Actuary or actor?

Behind the scenes of social protection: managing risk and uncertainty in social security.

Article | 30 March 2021
Simon Brimblecombe, Chief Technical Advisor, Strengthening Social Security Office Capacities in Policy Design with a Focus on Research and Actuarial Services project
It happened about 10 years ago at airport immigration control.

“Profession?”, asked the immigration officer.
“Actuary”, I replied.
“Er, no, actuary”.
His face fell, passing in a second from excited to intense disappointment and then complete disinterest. But apart from reinforcing my realisation that I have a strong English accent, it made me reflect on how little known we are as a profession. Public perception ranges from ‘never heard of it’, to ‘you do stuff with Excel spreadsheets’ to ‘it’s really technical stuff’. On the actor / actuary theme, ‘The Actuary’ magazine recently started collating all the representations of actuaries on screen. Actuaries were either portrayed as boring losers (the insurance guy in cult classic “Groundhog Day’’ - those of you under 30 : ask your parents ), eccentric loners (Jack Nicholson in About Mr Schmidt) or even better - a combination of the two. Not surprising then, that public perception is .. .ahem .. a little negative.

So what do actuaries do ? And why is it important to ILO work ?

Actuaries are sort of future risk managers. They project what may happen to cashflows in the future whether that’s for an insurer, a pension fund or a social security scheme and then interpret the implications. These cashflows include payment of benefits and expenses on one side and income such as contributions and return from investments on the other. But an actuary is also someone who will tell you what a number means, whether it may be correct or not or what its impact may be.

For example, when you read a press release saying that a person born today will live on average to 100 years, as actuaries we like to assess what this means and not say if it’s true or not (I certainly won’t be around to verify), but rather what assumptions need to be borne out for it to happen. So then we can judge the likelihood of it happening.

In the above example, the Canadian chief actuary assessed that to have an average life expectancy of 100 years from birth would require either increasing the maximum life span to 140 years, reducing mortality rates at each age by about 90 per cent, or eliminating all deaths prior to age 97. Not impossible of course, but you can argue that it’s highly unlikely.

For social security systems, actuarial work is important as we need to assess likely outcomes over the future. Someone entering the work force now may be still receiving a pension from a retirement scheme in 2100. An actuary will project cashflows into the future to assess adequacy of benefits and the sustainability of systems. They will also cost new schemes or the extension of existing ones.

His or her expertise comes as much from making sure we use appropriate assumptions and ensuring correct data than spending time ‘playing around with a spreadsheet’. In addition, they will undertake ‘sensitivity analysis’ – what happens if things don’t turn out as expected, for example, higher salary growth, higher unemployment or lower mortality and morbidity rates. This analysis improves the robustness of systems.

The ILO has been providing actuarial services to develop and strengthen its member states’ social security systems since the 1940s.

Just like other professions, actuaries have been impacted by the technological changes to the labour market. There is no longer any value added in actuaries just doing calculations. The expertise comes from assessing quality of data, ensuring the model is appropriate, setting assumptions and interpreting results. Today there is a strong link between actuarial valuations and policy and reform recommendations. The actuary is at the centre of this.

Therefore actuaries provide technical input, policy and financing recommendations which seek to strengthen adequacy of social security benefits, extend coverage and reinforce sustainability.

This link from actuarial work to policy is at the forefront of a pioneering project where the ILO is partnering with the Social Security Office of Thailand to build up actuarial and research capacity in country. The project is fully financed by the SSO and includes technical assistance and support, carrying out of actuarial valuations, extension of coverage work and training and knowledge transfer. The legacy of the project is that at the end of the project the SSO will have a fully functioning and autonomous actuarial and research bureau. The bigger picture is of course that this will strengthen social security in the country.

This expanded role for actuaries is also (possibly) reflected in a change in the recent portrayal of actuaries on screen. Gone are the complete losers and in comes Ethan Hawke (in the excellent ‘Boyhood’ ) or … an animated tiger in Zootopia (those over 30: ask your kids/grandchildren). As an actuary, I’ll take that.