On May 30, the Society of Actuaries, (SOA, formerly the Society of Actuaries) China Annual Conference was held in Wuhan. As Managing Director of SOA International, Andrew Peterson is back in China.
Andrew Peterson has been to China many times, and this time, he felt different. At the 2024 SOA China Annual Conference, the macro investment environment and the development of pension finance are the key words. Andrew Peterson also shared his thoughts on pension insurance.
Andrew Peterson finds that the series of changes taking place in China present some challenges to the insurance industry, but also opportunities. Insurers need to be flexible and proactive in changing their strategies to adapt to new market conditions. When it comes to actuarials, keywords such as knowledge, high salary, and "gold collar" always come to mind. This group of people who are familiar with the use of mathematics, statistics, and finance knowledge for risk analysis, evaluation, and insurance product design plays an indispensable role in an insurance company.
As one of the world's largest associations of actuaries, SOA's examination system and certification are favored by many people who prefer the actuarial industry, and its relationship with the Chinese insurance market can be traced back to 1987.
In November 1987, SOA signed a cooperation agreement with Nankai University, under which SOA assisted Nankai University in establishing a "Postgraduate Course in Actuarial Science" in China. In 1988, Nankai University began to recruit the first batch of actuarial master's students, which opened the curtain of actuarial education in China. In 1992, SOA cooperated with Nankai University to set up an SOA examination center in Nankai University. In 1997, the Insurance Department of the People's Bank of China began to establish the certification of China's actuarial qualification examination, which was borrowed from the examination system of the SOA Actuary Association.
The rapid development of China's economy has also led to the development of the insurance industry, and the demand for actuaries in the fields of insurance, pension, and financial risk management is also increasing.
What is the new stage of the development of the insurance industry, what kind of environment are insurance companies and actuaries facing, and what are the characteristics of the education and development of the actuarial industry? With these questions in mind, the Economic Observer interviewed Andrew Peterson.
Economic Observer: How did you feel about coming to China this time? At present, China's insurance industry is undergoing some changes in the regulatory environment, interest rate environment, investment environment and other aspects. Are there any lessons to be learned from other countries?
Andrew Peterson: I come to China once a year and I'm glad to be in China after another year. These changes in the Chinese market have brought some challenges to the insurance industry, but there are also some opportunities. Insurers need to be flexible and proactive in changing their strategies to adapt to the new market environment, need to focus on risk management and customer needs, and need to improve their innovation capabilities to continue to be competitive and sustainable for growth.
Compared to the current situation facing the Chinese market, the insurance market in other countries has gone through a similar phase. Taking the U.S. insurance market as an example, in order to cope with the uncertainty caused by the low interest rate environment, U.S. insurers have taken a series of countermeasures, such as product innovation, the introduction of index-linked life insurance products to meet customer needs, and the provision of more attractive rates and returns.
Investment strategies also need to be adjusted to continuously improve the diversification of asset allocation portfolios and increase the potential for investment returns. In the environment, U.S. insurers would prefer to invest in assets like stocks, real estate or alternatives. U.S. insurers have also strengthened risk management, focusing more on asset-liability matching to reduce interest rate risk.
In addition, insurers in the U.S. are adopting more advanced technology to optimize pricing strategies. Japan has also been in a state of low interest rates for a period of time, but the regulatory environment varies depending on the region, so the response of insurance companies will also vary.
Economic Observer: Aging has become a challenge for more and more countries, and human life expectancy is also increasing, what challenges does this bring to actuarial science? How should insurers address longevity risks?
Andrew Peterson: The challenges for life insurance actuaries from increased life expectancy are multifaceted, primarily in terms of product pricing, risk management and business models. As life expectancy increases, insurers need to more accurately predict future mortality rates in order to make the premiums and coverage periods of insurance products more reasonable. In addition, longevity risks also expose insurers to greater capital pressure and solvency challenges.
Insurers should respond in the following ways: First, strengthen data collection and analysis, especially on human longevity and health, so that future mortality can be predicted more accurately.
Second, we will innovate insurance products and launch insurance products that are more suitable for the elderly, such as long-term care insurance and lifelong annuity insurance.
Third, it is necessary to enhance the ability of risk management. Establish risk reserves to reduce risk by diversifying investment strategies.
In addition, insurance companies can also work with other financial institutions to address longevity risks.
Economic Observer: How do you view the challenges brought by the progress of medical technology to the actuarial science of health insurance? How do you see the development of China's health insurance market?
Andrew Peterson: Advances in medical technology often come with higher healthcare bills for patients. The introduction of new therapies, drugs and medical devices will also increase the amount of money paid by insurance companies. Actuaries need to accurately assess these costs and then determine how to incorporate them into premium pricing to ensure the sustainability of the insurance product.
Advances in medical technology also come with uncertainties, and the long-term effectiveness and cost-effectiveness of new treatments and drugs take time to assess. In the face of uncertainty, actuaries need to manage risk, consider the development of medical technology and potential treatment options, and the impact of these factors on insurance.
Advances in medical technology also mean an increase in medical data. Actuaries need to process large amounts of medical data, analyze and predict it. This requires very strong statistical analysis capabilities to support accurate pricing and risk management of insurance products.
I believe that there is a lot of potential for the development of China's health insurance market. With the increasing demand for health and medical protection, the demand for health insurance is also growing rapidly. China has a growing middle class with higher expectations for medical protection and personal health management, which provides a broad space for the development of the health insurance market. The Chinese government is also actively promoting the reform and improvement of the health insurance system to further enhance the transparency and sustainability of the market, which will help promote the healthier development of the health insurance market.
As competition intensifies, insurers have launched more innovative products and services in China's health insurance market, such as customized insurance plans, health management services, internet healthcare, and more.
Risk management and sustainability are key factors in the rapid development of the health insurance market, and insurers need to strengthen their risk management capabilities, accurately assess medical costs and risks, formulate reasonable premium pricing strategies, and pay attention to the sustainability of insurance products.
The Economic Observer: What is the role of actuaries in insurance companies? What changes have taken place in recent years in terms of actuary talent training? How has the development of artificial intelligence (AI) technology affected this profession?
Andrew Peterson: Actuaries play a very central role in the insurance industry, helping insurers to properly assess risk, set premiums, and forecast claims and profits.
Actuaries are usually required to have a solid knowledge of mathematics and statistics, a good understanding of finance and insurance operations, and good analytical and problem-solving skills; They also need strong communication skills to communicate with other departments to explain the concept of technology to ensure consistency in product development, marketing and financial budgeting. The work of an actuary usually requires a high degree of accuracy and attention to detail, and it also requires a large amount of data and models, and very complex statistical analysis and risk assessment, which requires a certain amount of patience and concentration. They also need to be involved in the development of the insurer's strategic plan, providing data support and recommendations for business growth and product innovation. Actuaries also play a role in ensuring compliance and accuracy of financial reporting in meeting regulatory requirements as well as applicable accounting standards.
Since the 80s of the 20th century, China's insurance market has developed into a diversified and fiercely competitive market, with the number of insurance companies increasing, the variety of insurance products constantly enriched, the market scale expanding, and the professionalism of actuaries also improving.
SOA saw the opportunity in the Chinese market and decided to set up an office in China to support the development of local actuaries and the actuarial industry. In 2016, SOA set up an office in Beijing to focus on the development of the mainland market.
Actuarial training courses also need to keep pace with market needs and trends. SOA regularly reviews and updates the course content to ensure that actuaries are trained with the most up-to-date knowledge and skills. In May of this year, SOA made some new adjustments. In the context of the rapid development of AI technology, this adjustment will be faster and faster.
We have also been following the development of AI technology, which has had a profound impact on insurance actuarial science, bringing both opportunities and challenges to the insurance industry.
AI technology has had a profound impact on actuarial data processing and model prediction. At present, AI technology has been widely used in the field of actuarial science, for example, some insurance companies have been using AI technology to automatically underwrite claims; For another example, AI technology also plays an important role in personalized recommendation of insurance products, risk control, fraud detection, etc.
There is no clear answer to the question of whether AI will replace actuaries discussed in the industry. But what is certain is that AI is currently just a tool that can help us be more productive. In the future, AI can help the actuarial science industry develop better.
We're also looking at the ethical and ethical aspects that come with AI. We need to understand the output of the AI models and make sure that they can be interpreted and that the results are not discriminatory. The role of an actuary is to use professional ability to judge the results of AI output and make it better applied.