, Advanced AI and machine learning are reshaping the interaction between insurers and actuaries, fostering real-time data analysis and the creation of personalized insurance products.

Actuaries are increasingly influential in the strategic direction of the insurance industry, utilizing AI and machine learning to drive risk management and innovative decision-making, according to Fintech Global

A 29% increase in losses from cybercrime and industrial sabotage costs German businesses €267 billion, with heightened threats from organized crime and geopolitical actors, pushing companies to enhance digital defenses.

Thanks for reading! I hope you find this summary useful. If you have specific feedback or anything interesting you’d like to share, please let me know by replying to this email.