Looking Ahead to Actuarial Trends in 2025

The actuarial landscape is constantly evolving, and 2024 is shaping up to be a pivotal year with significant changes on the horizon for 2025. From emerging regulatory frameworks to the growing influence of climate change, actuaries navigate an increasingly complex environment to assess risk effectively and provide strategic guidance. By understanding developments around the evolving actuarial trends outlined in this article, I believe actuaries can position themselves and their organizations for success in the year ahead.

Accelerated Underwriting

Accelerated underwriting is a process that aims to provide a faster and more efficient way of evaluating and approving insurance applications, particularly for life insurance policies. It generally waives traditional underwriting requirements (e.g., fluids) for a subset of applicants who meet favorable risk requirements, such as a young individual looking to insure a small face amount in an otherwise underwritten life insurance process.

It often eliminates the need for extensive medical examinations and lengthy application forms. Instead, it relies on data-driven algorithms and third-party data sources to assess the applicant’s risk profile. By streamlining the underwriting process, accelerated underwriting can reduce the time it takes to approve an insurance application—often from several weeks to just a few days or even hours, from what I’ve witnessed. The faster turnaround time and reduced paperwork provide a more convenient and satisfactory experience for insurance applicants, making the process more accessible, appealing and an actuarial trend to watch in 2025.

Additionally, given that accelerated underwriting uses data-driven models to access an applicant’s risk profile, it could lead to more accurate and personalized pricing of insurance premiums.

The implementation of accelerated underwriting has raised regulatory concerns, particularly around issues of fairness, transparency and the potential for bias in the decision-making process. Accelerated underwriting in Canada is subject to regulatory oversight by provincial and territorial insurance regulators. Insurers must comply with guidelines and regulations regarding the use of accelerated underwriting, including ensuring fairness and transparency in the process.

Regulatory Changes

Now in the second year of International Financial Reporting Standard (IFRS) 17 reporting, insurers are looking ahead to understand how the Office of the Superintendent of Financial Institutions (OFSI) will oversee its mandate to protect policyholders and navigate the implications of an industry that’s growing faster than the Canadian economy.

Other regulatory developments influencing actuarial trends for insurers, as outlined in a report from KPMG, include:

• OSFI’s guideline B-15 was released in March 2023 and requires insurance organizations to divulge climate-related risks to their stakeholders and manage these risks.
• Upcoming OFSI guidance on the way financial institutions protect themselves against foreign interference may change the way property and casualty insurance risks are underwritten.
• OSFI’s guideline E-23 on enhanced model risk management frameworks and B-10 on third-party risk management likely will be extended to federally regulated financial institutions (FRFIs), including insurers.
• The Financial Services Regulatory Authority of Ontario (FSRA) has introduced a new regulatory framework and an enhanced supervisory approach to the life and health insurance sector.
• Over the last 11 years, with industry collaboration, OSFI has been developing a Seg Fund Guarantee (SFG) capital framework that is more in line with other products, such as universal life and adjustables. Effective Jan. 1, 2025, insurance companies will be required to report capital for segregated funds under the new framework, which leverages IFRS 17 valuation models, aligns the approach with the rest of the Life Insurance Capital Adequacy Test (LICAT), calculates base solvency buffer by risk components, allows hedging and diversification credits and so on.

Adoption of InsurTech and Automation

I’ve witnessed the Canadian insurance industry embrace InsurTech and automation technologies to improve efficiency, enhance customer experience and stay competitive—an actuarial trend I expect to continue in 2025. InsurTech, which refers to the use of technology innovations in the insurance sector, has been transforming various aspects of the industry. Examples include investing in automation and digitization to streamline operations and leveraging data analytics and predictive modeling to gain insights into customer behavior, risk profiles and market trends.

Insurers are hopeful that new technologies will not only bridge the gap but introduce new efficiencies. Estimates suggest artificial intelligence (AI) could increase productivity and reduce operational costs for the insurance sector by nearly 40%.¹ In response to a recent KPMG survey, 71% of organizations plan to implement their first generative AI (GenAI) solution within the next two years. The use of the technology is expected to increase profitability by 21%.

Insurance companies also are leveraging GenAI to improve workplace efficiency. An example of this is my employer Sun Life’s Sun Life Asks GenAI chatbot, which enables employees to find quick answers and get general assistance with daily tasks. The tool performs tasks similar to those produced by externally available chatbots and can help with everything from summarization of text to organizing ideas for a presentation or analyzing the purpose or sentiment of an article. The tool generated over 400,000 queries in the first eight months of use.

Retirement

In 2021, Canada’s inflation rate was 3.4%, a 2.68% increase from 2020. In 2022, Canada’s inflation rate was 6.8%, a 3.41% increase from 2021. Then, in 2023, Canada’s inflation rate was 3.88%, around twice the usual assumption of 2%.² In the past few years, given high inflation and interest rates, Canadians have struggled to keep up. According to data from the Healthcare of Ontario Pension Plan, currently, 57% of unretired Canadians don’t feel prepared for retirement, and 22% of Canadians currently have no savings at all, according to HOOPP’s survey of 2,000 respondents.³

The role of insurance companies in the overall pension industry is significant, especially given that they often act as providers of pension plans. I believe this presents an opportunity for insurance companies to deliver innovative solutions to ensure individuals save more for retirement. Here are some examples:

• Provide retirees with a reliable source of income while maintaining flexibility and the potential for continued investment growth.
• Turn savings into income all the way through the selected maturity age.
• Allow individuals to change their maturity age and decide how often they receive payments.
• Allow clients to continue growing their savings throughout retirement.
• Provide digital coaches to encourage clients to live healthier lives and to save for the future.
• Leverage technology to make being financially responsible easier by providing more financial advice and making it easier to open a registered retirement saving plan (RRSP) and tax-free savings account (TFSA).

Concluding Thoughts

As the actuarial landscape continues to evolve, several key actuarial trends have emerged that will shape the industry in 2025. While the future holds both challenges and opportunities, I believe the actuarial profession remains well-positioned to navigate these dynamic shifts, leveraging data-driven insights and technical expertise to help guide organizations through an uncertain environment.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

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