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The Actuary The magazine of the Institute & Faculty of Actuaries

Sustainable development

Lawrence Jackson argues that actuaries can ‘play a significant role in the move towards sustainable development’. But is this really a role we want? I would argue that, as actuaries, our primary duty must be to stand up for a rational and scientific approach to the world. We cannot do this while we clamour for a place at the sustainable development table.

While Mr Jackson admits that sustainable development is ill-defined, he repeats the ‘sustainable development good, unsustainable development bad’ mantra. This couplet has become a new moral orthodoxy – to the extent that questioning the merits of sustainable development is now on a par with Holocaust denial. But is there any rational or scientific basis to champion sustainable development?

Consider the example he gives that burning fossil fuels constitutes unsustainable development. As he points out, the IPCC has used sophisticated modelling techniques which project an increase of between 1.4% and 5.8% over the 21st century. Interestingly, he fails to add that, as actuaries, we can understand and explain the limits and problems associated with such models. Our own experiences of stochastic modelling techniques demonstrate that the outcomes from our relatively simple models can vary enormously according to the assumptions and relationships used. In predicting future temperatures, the general circulation models used are far more complex. There are significant problems owing to a lack of clear understanding of the feedback factors which emphasise warming and those which dampen it. The results of the projections are therefore highly debatable. It is to his credit that Mr Jackson refers to the outcomes as projections rather than substituting the word predictions as is done in the popular press.

Mr Jackson also says that the projected temperature increase will ‘have a dramatic impact in many parts of the world’. This is true. The most dramatic impacts will be in very cold places and at higher levels. Interestingly, one possible consequence of this is that extreme weather events – often caused by large temperature differences, may become less frequent. Other potential good results from global warming are a reduction in deaths caused by cold weather (currently running at 60–80,000 per annum in the UK), higher crop yields (resulting from more CO2 in the atmosphere) and the end of the Sahara desert (as a result of more precipitation). This is not to say that global warming is an unmitigated good. There will be other effects – the potential for more malaria (although this could be easily controlled), a rise in summer deaths, and the flooding of some low-lying land masses. But we can only reach a scientific conclusion about the impacts of global warming by considering all these effects and weighing them up against each other. In these comparisons, due account must be taken of the opportunity cost caused by restricting CO2 emissions now. To just repeat the moral stance that a projected increase in temperature is bad is not rational.

Lest anyone accuse me of considering only the interests of the developed world, consider one of these issues – the flooding of low-lying land. An underdeveloped country in the developing world can only become productive enough to build flood defences if it develops now using fossil fuels. How can we call this unsustainable development? This issue applies across the board. Our best chance of dealing with any unwelcome effects of global warming come from developing our productive capability now.

Finally, I must make some specific comments about the role of the insurance industry. Both individual insurance companies and industry bodies have been prominent in making apocalyptic comments about the effect of rising temperature on natural catastrophes and the resulting claims experience. These comments have a significant impact on the public debate. The claims seem to rely either on intuition or internal research. I would urge actuaries within these organisation to argue for a more rigorous approach.

Science is often utterly counter-intuitive, so basing claims on ‘common sense’ is unjustified. If proper research has been undertaken internally, then it should be made publicly available so that it can be discussed, analysed, and subjected to wider scrutiny by the scientific community.

In many of our internal debates about the role actuaries can play in wider fields, we argue that our understanding of statistics and economics and our ability to apply sophisticated modelling techniques qualify us to expand into non-traditional areas. If we really believe these claims, we must use these skills to interrogate popular debates critically rather than simply caving in to the moral consensus.