Emerging Risks and Climate

Q&A with R. Dale Hall and Ronora Stryker April/May 2019

Managing director of Research at the Society of Actuaries (SOA), R. Dale Hall, and senior practice research actuary at the SOA, Ronora Stryker, discuss emerging risks on the global horizon. The SOA develops and sponsors a variety of research projects and studies on subject matter related to risk management.

Visit SOA.org/Research for the latest updates on new research opportunities, data requests, experience studies and completed research projects.

Can you tell us about the emerging risk survey?

Stryker: The SOA, the Canadian Institute of Actuaries (CIA) and the Casualty Actuarial Society (CAS) Joint Risk Management Section released the 12th in the annual series of emerging risk surveys. Authored by SOA member Max Rudolph, this survey tracks enterprise risk management (ERM) perspectives on emerging risks. We conducted this survey of more than 250 risk managers from North America, Europe, Asia, South America, Africa, Caribbean/Bermuda and the Middle East.

What are the top emerging risks?

Stryker: The top two emerging risks for 2018 are cyber and interconnectedness of infrastructure and climate change. This year’s survey saw a large jump in the number of responses for climate change risk. The other emerging risks rounding out the top five list are technology, a demographic shift and financial volatility.

Research Reads

Machine Learning

The SOA developed a literature analysis to better understand the different machine learning methods and how they can be used in insurance applications.

Financial Concerns in Retirement

As part of the SOA Strategic Research Program on aging and retirement, the SOA released reports on financial fragility and financial risk concerns in retirement, both of which compare different generations’ perspectives.

Health Cost Utilization

The SOA developed a summary analysis of the Health Care Cost Institute’s report on health care cost and utilization. The report illustrates employer group commercial health care costs and trends from
2013–2017.

Hall: While we expected to see geopolitical issues high on this list, both terrorism and regional instability risks moved out of the top five in this survey. We know that is due in part to the increase in natural catastrophes lately, which is why climate change is ranked higher in this survey. These findings help us understand what is front and center in the minds of risk managers in the United States, Canada and overseas.

The SOA, CIA and CAS host the 2019 ERM Symposium in early May with several sessions covering topics related to the different emerging risks, from climate change to cybersecurity. I’m glad we’re able to provide this collection of research and thought leadership in this sector to help understand and manage these risks.

Stryker: During the past half-year, we released two other climate-related research reports. A jointly released report from the SOA, CIA and CAS on flood and catastrophe models focuses on how to harness the model results into pricing and underwriting. Another report focuses on the different types of flood risk, modeling approaches, measurement strategies and pricing.

There is also the quarterly analysis of severe weather in Canada and the United States through the Actuaries Climate Index. Over the past few years, the SOA, CIA, CAS and the American Academy of Actuaries have released findings on the frequency of extreme weather and the extent of sea level change. If you haven’t already done so, check out the latest findings on the index website, as you can explore regional graphs and maps on climate trends in the regions.

Hall: As part of the SOA’s strategic research programs, we will form a committee of volunteers later this year to help identify, cultivate and distribute a series of studies on climate trends and their impact on extreme and catastrophic events. Stay tuned for further developments.

What other risk-focused studies have you released recently?

Hall: Aside from the collective weather-related research, the Joint Risk Management Section released a report examining policyholder behavior in the tail (PBITT). We developed this report to help create better estimates of PBITT and to provide guidance with policyholder assumptions in extreme scenarios. The report looks at pricing, reserving and risk management of minimum guarantees on variable annuity products.

R. Dale Hall, FSA, CERA, MAAA, CFA, is managing director of research at the Society of Actuaries.

Ronora Stryker, ASA, MAAA, is senior practice research actuary at the Society of Actuaries.