The Actuary magazine - March 2022

MARCH 2022 theactuary.com

The magazine of the Institute and Faculty of Actuaries

INTERVIEW Sudaman Thoppan Mohanchandralal on building a data culture

LIFE Examing the effect of migration on mortality

ENVIRONMENT How actuaries can help to minimise climate injustice

MODELLING Do you know what’s driving your climate change model?

CYBER ARMAGEDDØN

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Contents March 2022

38 Technology: Whip smart What are smart contracts, and how do they work? Adeep Jain explains

16 Business skills: The human touch Human-centred design can be used to improve insurance outcomes, say Queenie Chow, Lisa Morgan and Barbara Chesire-Chabbaga

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Up Front

20 Data science: No time like the present The Machine Learning in Reserving Working Party on integrating machine learning into GI reserving

40 General insurance: Game plan Charl Cronje on the importance of good strategy in facing the future 42 World view: Lebanon Ibrahim Muhanna on the profession’s development in the Middle East in the Middle East

At The Back

4 Editorial Ruolin Wang reflects on the evolving role of the actuary

22 Data science: All clear Shapley values can be used to boost the explainability of AI models, say Karol Gawlowski, Christian Richard and Dylan Liew

5 President’s comment The IFoA has a responsibility as a ‘learning society’, says Louise Pryor

26 Life: Changing states Dov Raphael looks at migration’s effect on mortality

5 CEO’s comment Stephen Mann on meeting members’ needs and boosting engagement

28 Environment: Natural justice The eco-crisis brings a host of risks relating to fairness, says Aled Jones

46 Forging ahead Daniela Dinis Pateiro on doing what she loves

6 IFoA news The latest IFoA news and events

30 Modelling: Under the bonnet Russ Bowdrey and János Hidi examine different types of climate model

Web Exclusive

Features 13 Interview: Sudaman Thoppan Mohanchandralal How to build a data culture within an organisation

33 General insurance: Held to ransom Organisations must get a grip on cybercrime, warn Simon Cartagena, Visesh Gosrani and Justyna Pikinska 36 General insurance: Take the lead Ed Plowman heralds the rise of underwriting portfolio management

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43 Student Finance has a role to play in tackling climate change, says Vrishti Goel 44 People/society news The latest news, updates and events 45 Puzzles

On the road Employer covenants in pension scheme modelling bit.ly/ OnRoad_PSM

43 Additional content including daily news can be found at www.theactuary.com Weekly newsletter: for all the latest actuarial news, features and opinion direct to your inbox, sign up at bit.ly/1MN3bXK MARCH 2022 | THE ACTUARY | 3

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PUBLISHER Redactive Publishing Ltd Level 5, 78 Chamber Street, London, E1 8BL +44 (0)20 7880 6200 PUBLISHING DIRECTOR Anthony Moran MANAGING EDITOR Sharon Maguire +44 (0)20 7880 6246 sharon.maguire@redactive.co.uk SUB-EDITOR Kate Bennett NEWS REPORTER Christopher Seekings +44 (0)20 7324 2743 christopher.seekings @redactive.co.uk D I S P L AY S A L E S theactuary-sales@redactive.co.uk +44 (0)20 7324 2753 RECRUITMENT SALES theactuaryjobs@redactive.co.uk +44 (0)20 7880 6234 ART EDITOR Sarah Auld PICTURE EDITOR Akin Falope SENIOR PRODUCTION EXECUTIVE Rachel Young +44 (0)20 7880 6209 rachel.young@redactive.co.uk

EDITOR Ruolin Wang editor@theactuary.com F E AT U R E S E D I T O R S Travis Elsum: Environment and sustainability Blessing Mbukude: Life Fiona Neylon: General insurance Yiannis Parizas: General insurance and data science Rajeshwarie VS: General insurance PEOPLE/SOCIETY NEWS EDITOR social@theactuary.com Sharon Maguire sharon.maguire@redactive.co.uk STUDENT EDITOR Adeetya Tantia student@theactuary.com IFOA EDITOR Kate Pearce +44 (0)207 632 2118 kate.pearce@actuaries.org.uk EDITORIAL ADVISORY PANEL Peter Tompkins (chairman), Chika Aghadiuno, Nico Aspinall, Naomi Burger, Matthew Edwards, Jessica Elkin, Martin Lunnon, Richard Purcell, Sonal Shah, Nick Silver INTERNET The Actuary: www.theactuary.com Institute and Faculty of Actuaries: www.actuaries.org.uk

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E: membership@actuaries.org.uk Delivery queries: contact Rachel Young E: rachel.young@redactive.co.uk Published by the Institute and Faculty of Actuaries (IFoA) The editor and the IFoA are not responsible for the opinions put forward in The Actuary. No part of this publication may be reproduced, stored or transmitted in any form, or by any means, without prior written permission of the copyright owners.

While every effort is made to ensure the accuracy of the content, the publisher and its contributors accept no responsibility for any material contained herein. © Institute and Faculty of Actuaries, March 2022 All rights reserved ISSN 0960-457X

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A broader remit What is an actuary?

Not only is this the most common reaction from new acquaintances when I explain what I do (with “An actress?!” a distant second), it is also a question that we, as a profession, have been asking ourselves.

I often respond with a one-sentence definition of ‘reserving’ or ‘pricing’, but authors in this month’s issue of The Actuary argue that this is no longer a good answer. Far from being just number crunchers, we can bring the actuarial control cycle to life and play an integral part in the product design process (p16). At company level, we have the skills, and now the opportunity, to contribute strategically – from underwriting portfolio optimisation (p36) to managing wider business priorities (p40). At a societal level, we can also take our understanding of fairness from traditional fields such as pensions and apply them to the emerging issues of environmental justice (p28).

Our profession is evolving, driven not least by changes in data and technology. In this month’s cover article, we learn how actuaries can rise to the challenge of cybercrime (p33).

When it comes to data, Sudaman Thoppan Mohanchandralal, our interviewee, says that change is already here – it’s up to us to adapt to it (p13).

I hope you enjoy this issue.

RUOLIN WANG EDITOR editor@theactuary.com

www.theactuary.com

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LOUISE PRYOR

STEPHEN MANN

Lessons on learning

Measuring what is valued

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he IFoA is a member organisation, so it’s important that we find out what our membership wants from us – which is why we recently surveyed all members. Many thanks to everyone who participated. The feedback that you have given us will help to shape what the IFoA does for its members, for the industries in which they work, and for wider society.

As I said in my presidential address, I believe it is important that the IFoA is a ‘learning society’: we must learn as an organisation if we are to survive, and must support our members’ learning if they are to be successful. It was heartening to find out from the survey that what our membership most values is the delivery of the actuarial education and lifelong learning, keeping pace with your businesses’ and organisations’ needs. Judging by the proportion of employers that pay the IFoA membership fees for our members, this learning activity is valued by them, too, which is really encouraging.

And there’s a lot going on in the learning area. The IFoA Learning Change Programme is considering new pathways to Fellowship (following on from the introduction of the banking pathway), as well as recommendations for a new online delivery platform for our exams, which will enable us to implement objective-based assessment. It is also carrying out ongoing horizon-scanning, which is going a long way to ensure the IFoA achieves being a learning society. Finally, I’m thrilled that the Climate Risk and Sustainability course is starting its first session this month.

The member survey is one of many ways in which the IFoA can learn about how best it can be the voice of our LOUISE PRYOR members and support them is the president of throughout their careers – not least by the Institute and providing the learning opportunities Faculty of Actuaries that you value. www.theactuary.com

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here is always a lot going on, and we must not lose sight of the importance of having IFoA members as our advocates. We set ourselves a target to have a positive net engagement score (NES) in our member survey at the end of 2022. The feedback from 2021 is being analysed as I write, but we have made good progress year-on-year. I am hopeful that we have the momentum and initiatives to get us there in 2022. The mean average feedback is good, but NES is a measure of advocacy, and we would like more of our members to have this deeply felt sentiment.

What has worked so far is making sure your needs drive what we do. We’ve got a better handle on what these needs are, and where they are common across our membership or concentrated in cohorts or groups. I can see the clear result of doing things that we know are important to members – not least as the survey results explicitly acknowledge what has been done.

In the latest survey, you told us that the most valuable improvements of the past year include the move to free online events, and our rethink of the continuing professional development scheme, making it less about process and more about what you want to learn. The Thought Leadership efforts landed well, as did several practical operational improvements, such as giving students exam result breakdowns automatically.

One insight is the importance many of you place on the IFoA being the voice of the profession. I am fortunate to see the breadth of activity in this space and the impact it has. We will work hard to share more widely, support you more and help you feel the value of community.

Meeting members’ needs is a moving target of sorts, as needs continue to change. One test of advocacy is whether members feel supported, whatever the future holds, STEPHEN MANN and we have a lot of forward-looking is the chief executive activities that are designed to do just of the Institute and that. It’s an exciting time ahead, but with Faculty of Actuaries a clear purpose in mind.

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Upfront News INCLUSION

IFoA launches its Diversity, Equity and Inclusion Strategy We were proud to launch our Diversity, Equity and Inclusion (DEI) Strategy (bit.ly/IFoA_DEI) in January. The IFoA and its members have long had a deep, abiding belief in DEI, rooted in our commitment to act in the public interest and for the good of society and to stay true to our purpose to ‘champion and embody the benefits of a globally diverse and inclusive profession’.

Putting DEI at the heart of our organisation isn’t just the moral thing to do – employers also gain from a greater array of talent and a broader perspective on the challenges that their organisations face. And, of course, individuals gain through being able to fulfil their potential; this benefits our profession as we are able to attract and retain talented people from all backgrounds.

During the past year, we have spent time developing our DEI strategy with members and employees who are passionate about seeing improvements and better outcomes for our members,

PENSIONS

Spotlight on volunteering

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C O N S U LT A T I O N O U T C O M E

A new approach to Practising Certificates

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Would you like to be part of the Pensions Research Sub-committee that supports the Pensions Board, helping the IFoA to be at the forefront of anticipating issues and responding to proposed changes?

The sub-committee is currently looking for a deputy chair and members. As part of this subcommittee, you’ll get the chance to instigate and support high-quality member-led research, as well as identifying emerging issues and horizon scanning for ‘hot topics’ of relevance to the practice area.

The deputy chair will act as chair in the chair’s absence, occasionally deputising at short notice. This person will also help ensure that the sub-committee works collaboratively and in partnership with the IFoA Executive staff, and provide feedback to the Pensions Board on behalf of the chair as required.

Take a look at the full task and person specifications to find out more about these roles – find them at bit.ly/PRSmember and bit.ly/PRSd-chair. Location is not a barrier, so if you’re interested, we’d love to hear from you.

volunteers and employees, and for society at large. Our strategy has three clear principles and commitments: We will set ourselves and our members bold and high standards in terms of how we will act as a professional membership body and employer.

Where we can influence others, we will encourage them to set bold and high standards, and take immediate action if

The IFoA recently consulted on proposed changes to the Practising Certificates Scheme to make it simpler, fairer, more proportionate and more effective.

The new scheme has now been published, along with a summary of the consultation outcome, at bit.ly/PracCert. The key changes proposed include a switch to a competency-based criteria and more focus on initial applications, with a lighter-touch approach to renewals.

Responses to the consultation were positive and indicated strong support for change, with 89% of the 104 respondents either agreeing or strongly agreeing that the

proposed changes were an overall improvement to the scheme.

Draft Competency Frameworks have also been published. The new Practising Certificates handbook, setting out the detailed processes and procedures, will be published in the spring, along with the new application forms and confirmation of the dates and transitional arrangements for implementation of the new scheme.

In addition, more details on the changes being made to the UK Practice Modules, which are one of the requirements for a Practising Certificate, have been published at bit.ly/PracMod. www.theactuary.com

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Upfront News I F O A F O U N D AT I O N they see anything that undermines them.

Where we have a voice, we will make that voice heard, actively seeking to collaborate with others and use our influence to achieve a multiplier effect.

For our strategy to be as effective as possible we know that we need to embed it across all aspects of the IFoA. That’s why it cuts across all of our work. As you can read in the strategy, we have ambitious and far-reaching plans for DEI, from how we embed it into entry to the profession, to ensuring that our leadership and culture embraces it.

We hope that you will come with us on this journey. As we also celebrate International Women’s Day this month, former president Marjorie Ngwenya’s words seem particularly apposite: “DEI initiatives may sound like the responsibility of an organisation; however, in order for them to be effective, they require buy-in.

Each of us carries a responsibility to create a diverse, equitable and inclusive environment – in our workplaces or elsewhere.”

Seeking strategic partners to join our mission and deliver impact The IFoA Foundation is accelerating towards an ambitious set of goals, creating the framework for our three-year plan (3YP), which will take us up to June 2024.

Key to the delivery of the 3YP is the development of ongoing relationships with organisations that share our vision and values. With tailored, long-term and symbiotic partnerships, reflecting each organisation’s mission and purpose, we hope to deepen our impact and promote the Foundation’s longer-term sustainability on multiple levels.

We are enormously grateful to Barnett Waddingham, LCP, GenRe, Hymans Robertson and Milliman for their early commitment as Founding Partners.

Last year, the Foundation welcomed representatives onto an Equity, Diversity and Inclusion Steering Group, with engagement from other organisations such as EY, PwC and the IFoA Diversity Action Group. Milliman also linked with our partner, the Actuarial Academy of East Africa, to mentor young actuaries in East Africa. Andrew Vaughan, senior partner at Barnett Waddingham, said: “Partnering with the IFoA Foundation allows us to do the right thing – not only for our people and clients, but also for the future of the actuarial profession.”

After a year of launches and responding to opportunities, as well as expanding our networks, we are now focused on our 3YP. The plan sets out seven goals and a strategic, proactive approach to consolidating, optimising and evaluating activities, with an income model that aims for a sustainable future. We will roll out scholarship programmes, continue projects with schools, introduce mentoring support, launch new prizes and awards globally, and expand education

“The aims of the IFoA Foundation are a great match with the work we support through our own Foundation, helping to improve the lives of young people and communities facing hardship or disadvantage” SARAH GILMOUR, MANAGER CORPORATE SOCIAL RESPONSIBILITY, HYMANS ROBERTSON

‘hardship’ grants to offer more sustained support. Our partners will be essential to the delivery of these activities.

Working with key stakeholders, the Foundation will identify and engage up to 10 partners during the next 12 months. An annual contribution of more than £5,000 will be requested, with skill sharing and pro bono support to help sustain operational capacity (HR, IT, legal and so on). Partners will have the opportunity to shape the grant programme and deepen its charitable impact, for example with mentoring support and strategic input, and to positively impact and influence the actuarial profession. They will link with other partners and stakeholders, including trustees and senior IFoA representatives, and be a part of exciting projects and initiatives, working with beneficiaries in the UK and globally.

If you would like to learn more about our 3YP or our plans for partnership working, please contact Belinda Dee (general manager) via gmfoundation@actuaries.org.uk.

For the latest news, please find us on LinkedIn at bit.ly/IFoAFound_Linked

Feedback on the details of the new scheme can be given at bit.ly/PracCertFB Comments should be received no later than 21 March to make sure we are able to take them into account before publishing the final details. www.theactuary.com

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Upfront News

A DJ U D I C AT I O N PA N E LS

Mr Jan Ignacy Iwanik (Resigned) On 15-16 November 2021, the Adjudication Panel considered an allegation of misconduct against Mr Iwanik (the respondent).

It was alleged that during his attendance at a webinar in April 2021, the respondent posed a question using the online question and answer function that was inappropriate and/or offensive, in that he asked: “How exactly will promoting the culture of sodomy help the actuarial profession or its societal role?”

The panel upheld this allegation. It held that the respondent’s actions were in breach of the Integrity principle of the Actuaries’ Code (version 3.0). Such actions could cause offence and demonstrated a lack of respect and courtesy towards the webinar panel members and speakers, and others hosting the webinar.

The panel determined that these allegations disclosed a prima facie case of misconduct. In considering sanction, the panel considered all

relevant information and was satisfied that the appropriate and proportionate sanction in this case was a reprimand and a fine of £2,000.

Find a full copy of the determination at bit.ly/IFoADeterminations

Ann Rosemary Kennell AIA On 2-3 December 2021, the Adjudication Panel considered an allegation of misconduct against Mrs Kennell (the respondent). The allegations relate to the respondent’s role as a director of the trustee of an occupational pension scheme in the period 2014/2015 to March 2019.

The panel found evidence that the respondent failed to take all reasonable steps to comply with legal and/or statutory requirements, in that she: did not take all necessary steps to secure compliance with the requirement to obtain audited accounts for the years ending 5 April 2014, 2015, 2016 and/or 2017, as required by regulation 2(1) of the Occupational Pension Schemes (Requirement

to Obtain Audited accounts and a Statement from the Auditor) Regulations 1996; did not provide members of the scheme with statutory money purchase illustrations for the scheme for the years 2015 and/or 2016, as required by regulation 17 of the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013; and did not report these breaches to the Pensions Regulator as soon as reasonably practicable, as required by section 70 of the Pensions Act 2004.

The panel upheld that the respondent’s actions were a breach of the principles of Competence and Care, and Compliance, in the Actuaries’ Code version 2.0, effective 1 August 2013, and determined that these allegations disclosed a prima facie case of misconduct.

In considering sanction the panel considered all relevant information and was satisfied that the appropriate and proportionate sanction in this case was a reprimand and a fine of £5,000.

Find a full copy of the determination at bit.ly/IFoADeterminations

Save the date for these live conferences in 2022: The inaugural IFoA Conference 22–23 June 2022 – etc.venues, 133 Houndsditch, London

Giro Conference 2022 21–23 November – Liverpool Convention Centre

Life Conference 2022 23–25 November – Liverpool Convention Centre

For more information, keep an eye on our website: www.actuaries.org.uk/learn-develop/attend-event If you are interested in sponsorship or exhibiting at any of these conferences, please contact Hannah Watson: hannah.watson@actuaries.org.uk

8 | THE ACTUARY | MARCH 2022

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www.theactuary.com

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The magazine of the Institute and Faculty of Actuaries

FEATURES LIST 2022 PLEASE NOTE THE THEMES FOR EACH ISSUE ARE NOT EXCLUSIVE. The schedule is subject to occasional revisions.

Please check with the features team prior to contributor deadlines for further details. Contact: features@theactuary.com

ISSUE

DEADLINES

SUBJECT THEMES

May 2022

Published: Contributor deadline: Ad booking deadline:

05 May 2022 14 March 2022 12 April 2022

■ Pensions/Investment/Finance ■ Life insurance ■ Environment/Sustainability

June 2022

Published: Contributor deadline: Ad booking deadline:

01 June 2022 11 April 2022 12 May 2022

■ EDUCATION SPECIAL ■ Careers/CPD/Upskilling/Jobs ■ General insurance

July 2022

Published: Contributor deadline: Ad booking deadline:

07 July 2022 09 May 2022 17 June 2022

■ Health and care ■ Life insurance ■ Environment/Sustainability

August 2022

Published: Contributor deadline: Ad booking deadline:

04 August 2022 13 June 2022 15 July 2022

■ RISK SPECIAL ■ ESG/Business/CSR ■ Finance/Investment/Economics

September 2022

Published: Contributor deadline: Ad booking deadline:

01 September 2022 11 July 2022 11 August 2022

■ General Insurance/Reinsurance ■ Pensions/Investment ■ Regulation/Solvency II/IFRS 17

WRITING FOR THE ACTUARY See terms and conditions at www.theactuary.com/contribute

FURTHER INFORMATION For further information and advice please contact features@theactuary.com

APRIL 2021 theactuary.com

MARCH 2021 theactuary.com

The magazine of the Institute and Faculty of Actuaries

MORE CONTENT ONLINE Additional content can be found at www.theactuary.com

The magazine of the Institute and Faculty of Actuaries

The growing significance of lifestyle factors

NOVEMBER 2021 theactuary.com

INTERVIEW Andreas Kyprianou on working in ‘the era of mathematics’

HEALTH

HEALTH

It’s time to rethink the impact of diabetes on insurance coverage

Closing the protection gap via customer retention

PENSIONS Plotting the journey’s end for defined benefit schemes

GENERAL INSURANCE Does automation have a place in the reserving process?

RISK How are insurance firms approaching counterparty credit risk?

TECHNOLOGY A look at our new Certificate in Data Science programme

NEW FEATURES EDITORS Averting environmental collapse in a world of hyper-connectivity INTERVIEW Paul Johnson on the economics of public policy today

MODELLING The models allowing us to evaluate credit migration and default risk

INTERVIEW LIFE

Sid Malik on the PRA’s breadth of actuarial work

Is there evidence linking temperature extremes with mortality?

MAY 2021 theactuary.com

JAN/FEB 2021 theactuary.com

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The magazine of the Institute and Faculty of Actuaries

Would you like to join our editorial team as a health & care editor, pensions & investment, or sustainability editor? Successful applicants can play a key role in the ongoing development of the IFoA’s award-winningg magazine.

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100% 96%

How insurers can leverage social media sentiment

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Digital Diagnosis sis Key lessons around electronic health records ure holds for insurance, and what the future

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42% 2%

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INTERVIEW

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Christian Dominic Christ titian ttia ian on climate tackling climat atte cchange hang nnge gee collaboration through colla abor bboratio or or oonn

l to A little bird

How COVID-19 galvanised actuarial mindsets

HEALTH HEALT TTHH Investigating Investigat attting ingg the rise iss of o cancer lung canc nccce cer err in in female ma ma non-smokers non-smo moook oke keers

ENVIRONMENT ENVIR VIRO VIR IRONM IR RRON OONM ONNM NMENT ENT How insurers ers rs ca can tackle t and

INTERVIEW

MODELLING

RISK

Iain Allan on the opportunities that await actuaries in the banking world

A proposal for a less volatile alternative to the Euler rule for capital allocation

Stress testing the potential geopolitical impacts of the COVID-19 pandemic

extreme weather ecosystem loss

INTERVIEW

PENSIONS

ENVIRONMENT

Cassandra Coburn on healthy longevity and healthy diets

Are pooled annuity funds the future of retirement income?

Why actuaries should pay attention to biodiversity risk

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21/02/2022 16:08

Upfront News

I

n our previous two articles we looked at the skills and competencies that actuaries will need in the future.

As actuarial work evolves, the profession and employers will increasingly seek individuals who have both technical skills and ‘softer’ skills, such as creativity, collaborative working, critical thinking and a willingness to embrace change.

However, the onus won’t just be on individuals to continually develop such blended competencies throughout their careers; professional bodies such as the IFoA also need to respond to these changes, and show that the members they qualify are entering their profession with an appropriate combination of contemporary skills and competencies. This requires a different approach to qualification – one that assesses qualifiers against an explicit framework of competencies, thus enabling employers and other external stakeholders to immediately identify the competencies they can expect from those who hold these qualifications.

“OBAs are widely recognised among professional bodies as a comprehensive, fair and challenging way to assess qualifiers” Assessing ‘higher-order’ skills As work changes, so do professional qualifications, in terms of both their ‘knowledge content’ and the way qualifiers are assessed.

Professional bodies need to show that the members they qualify have not only the ‘knowledge content’ of their qualifications, but also the competency to analyse this content and apply it to real-world business situations – so-called ‘higher-order’ professional skills, which are now seen as key indicators of competency for a wide range of professions. The IFoA is responding to such challenges through its Learning Change Programme, initially by reviewing its Associate qualification. In doing so, the IFoA, like all professional bodies, is guided by the principle that standards must be maintained in terms of both quality and rigour.

A common assumption is that ‘higher-order’ professional skills can only be assessed using traditional ‘constructed response’ or essay-style assessment.

However, there is now evidence that other forms of assessment may not only be associated with greater objectivity and reliability, but also demonstrate better validity than some current customary measures of professional achievement.

Objective-based assessment (OBA) forms the basis of such approaches.

OBA is a well-established method for assessing both competencies and technical knowledge, and provides an exacting and rigorous way to show that candidates have achieved the level of competency that a profession, employers or other external stakeholders expect from someone holding a particular qualification. “OBA is now widely recognised among a number of prestigious professional bodies as being a comprehensive, fair and challenging way to assess their qualifiers, while still maintaining the level of ‘academic rigour’ expected of our professional bodies,” says Sarah Hutchinson, independent chair of the IFoA Board of Examiners.

The IFoA is preparing its move into this assessment space, joining other professional bodies that have recognised the important role OBA plays in their qualifications, such as the UK’s Royal College of Surgeons, Royal College of General Practitioners, and Solicitors Regulation Authority.

IMAGE: SHUTTERSTOCK / ANSWER TO QUESTION IS A.

A higher order

Some Associate qualification assessments will be changing to better demonstrate actuaries’ professional competencies

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21/02/2022 16:09