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The Actuary The magazine of the Institute & Faculty of Actuaries

Environment remains top of actuarial concerns

How do you get an actuary really excited?

This sounds like the start of an actuary joke, but the real answer is much more interesting. Most actuaries are involved in life, pensions, investment or general insurance. More recently, some have entered the health, risk and other areas of the wider fields of our profession.

However, over the last 10 years, the single topic that has attracted most interest from members of the UK actuarial profession, as measured by responses to surveys and enquiries as to becoming involved with a Member Interest Group (MIG), is the environment or, strictly, the Resource and Environment Group (REG) and climate change in particular.

Strange as it seems now, when the group first started exactly 10 years ago, there was a great deal of controversy even within our profession as to whether climate change was actually occurring and whether it was caused by man.

In fact, the Environmental Research Group produced a press release about the effects of climate change after a particularly bad US hurricane season and some other members of our profession, who had considerable doubts as to whether the climate was indeed changing, had it withdrawn.

We have come a long way from that.

In 2001, there were just a few actuaries and non-actuaries who considered that the best way to help the theoreticians and practitioners to ascertain the financial effects of climate change and other environmental issues was to perform some research, write some articles and get people together in one room to get things moving.

As well as the active REG managing committee, which meets bi-monthly, the profession now has an official UK actuarial voice through the Resource and Environment steering committee that is responsible for our external profile and it has asked the REG committee to develop formal cross-practice roles to all areas of the profession, including education.

As well as articles, formal papers presented to such international conventions as ASTIN and the UK GIRO conference, plus full sessional meetings, the REG Committee reviews literature to ensure that we keep pace with the rapidly changing financial views of climate change, energy and resource depletion and associated areas.

The worldwide actuarial profession is getting involved with an environmental working group of the International Actuarial Association and, of course, we are keeping in close contact with that group as well.

Although we can dwell on the past, we must look to the future. It is fine to comment on environmental and resource depletion issues and about how the climate is changing, but how do we measure the financial cost of such change?

One proposal from the US actuarial profession is to set up some kind of financial index. Also, the all-important proprietary catastrophe modellers are taking climate change very seriously in their prediction of future large-loss events and especially US hurricanes, where they are factoring in the possible effects of worsening Atlantic storms.

At first sight, it may look as though actuaries have no natural bent for this. However, most firms of consulting actuaries have embarked on projects that, on the surface, are not strictly actuarial but which involve methods and techniques that would not be unfamiliar. These might include decommissioning, evaluating loyalty points, construction projects and others.

This shows that we can use our range of skills in wider fields including in issues relating to the changing environment and energy/resource depletion. One UK actuary was involved in assessing the financial value of a climatically affected coral reef in a tropical island, some have been involved in carbon trading and others have been engaged (on a commercial basis) in other environmental actuarial work.

The best way to ensure that the actuarial profession is at the forefront of such work, and is seen to be there, is to have an enthusiastic group that is willing to cooperate constructively with non-actuaries to perform the necessary work. We can do much more and so I would encourage you to get involved with this popular MIG to ensure that the next 10 years are as successful as the last.

Happy birthday REG.

More information on the Profession's Resource and Environment group can be found here.

oliver-bettisOliver Bettis is chair of the Actuarial Profession's Resource and Environment Group