You matter more than you think: The role of actuaries in the digital age

You matter more than you think: The role of actuaries in the digital age

24 February, 2019    

Traditionally, actuaries find themselves poring over mortality tables and calculating complicated risks with limited data, particularly in emerging markets. With the advent of the fourth industrial revolution, this is changing.

The world seems to be revolving around data. Data is making our lives more convenient. We have fridges that order our groceries and GPS maps on our phones. Better data helps to make previously invisible risks visible. And when they are visible, they become manageable. Managing risk has never been more important.

The impact of the recent trade war between the US and China on global markets shows how vulnerable value chains are to disruption in an increasingly globalised and risky world. Further, the increasing occurrence of natural disasters is showing how vulnerable our cities and ports are. In 2015, according to the UNDP, the number of natural catastrophes in a year surpassed 1,000 for the first time, with an estimated loss of over USD90 billion, out of which only 30% was insured.

Digital technology and data provide opportunities for better risk management solutions. For example, providers are adding remote sensors to monitor dam levels and car accidents or using satellite data to better assess the impact of natural disasters. Our research shows that there are more than 200 technology-driven initiatives like these that are addressing key risk management needs in Africa. We see data and technology being harnessed to tackle at least three front-of-mind societal issues:

The risk of climate change

Floods affect more people globally than any other type of natural hazard. They cause some of the largest economic, social and humanitarian losses. There is a growing gap between the total economic losses from natural hazards and the share that is insured. This highlights that, while insurance has a role to play in managing climate change risks, better risk management has an even larger role to play. Many insurers are already taking on a broader risk management role beyond risk valuation, such as Munich Re’s disaster prevention projects and Zurich’s Flood Resilience Alliance.

At the other end of the scale is drought. This time last year, Cape Town was facing certain drought, staring down the barrel of Day Zero. We saw data leading the charge in the city’s response. The Government used sensors in pipelines and dams in conjunction with historical rainfall data to ration water and fix leakages. Farmers increasingly utilised satellite and drone imagery to detect plant stress in specific field blocks, thereby reducing the need to water excessively. These initiatives, coupled with an effective communications campaign, helped to manage the risk of drought and mitigate Day Zero.

As data is more readily available, risks such as drought or floods can be better managed rather than reacted to. With better data on water infrastructure, pre-emptive maintenance on the components that are most likely to fail can help to minimise losses. Understanding the risks of water shortages can also help to advocate for building dams before the taps run dry. In short, the range of new and better data provides the opportunity to better understand and manage risks in order to decrease losses from natural disasters.

The risks stemming from migration and urbanisation

The majority of the world’s inhabitants are now urban. While Africa’s population is still largely rural, most Africans are expected to be urban by 2035 – an additional 438 million urban dwellers. This drastic rise will increase urban risks, including congestion and accidents. More concentrated populations also mean higher health risks and a higher impact for disaster risks.

According to a 2018 report from the McKinsey Global Institute, cities are increasing the use of digital technology to manage these new risks and make cities more liveable. For example, the utilisation of the Internet of Things (IoT) in cars facilitates better driving and better-linked transport systems. Sensors that automatically detect gunshots provide data that can help to manage crime and deploy security effectively. As data turns urban cities into smart cities, insurers are engaging on how to utilise the range of data that arises in conjunction with this.

Cities will need to be smart about how this is managed. Recent scandals, like Cambridge Analytica, have created public backlash against data sharing. Cities and insurers will need to ensure that consumers benefit from the sharing and that data protection and privacy-related risks be considered.

Digitised value chain risks

As the use of data increases, value chains are adapting and becoming increasingly interdependent and global. Large online platforms (such as Amazon in the US, Alibaba in China, Jumia in Western Africa and Takealot in South Africa) are dominating the e-commerce space. Many smaller platforms are also taking off. In a recent stock-take of digital platforms in Africa, we identified 283 online platforms in eight African countries, including e-hailing platforms similar to Uber, e-commerce platforms and various other service platforms. These platforms link providers and consumers from different geographic locations. This increases the risk exposure from a data perspective but also provides an opportunity to leverage the platform for providing insurance cover linked to the underlying economic activities.

The use of platforms is increasingly formalising traditionally informal activities. As these activities are now recorded, their risks can also be managed better. For example, the informal nature of domestic work in South Africa has traditionally limited the ability of domestic workers to access financial services such as insurance. With the formalisation of this work through platforms like SweepSouth, these workers can now be covered via the platform. Insurance also helps to manage risks within digitised value chains. For example, Uber requires insurance for their drivers, while digital platforms such as Takealot and Jumia have return insurance.

Building a more resilient society

In short, better-managed risks can improve social and development outcomes, and risk management is actuaries’ bread and butter. So, while the traditional actuaries were data constrained and worked primarily with mortality tables, the new reality is a wide range of data to inform risk assessments. Actuaries are instrumental in facilitating risk management to build resilience to help solve significant societal problems.

The call to action for you as an actuary, then, is to expand your horizons. You matter more than you think.


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