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The Actuary The magazine of the Institute & Faculty of Actuaries

Communicating uncertainty

Sitting on a train recently, travelling to Blackpool, I was reading the papers for the forthcoming plenary sessions at the GIRO Convention. One of the papers really set me thinking, and I would strongly urge you all to read it. Don’t be put off by the totally misleading prosaic title (‘A Maths Toolkit for Actuaries – Part 1’). Sections 1 to 5 are short, relevant to all actuaries, and above all wonderfully thought-provoking. As a taste of what it has in store, it introduced me to this delightful quotation:

‘In theory, there is no difference between theory and practice: in practice, there is.’


Actuaries are highly numerate people, but we are not generally renowned for our communication skills. In my career, I have met quite a few actuaries who are very good communicators. However, it is often the case that actuaries are better at explaining how they have arrived at a result, ie the methods and assumptions they have used, than they are at explaining the implications and consequences to their client or colleagues.

The core of actuarial work, reserving and pricing, involves assessing the present value of future liabilities. This requires us to make assumptions about the future. The future is inherently uncertain. Communicating that uncertainty to others, whether to our clients or our employers, to journalists or to the general public, is a major challenge for actuaries.

To meet that challenge , there are a number of difficulties we have to overcome. First, in much of our work we are required to produce a single result, for regulatory, accounting, or practical purposes. This single result creates an aura of certainty. Non-actuaries can believe that the single result we have given them is, in some sense, the ‘right answer’ to a question they have asked. This explains why they find it difficult to understand that two actuaries, faced with very similar circumstances, can come up with different results. Surely, they think, one actuary must be ‘right’ and the other must be ‘wrong’.

This way of thinking also helps to explain why actuaries are accused of having made a mistake when the actual outcome differs from their earlier advice. Successive published projections of future mortality tables by the profession have indicated longer and longer life expectancy. As actuaries, we argue that the emergence of new data has enabled us to update our previous estimates. But the media frequently criticise the actuarial profession for ‘getting it wrong’ by consistently underestimating life expectancy. We sometimes see the blunt criticism that, as the latest result is different from the previous one, the earlier result must have been ‘wrong’.

The answer to the challenge of communicating uncertainty is to show ranges of possible outcomes. The ‘single result’ can then be seen as one out of a large number of possible answers, every one of which might turn out to be the right one. This approach does, however, require greater effort by the person for whom the work is being done to understand the underlying actuarial advice. How many times have you come across the client who says ‘I’m very busy – don’t bother me with the explanation, just tell me the result’?Another difficulty is that showing a range of possible outcomes may be unwelcome. Many people feel uncomfortable with uncertainty and crave as much certainty as possible in their lives.

The question of how best to communicate uncertainty is already being actively addressed within the UK actuarial profession in three quite different areas of our work: pension projections, mortality rates, and general insurance reserving.

On pension projections, the Finance & Investment Board (recently renamed the Finance, Investment & Risk Management Board) prepared a paper for the Financial Services Authority (FSA) that discussed alternative ways of presenting projections of possible outcomes of long-term savings products for consumers. The emphasis was on helping consumers to appreciate the uncertainty of the outcomes. We were also able to send the FSA, which is conducting a review of the rules on projections, a copy of the final report on research which the Social Policy Board had commissioned from Warwick University on consumer understanding of risk.


Adair Turner, chairman of the Pensions Commission, has highlighted in a number of his speeches the issue of the uncertainty around projections of future longevity. The Continuous Mortality Investigation (CMI) has been engaged in detailed consultations with academics and actuaries into stochastic methodologies for projecting longevity, to meet the aim of highlighting the uncertainty surrounding projections. The CMI has published a series of working papers which chronicle the development of its thinking in the light of the input from the consultation process.


In the third field of general insurance, a major project on reserving is under way, (called GRIT for short). This is an area of actuarial work where the necessity for the ‘single result’ and the inevitable disappointment when subsequent outcomes differ from the previous advice are common features. Not surprisingly, a key component of the project is the issue of communicating uncertainty. The draft consultation paper published by the project taskforce contains a chapter (chapter six) which discusses the distinction between parameter uncertainty and stochastic uncertainty. It contains a number of examples of actuaries’ current practice in communicating uncertainty when reporting on reserves and sets out draft proposals for improved communication.


Communicating uncertainty is part of a wider requirement for better communication to reduce the ‘understanding gap’ between actuaries and users of actuarial advice, which Sir Derek Morris considered to be so important. It is being tackled from various angles and I hope we can pull the strands together to help the Board for Actuarial Standards form a coherent communication standard, in order to meet a key recommendation in the Morris Review.