This Week’s Actuarial Insights: What You Need to Know

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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📉 Navigating Post-Pandemic Excess Mortality Trends

The Rundown: Researchers from Swiss Re Institute project continued excess mortality in the US and UK for the next decade, analyzing the lingering effects of COVID-19 and other health factors influencing Life and Health (L&H) insurance claims and policy pricing.

The Details:

• Persistent Excess Mortality: Current data suggests that excess mortality may gradually decline by 2033 to 0–3% in the US and 0–2.5% in the UK, compared to higher rates in 2023.

• Scenario Projections: Optimistic scenarios forecast a return to pre-pandemic mortality rates by 2028, while pessimistic views extend elevated mortality until 2033.

• Impact on Insurance: Ongoing elevated mortality could affect the long-term performance of life insurance portfolios and influence the pricing of new policies.

• Global Patterns: The study reveals varying excess mortality trends across countries, influenced by their COVID-19 response strategies and the effectiveness of preventive measures.

Why It Matters: This extended period of excess mortality underscores the need for L&H insurers to adapt to shifting mortality patterns and refine their risk assessment and pricing strategies accordingly.

🌍 Actuaries Spearheading Climate Risk Strategies in Insurance

The Rundown: As climate change intensifies, the insurance industry faces escalating challenges with increased financial exposure from climate-related events. Actuaries are playing a pivotal role in developing new risk models and strategies to help insurers adapt and manage these evolving risks.

The Details:

• Climate Impact: Frequent severe weather events are causing higher claims and changing the landscape of risk for insurers.

• Innovative Risk Modeling: Insurers are leveraging big data, machine learning, and climate modeling to enhance the accuracy of risk assessments and predict extreme weather impacts more effectively.

• Policy Adjustments: Insurance companies are revising policies and pricing to manage higher risks, including implementing higher premiums and incentivizing risk mitigation efforts by policyholders.

• Regulatory and Collaborative Actions: Increased regulation and public-private partnerships are crucial in developing sustainable solutions for climate risk management in the insurance sector.

Why It Matters: Actuaries are at the forefront of reshaping how insurers evaluate and respond to climate risks, ensuring the industry remains robust and prepared for the challenges posed by global climate change.

🌏 Australian Actuaries Advocate for Indigenous Data Inclusion

The Rundown: A report by the Actuaries Institute calls for significant changes in how data on First Nations people is collected and used within the insurance industry in Australia to better address the specific needs and improve outcomes for Aboriginal and Torres Strait Islander communities.

The Details:

• Data Sovereignty: The report emphasizes the concept of “Indigenous Data Sovereignty,” advocating for First Nations people to have control over data that pertains to their communities, knowledge systems, and territories.

• Cultural Relevance: Current data practices focus largely on Western metrics, which often fail to capture the full context of Indigenous lives and values. The report suggests expanding data collection to include more culturally relevant information.

• Policy Impact: Enhanced data practices are seen as crucial for achieving better life outcomes under the “Closing the Gap” National Agreement, which seeks to reduce disparities between Indigenous and non-Indigenous Australians.

• Community Involvement: The involvement of Aboriginal Community-Controlled Organisations in data collection and usage is highlighted as a way to ensure data reflects true community values and contributes to self-determination.

Why It Matters: Incorporating Indigenous perspectives into data collection not only aligns with principles of fairness and self-determination but also provides a more accurate foundation for policies and services that can lead to substantial improvements in the lives of First Nations people.

🚭 UK Poised to Implement Groundbreaking Smoking Ban

The Rundown: Health expert Nicky Draper discusses the UK's impending Tobacco and Vapes Bill, which aims to create a smoke-free generation by progressively raising the legal age for tobacco purchases, ultimately leading to a significant reduction in smoking-related illnesses.

The Details:

• Bill Overview: The Tobacco and Vapes Bill, set for full implementation by 2027, will progressively increase the legal purchasing age, with those born after January 1, 2009, never being legally allowed to buy tobacco products.

• Health Implications: The bill is expected to decrease smoking uptake among young people significantly, leading to long-term reductions in smoking-related diseases such as cancer and heart disease.

• Government Support: The bill, supported by the new Labour government, includes a complete ban on disposable vapes but allows reusable and refillable models.

• Public Health Passion: Draper’s dedication to public health is driven by her background in nursing and her experiences during the Covid pandemic, underscoring the profound impact of comprehensive health policies.

Why It Matters: This legislation represents a robust approach to mitigating smoking's public health impacts by preventing new smokers from emerging, thus aiming to significantly reduce the health burdens and economic costs associated with tobacco use in future generations. It’ll be interesting to monitor to see if similar legislature could move across to North America.

🔍 Examining Social Security Solvency and Federal Budget Impacts

The Rundown: Stephen C. Goss, Chief Actuary of the Social Security Administration, provided detailed testimony before the House Budget Committee regarding the solvency of the Social Security Trust Funds and its implications for the federal budget.

The Details:

• Trust Fund Reserves: Starting 2024, the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds have $2.8 trillion in reserves, which are projected to be depleted by June 2035. At that point, only 83% of scheduled benefits would be payable.

• Economic Adjustments: Recent economic strength has slightly improved the depletion date forecasts compared to previous reports. Changes in assumptions about labor productivity, disability rates, and fertility rates also influenced these projections.

• Federal Budget Impact: Social Security is accounted for off-budget with its own dedicated funding sources. Should Trust Fund reserves deplete, Social Security would only be able to pay out benefits from ongoing tax revenues, with no impact on the federal debt.

• Legislative Changes Needed: Goss emphasized the need for timely legislative actions to prevent reserve depletion and ensure the long-term sustainability of benefits.

Why It Matters: This testimony underscores the critical need for legislative adjustments to address the financial challenges facing Social Security, ensuring its ability to provide for future beneficiaries without contributing to the federal debt.

🌐 OECD's Global Minimum Tax: A New Challenge for Insurers

The Rundown: The OECD’s Base Erosion and Profit Shifting (BEPS) project, particularly its Pillar 2 rules, poses challenges for insurers by mandating a minimum 15% tax on multinational enterprises. This initiative aims to curtail tax avoidance and ensure profits are taxed where economic activities occur.

The Details:

• Complex Framework: Insurers face complex calculations and compliance due to the sector-specific intricacies of insurance accounting and the diverse regulatory environments they operate in.

• Global Compliance: While the rule applies globally, different countries are at various stages of implementing the necessary legislation, with some like the US facing political hurdles.

• Sector Impact: The insurance sector, already dealing with complicated tax regimes, must navigate additional compliance burdens under the new rules, potentially leading to higher operational costs and tax liabilities.

• Evolving Tax Landscapes: Countries previously offering low or zero corporate tax rates are adjusting their policies, potentially leading to increased tax burdens for businesses operating within their jurisdictions.

Why It Matters: The implementation of the OECD's global minimum tax could reshape the fiscal landscape for international insurers, compelling them to overhaul their tax strategies and possibly affecting where they choose to invest or expand. The ongoing adjustments in global tax policy will require insurers to stay agile and informed to navigate these changes effectively.

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.