Actuary Chris Bone provides updates on the SOA’s longevity initiative; responds to New York Times op-ed about Social Security
The science of longevity projection is rapidly changing and debate about the implications of these changes is increasingly entering the public arena. Many of you may have seen the op-ed piece in the Sunday January 5, 2013 New York Times, “Social Security: It’s Worse Than You Think” which was based on the authors’ criticism of the technical details of the methodology used to project longevity improvement by the Social Security Office of the Actuary. Leaving aside the merits (and demerits) of that piece, the fact that a robust discussion of the techniques of longevity improvement has moved from technical advice panels to the editorial pages of the New York Times is, in itself, a major development.
And, of course, the science of changing longevity – and how to best model it – greatly affects the work actuaries do. Any issue of the North American Actuarial Journal is likely to feature a paper written by actuarial academics incorporating the latest statistical techniques for longevity modeling; and the development of new capital market solutions for longevity risk affects practitioners in both the life insurance and retirement industries, hitting the headlines as some pension plans consider offering annuities to long-term retirees in place of existing pension benefits.
Actuaries’ work in measuring and managing longevity risk is key to the health of life insurance, annuities, pensions and long-term care insurance. Our professional reputation and brand is built around our specialized knowledge of mortality and our ability to model future mortality rates: to many members of the general public, perhaps to most of those who recognize the word, an actuary is “someone who can tell you what your life expectancy is”.
Recognizing the pace of changes in the science of longevity improvement and the potential opportunities and risks for the Society of Actuaries and its members, in late 2011the SOA Board of Directors agreed to address this issue as part of its strategic review. During 2012, I chaired a task force, comprised of individuals from a range of backgrounds (academic, corporate and consulting) and countries (US, Canada and UK) to help the Board identify strategic implications and suggest changes. The task force consisted primarily but not exclusively of actuaries; many had served (or were serving) on the SOA Board and were familiar with the SOA’s activities in longevity science. The task force conducted an initial SWOT analysis (strengths, weaknesses, opportunities & threats); identified and interviewed experts in a variety of sectors (academia, government, private) and areas of expertise (demographers, actuaries, financial sector); and developed suggested goals for the SOA and potential tactics to attain those goals. The Board reviewed the report and accepted the report of the task force in its December conference call.
The Board agreed to four overarching goals:
- SOA members recognize the impact of changing longevity as a key risk to be managed
- Actuaries make informed choices/ judgments about the effects of longevity and are comfortable (and competent) in discussing how those choices/ judgments change over time
- Actuaries have the skill set necessary to provide holistic solutions
- SOA members play a public leadership role in longevity impact risk management
- Actuaries are recognized by the public as experts in longevity
- Public understanding of longevity risk increases and the public recognizes actuaries for the measurement, management and mitigation of this risk
- Actuaries play a leadership role in the emerging capital markets space (US/Canada) for longevity hedges
- The SOA supports actuaries so that they can be leading experts on longevity risk management
- SOA members receive regular, up-to-date information on longevity in a fashion that is usable and understandable
- SOA members and volunteers recognize the expertise of others in longevity and use that expertise
The task force identified a broad range of suggested tactical changes in the way the SOA operates with regard to research and education in mortality and longevity, including: education for key volunteers and thought leaders (including many of the members working on experience study committees); ”full-tilt” education for both candidates and members on the changing science; focused communications in our reports to help actuaries working at all levels to understand their implications; development of new research and models that go beyond experience studies (e.g. population index models); more consistent processes and frameworks (as feasible) across mortality studies; and more aggressively pursuing partnerships with other interested organizations and members of other disciplines. The SOA provided staff support for the work of the task force and staff is now working on implementation plans.