In a recent note, published in advance of the European parliamentary elections and the formation of the new European Commission, the Actuarial Association of Europe (AAE) set out key areas in which actuaries can make a significant difference in tackling regulatory, consumer protection, and economic issues. As might be expected, the AAE highlighted, as core competencies of actuaries, Solvency II, International Financial Reporting Standard (IFRS) 17, international capital standards, packaged retail and insurance-based investment products (PRIIPs) and management of demographic risks. Together with helping stakeholders to understand the impact of environmental, social, and governance (ESG) considerations on insurance and pension provision, these are areas in which actuaries have much to contribute.
Of particular interest though was the fact that the AAE also highlighted predictive analytics as an area in which actuaries can make a positive contribution. Instead of focussing on actuarial skill sets in model building, calibration and communication, though, the AAE instead focussed attention on actuaries’ codes of conduct. These codes of conduct, the AAE points out, oblige actuaries to treat data with care. In general, other practitioners in the field of data science do not have professional codes of conduct according to the AAE, leading to a lack of boundaries around the use of data. This can lead to a lack of trust amongst the general public. Inappropriate use of new technologies will produce new risks, leading to a need to regulate the use of data. Any such regulation though, the AAE argues, needs to be balanced so as not to suppress innovation.
This coincides quite nicely with the publication by the European Insurance and Occupational Pensions Authority (EIOPA) of the report ‘Big Data Analytics in Motor and Health Insurance: A Thematic Review’ on 8 May. In its report, EIOPA hints at the potential introduction of governance requirements relating to the use of certain tools and techniques used in data science, and the possible expansion of the role of the actuarial function in this regard. Specifically, though, EIOPA mentions that it plans to discuss with industry and other stakeholders ‘the issue of ethics and fairness‘ when it comes to the use of data science in insurance. This will, no doubt, help to shine a spotlight on this important issue over the coming years.
The AAE is not alone in pointing to the value of actuaries’ codes of conduct in relation to actuarial involvement in data science. In its 2018 paper, ‘Big Data and the Role of the Actuary,’ the Big Data Task Force of the American Academy of Actuaries pointed out that ‘actuaries have professional obligations to uphold the reputation of the actuarial profession and fulfil the profession’s responsibility to the public in the emerging area of Big Data.’ As the general application of data science techniques to insurers is still at a relatively early stage, it is often necessary for actuaries to apply professional judgement in determining how to apply codes of professional conduct to their work.
The Big Data Task Force points to the ‘look in the mirror test,’ encouraging actuaries to consider their qualifications and experience in determining whether or not they can fulfil the obligations of their code of professional conduct when using data science, before concluding that ‘as the evolution of Big Data continues in the areas of practice in which actuaries provide services, the professionalism and technical expertise provided by actuaries are essential elements upon which the public and regulators can place reliance. The professionalism requirements of actuaries provide guidance for the proper application and disclosure of Big Data assumptions and methodologies. They require actuaries to adhere to the high standards of conduct, practice, and qualification of the actuarial profession, thereby supporting the actuarial profession in fulfilling its responsibility to the public.’
Against a backdrop of the ever-increasing application of the techniques of data science, actuaries appear to have an ideal opportunity to highlight the benefits of the professionalism frameworks which come with being an actuary, and to ensure that other stakeholders (insurance providers, regulators and consumers alike) can share in those benefits. Improved standards of ethical responsibility and professionalism can only lead to better outcomes for everyone.