Actuaries critical in helping the insurance industry manage emerging risks

Aon Benfield, the world’s premier reinsurance intermediary and capital advisor, is highlighting the critical role of actuaries in managing emerging risks for the re/insurance industry.

The profession’s role will evolve to deliver more robust Enterprise Risk Management (ERM) frameworks and will start designing potential scenarios rather than solely performing retrospective statistical analysis, according to Aon Benfield’s David Maneval.

The last decade has witnessed several large scale emerging risks such as the 9/11 terrorism attack, a global financial crisis and an eruption of the Eyjafjallajökull volcano in Iceland. Asbestos liability is a key example of the impact of claims on the insurance industry, which had not anticipated such costs at the point of underwriting and led to a number of insurer insolvencies. On the horizon, new risks are emerging in the shape of regulatory shifts, climate change, inflation, cyber risk, nanotechnologies and pandemics.

Actuaries are extremely well placed to develop response strategies using their ERM skills to apply an effective framework. To achieve this, the role of actuaries is likely to evolve in the following ways:

nDesigning prospective scenarios, rather than solely performing statistical analysis. In the absence of historical data, expert opinions need to be integrated in the design of specific scenarios; the actuarial role is becoming broader.

nAbility to interact at all levels and regularly engage and communicate across the organization.

nWorking with the Board of Directors on the complexity and management of risks.

nKeeping up to date as emerging risks change and new paradigms emerge.

nHelping with holistic response plans and dry runs to assess the plans’ effectiveness.

In addition, rating agencies and increasingly regulators are less likely to provide favourable opinions when re/insurers fail to demonstrate emerging risk management processes.

David Maneval, Head of Actuarial & ERM in Asia Pacific for Aon Benfield Analytics, said: “Managing emerging risks is an opportunity for actuaries to add significant value to the risk management function. Actuaries are critical to embedding the ERM framework and the profession is becoming increasingly experienced in correlation with demand. With risk also comes opportunities, hence the importance of being proactive in building resilience to change and being prepared for emerging risks.”