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The Actuary The magazine of the Institute & Faculty of Actuaries

In the long run


John Taylor
John Taylor

The recent stalling of longevity improvements in many countries has made front page news, often calling into question the state of a nation’s economy and the virtues – or lack thereof – of its government policies. It is too early to tell whether there is a single driver causing this slowdown, and indeed whether this is likely to be a longer-term trend.

The IFoA’s Actuarial Research Centre has commissioned a timely study on the drivers of morbidity and mortality, and early findings indicate a divergence of experience in different socio-economic groups. This has implications for public policy as governments consider why those in lower socio-economic groups have experienced a more significant slowdown in life expectancy improvements than those in higher socio-economic groups. The IFoA’s project is analysing data to understand what the drivers might be – for example the provision of health and social care, or the prevalence of lifestyle factors such as obesity and smoking. 

This phenomenon also affects core actuarial work, as some life insurers release reserves held for annuity books, and pension providers revisit pricing on products. However, longevity changes are not just affecting these areas; they are also starting to become more relevant in general insurance. The IFoA will be commissioning a research project to provide insight on mortality, and future improvements in mortality, of people in receipt of periodical payment orders (PPOs). This will provide insight for insurers holding large PPO liabilities on their balance sheets, as well as regulators and other stakeholders, such as the NHS and legal professionals.

Another example that demonstrates the wider relevance of actuarial insight on this issue is the research being done by the IFoA’s Diabetes Working Party. It has been collaborating with medical experts to establish whether new diabetes drugs are having an impact on longevity. This research will provide insight on the potential for increasing insurance access for people with diabetes.

Looking into the near future, the possibilities become more intriguing. Yuval Noah Harari’s book Homo Deus speculates that the wealthy will be able to take advantage of various technologies (gene-editing, organ replacement, robotics) to extend their relative life expectancy further still.

The trends and factors affecting life expectancy emphasise how uncertain lifespan is for any one individual. And with the pensions framework increasingly placing responsibility for managing longevity risk with individuals, it is incumbent on actuaries to keep on top of these advances in knowledge. As individual practitioners, we need to ensure the recipients of our advice understand our long-term assumptions and the potential variability. As a profession, we must share our knowledge and speak up in the public interest where we see demographic trends that are indicative of socio-economic inequality, or changes in government policy that could leave individuals at risk of running out of money in later life because of the impossibility of correctly predicting a lifespan.

John Taylor is the president of the Institute and Faculty of Actuaries

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