THE MAGAZINE OF THE ACTUARIES INSTITUTE

JULY 2015 JULY

7 Tips to Ace Actuarial Studies By Kirsten Flynn

From Big Bang to Data Transformations By Amanda Aitken and Yifan Fu

Three Actuarial Success Stories By Rob Paton

Airborne: a view of data analytics in Australasia By Hugh Miller

Half Time Reflections on an Actuary’s Contribution By Kitty Leung

In this issueAustralian cyber claims: live and kicking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

For me it’s time to act now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Letter to the Editor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Default focus comes at some cost to most super funds . . . . . . . . . . . . . . . . . . . . . 7

A quizzical night . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Colloquia Spotlight on Insurance and Risk in Australia . . . . . . . . . . . . . . . . . . . . 11

Three Actuarial Success Stories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

In the Margin: July 2015 - Beyond QWERTY . . . . . . . . . . . . . . . . . . . . . . . . . . 15

A Defining Moment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Academia is not the “real” world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Half Time Reflections on an Actuary's Contribution . . . . . . . . . . . . . . . . . . . . . . 20

On the Pleasures and Benefits of Collaborating with Other Professions . . . . . . . . . . . 23

Compulsory Health Insurance - Should government still be the health insurer of firstresort? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Career Insights with Dr Michael Goodwin . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

7 Tips to Ace Actuarial Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Sisters Are Doin’ It For Themselves… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

MRA signed with Canadian Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Airborne – a view of data analytics in Australasia . . . . . . . . . . . . . . . . . . . . . . . 34

Finalists announced for Insurance Industry Awards . . . . . . . . . . . . . . . . . . . . . 36

Firm visit opens students up to possibilities . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Report challenges debate on climate change versus economic growth . . . . . . . . . . . 40

Welcome to New Members - June 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

From Big Bang to Data Transformations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

IMPORIMPORTTANT INFORMAANT INFORMATITION FOR CON FOR CONTRIBUTONTRIBUTORSORSActuaries welcomes both solicited and unsolicited submissions. The Editorial Committee reservesthe right to accept, reject or request changes to all submissions as well as edit articles for length,basic syntax, grammar, spelling and punctuation via ActuariesMag@actuaries.asn.au

Published by the Actuaries Institute© The Institute of Actuaries of AustraliaISSN 2203-2215

DisclaimerDisclaimer Opinions expressed in this publication do not necessarily represent those of either theActuaries Institute (the ‘Institute’), its officers, employees or agents. The Institute accepts noresponsibility for, nor liability for any action taken in respect of, such opinions. Visithttp://www.actuariesmag.com.au/ for full details of our disclaimer notice.

Australian cyber claims: live and kickingBy Eric Lowenstein (eric.lowenstein@aon.com)

Cyber is an evolving risk issue that has become a leadingconcern for many organisations. In an increasingly punitive legaland regulatory environment, it has potential to cause majorfinancial and reputational damage. Importantly, directors needto set the culture, putting cyber risk on board level agendasregularly and with adequate time. Boards need to be highlyaware of legislation and legal responsibilities.

Cyber risks have continued their rapid climb moving into the topfive business risks globally for the first time this year. In a recent

survey of Australian CEO’s conducted by PwCi, cyber risk wasrated the second highest business threat to organisationalgrowth.

“Cyber crime has now outweighed drug trafficking as the mostlucrative form of crime.”

Some overseas cyber criminal networks have sophisticatedbusiness models with established business strategies, executivemanagement teams and even employee health-plans &performance reviews. This problem is not going away,particularly as Australia moves up the ranks to become anumber one target.

Australia ranks as one of the most hacked countriesii in theworld.

The recent Australia Post phishing scamsiii highlight Australia’svulnerability with the scam achieving an 80% success rate and aspeeding infringement scam resulting in a 95% success rate.

These high success rates motivate hackers to further focusefforts on Australian business and scale up their attackstargeting specific employees in organisations to steal corporatesecrets, credit card details, bank records, customer lists,intellectual property and more.

Current scenariosSome common threats we are seeing in Australia are CFOs inglobal firms receiving emails from what appears to be legitimatehead office email addresses requesting a transfer of funds topay for overseas taxes to an offshore bank account.

We have also seen examples where hackers had placed softwarewithin the company systems monitoring email correspondenceto look for legitimate requests on the part of a supplier, such asa change of bank account. At this point the hackers would stepin as the “man-in-the-middle” and take over control of theconversation, ultimately ensuring that the money transfer wouldgo to their own account and not to the legitimate supplier’saccount. In order to launch such an attack it is sufficient topenetrate the systems at only one of the two companiesinvolved.

“Australia ranks as one of the most hacked countriesii in theworld.”

Another common scenario is the ‘crypto locker’ where hackersplaced malware onto an organisation’s network and encrypt allfiles. They then demand a ransom be paid in order to un-encryptthe operating system. Clients have reported paying the ransomand then find that their systems are wiped or that the hackerencrypts the files again six months later demanding a furtherpayment.

Other companies, which operate infrastructure such as utilityproviders, have had physical engineering tampered with throughhacked computer networks, causing havoc and majorenvironmental incidents.

Australian Banks have also been the target of attacks. In

February this year, a virus known as Carbanakiv was used toaccess bank employee computers and ultimately get inside thebanking network. Once inside, they can mimic the actions ofcash transfer staff after watching how they operate. The hackersthen transfer money from the bank into off-shore accounts ororder the bank’s ATMs to dispense cash to a waiting criminal.

A changing risk landscapeIn Australia, cyber incidents have increased 48% in the last 12months and the annual cost to Australian business of databreaches alone is $1.6 billion. The Ponemon Institute’s 2014

Cost of Data Breach: Australia reportv found that the averagecost of a data breach experienced by Australian companies was$2.8 million.

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From a data protection and recovery perspective, Australia is

also lagging behind. The EMC Global Data Protection Indexvi

found 64% of Australian businesses experienced data loss ordowntime in the last 12 months with 78% not fully confident intheir ability to recover after a disruption.

Business trends, such as big data, mobile and hybrid cloud alsocreate new challenges for data protection in Australia with 58%of businesses lacking a disaster recovery plan for any of these

environments and just 7% having a plan for all threevii.

Source: Aon Risk Solutions

Australian Cyber InsuranceClaimsFor those interested in not just hearing about cyber scenarios inAustralia but actual cyber insurance payouts, here are a fewexamples:

• A company accountant of a Sydney manufacturing firmreceived an email from her boss asking her to transfer$120,000 to a supplier abroad. Because this was a commontype of request, she processed the payment before realisingthat the tone of the email wasn’t right and the domain namewas a single letter off. Upon further investigation, it wasfound that cyber thieves had infiltrated their systems andgrew knowledgeable enough about company dealings to senda convincing phishing email that lost the company thousands.The cyber policy covered the costs associated with phishingscams.

• A director of a medium-sized healthcare firm in Brisbanereceived an email from an unknown individual who claimedthat he had breached the company’s systems and was holdingconfidential patient data which he would release to the publicunless the company paid 25 bitcoin (approximately $7,500).The insurer’s claims team first helped identify that this was acredible threat and then work closely with the company todetermine if paying the ransom would be the best course –which was the ultimate outcome.

• A furniture store based in Melbourne was the victim of asignificant data breach after malware had been unknowingly

installed on some of its in-store payment systems. Evadinganti-virus software and present on the system for manymonths, this resulted in the loss of nearly 20,000 customercredit card details. The company faced a large bill after it hadto launch a forensic investigation and pay for Payment CardIndustry related fines and card brand assessments. The cyberinsurance policy responded to these forensic costs and PCIfines.

• An unencrypted laptop belonging to an employee of a charitywas left on public transportation. It contained the personaldetails of nearly 5,000 donors. Conscious of the need toprotect its brand and reputation, the charity decided tovoluntarily notify those affected. The cyber policy covered thenotification costs.

• A small accountancy firm found their entire network riddledwith malware after a temporary worker accidentally clickedon an infected link. In order to fix the problem, they had tohire a specialist team of IT forensic consultants that had torebuild their system and restore data at cost of $45,000. Thecyber policy covered the external costs associated withrestoring, repairing and rebuilding systems.

Where to from here?There is a significant need for organisations and boards tobecome more aware of the threat that cyber risk poses to theirbottom line, brand & reputation. As awareness increases andhighly publicised breaches continue to be seen in the media,companies are looking to transfer some of the financial risk offthe balance sheet to an insurance mechanism.

As insurers contemplate the opportunities around this growingmarket, they must also consider the risks. This is often a difficultclass to price given limited historical actuarial data. This isparticularly heightened when considering the impact ofaggregate exposure amongst insureds often using the samecloud providers and the systemic risk that may flow from a ‘blackswan’ event.

i http://www.pwc.com.au/ceosurvey/ii http://www.idgconnect.com/abstract/10004/why-australia-hacking-magnetiii http://auspost.com.au/about-us/scam-alerts.htmliv http://www.abc.net.au/news/2015-02-17/banks-victim-of-multi-national-hacking-attack-security-firm-says/6130370v http://www.ponemon.org/blog/ponemon-institute-releases-2014-cost-of-data-breach-global-analysisvi http://www.emc.com/microsites/emc-global-data-protection-index/index.htm?cmp=SOC-14Q4-GDPI-OTvii http://www.emc.com/microsites/emc-global-data-protection-index/index.htm?cmp=SOC-14Q4-GDPI-OT

Eric LowensteinCyber Risks Practice LeaderAon Risk SolutionsLevel 33 201 Kent Street Sydney NSW 2000t +61 2 9253 7445 | m+ 61 402 103 633Connect with me on LinkedIn | Twittereric.lowenstein@aon.com | aon.com.au

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For me it’s time to act nowBy David Bell (david.bell@actuaries.asn.au)

“The time has come,” the Walrus said, “To talk of many things”(Lewis Carroll, The Walrus and the Carpenter).

Three unrelated events prompted me to write this article.

The first was my participation on an all-male panel of five at therecent Actuaries Summit in May.

The second was attending the Australian Institute of CompanyDirectors (AICD) company director’s course where womenoutnumbered men.

The final prompter was an article which appeared in the UKTimes on July 15 which reported that for the first time in BritishArmy history a woman had been put in command of anoperational brigade. The article noted that Brigadier Nesmith(while not the first female brigadier or one-star general) hadbeen given a job trusted to high-flyers. As an interesting aside,the article noted that she is married to a tree-surgeon and hastwo sons, aged seven and six.

When I was in the Australian Army (over a quarter of a centuryago), an institution not dissimilar to its British counterpart, Icould not have ever imagined a woman having such a role. Thatthis is happening is terrific, absolutely appropriate, and showsthe rapid change that has occurred in recent years when itcomes to women having the same opportunities as men and,more importantly, winning senior jobs.

Equally, even a few short years ago, it’s unlikely that womenwould have attended an AICD course in the same numbers asmen.

The key question then, is whether enough is being done toensure that women are equally represented, as they should be,at the most senior levels of our key institutions? Think of theFederal Cabinet where there are only two women, and askyourself whether that’s appropriate today? Consider, also, theunder-representation of women on boards and in seniorexecutive roles.

Until recently, if pressed on this topic, I would have reflectedand said that, of course, I support the notion that women shouldhave the same opportunities as men, and that this washappening gradually and appropriately. After all, my wife was a

ground-breaking politician in that regard and I have twouniversity-age daughters who couldn’t imagine a scenario wheretheir ambitions and success were linked to their gender.

A lot of the men I know, all good and decent people, wouldprobably hold similar views.

However, my personal view, now, is that despite the best will inthe world, not enough is being done to ensure that women havean equal stake in Australia’s power and decision-makingstructures. Men need to make active and conscious decisions, allthe time, to ensure that women are afforded equal and fairrepresentation.

So what does this mean for the Actuaries Institute and mypersonal approach?

(This where the panel of five men becomes relevant at theActuaries Summit). When the five of us were on stage it wasimmediately apparent we were all thinking the same thing(gently prodded by our Summit host Annabel Crabb) – that notonly was it not a good look (embarrassing actually) but that themany women in the audience (one-third of our members arewomen) could reasonably be thinking that the Institute was out-of-touch.

In the future I intend to take the following steps to make surethe Institute takes a more active role in making sure that womenare appropriately represented:

• At our conferences, each panel should have between a thirdand half of their members as women.

• When I attend key meetings at the Institute I will make surethat women are appropriately represented.

• I will actively encourage and support women to join the keydecision-making bodies of the Institute.

• When I am at an important external meeting, I will make a(polite) and appropriate point if I feel that women areexcluded or under-represented.

My comments shouldn’t be taken as criticism of the Institute orthe Profession. I would note, for example, that the key decision-making body of the Institute, the Council, has four women on its12-person board, and the President and Vice President are bothwomen.

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Letter to the EditorBy Chris White (cjwhite46@yahoo.com.au)

Dear Editor

Rob Paton’s actuarial success story on the conversion of definedbenefit funds to defined contributions is fair enough as far as itgoes, but doesn’t cover some of the less attractiveconsequences.

What the conversion facilitated in many cases was a reduction inemployer contributions and hence in the overall quantum ofbenefits provided. Arguably actuaries might have argued harderfor the maintenance of employer contributions at or nearer tolong term defined benefit cost levels, and hence for somegreater measure of protection of aggregate member interests.This issue is separate from the equity arguments involved in theallocation of that total quantum amongst different categories ofmember; poor vesting for early leavers was a major reason whydefined benefit funds were opposed by unions and was asignificant factor in their (slow) demise with the introduction ofcompulsory superannuation. With the substantial reductions inoverall employer contributions which were achieved in manycases, the issue of benefit adequacy will be around for a longtime to come. Due to union pressure and Paul Keating’sinitiatives, we have much more comprehensive coverage, but9.5% contributions don’t come close to providing an adequateretirement benefit, even after a long career with no breaks.

The other issue is the shifting of risks from employers tomembers. The defined benefit fund usually left the main risks –investment, inflation and, in the case of pension funds, longevity– with the employer. I agree that with the end of employerpaternalism, as well as the move to total remuneration, thisneeded to change. However going all the way to definedcontribution design jumped to the other end of the risk-sharingspectrum, and moved all the risks to the member. Arguablysome intermediate position (or at least some risk-sharingmechanisms) might have been a cause actuaries could havetaken up, but we generally went along with the simple (andsimplisitic) “solution” of accumulation benefits. True, there havebeen some tentative moves to partially address two of theseproblems, such as lifecycle investment products and (recently)longevity risk pooling, but these developments were no help tomany who retired in the last few decades. It’s been fortunatethat the third of these key risks – inflation – hasn’t been aproblem in recent decades; I’m old enough to remember theinflation of the 1970s and early 80s which rendered defined

contribution funds so ineffective and led to the general shift todefined benefits in the first place.

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Default focus comes at some cost to most superfundsBy Nathan Bonarius ()

The haemorrhage of members to the self-directed segment ofsuper is a prime example of an industry distracted by its defaultsystem obligations, writes Nathan Bonarius.

What has been the opportunity cost of developing sound defaultstrategies for superannuation fund members?

New evidence shows a harsh reality that the industry’s recentpreoccupation with MySuper may have seriously impeded thefocus on superannuation’s main game, members with the optionto choose their fund.

The haemorrhage of members to the self-directed segment ofsuperannuation is a prime example of an industry distracted byits default system obligations.

Rice Warner believes that developing a good default optionshould be a key objective of every superannuation fund.However, to focus product development solely on MySuper, atthe expense of Choice, has created certain commerciallimitations.

Have the demands of Choice members been met in recenttimes? Not really. Choice members make up the majority ofassets in the superannuation industry. They have an averagebalance four times that of MySuper members.

“The recent Financial System Inquiry recommendation for fundsto offer a Comprehensive Income Product for Retirement (CIPR)will give the market an innovation kick-start after a long periodof focus on default products…”

A quick look at the rapid rise of self-managed superannuationfunds (SMSFs), which represent one-third of total industryassets, tells us that some one-million fund members are nowmanaging their own retirement savings, despite a general lack ofinvestment expertise and certainly the absence of any scalebenefits.

Further, the industry fund sector, despite its strong brand, hasattracted only 2.5% of retirement assets.

Yet change is afoot. Funds have recognised the value ofretaining high balance Choice members and have begun anumber of retention strategies, including:

• Expanding the range of Choice investments available.• Member direct services such as individual equity securities

and term deposits.• Pension product transformation.• Offering sophisticated member and financial planning

services.

Some of the strategies have not been successful. In order toservice Choice members well, funds need to be able to profilewhen members will be ready to make a choice, engage themearly and understand their needs. Rice Warner’s annual SuperInsights study allows funds to benchmark such members againstthe universe of members in the market.

For example, three interesting insights that come from this studyinclude:

• Age is a simple proxy for when members will engage:◦ Only 10.5% of members aged under 25 select their own

investment, but this rises to 29% by age 65.• Choice members are more conservative:◦ The asset allocation of Choice members is generally more

conservative than MySuper members. Allocation to growthassets falls linearly with age from 72% to 42% by age 65.

◦ The difference in average growth allocation varies from10% to 30% over a members lifecycle (see Graph 1).

• The average pensioner doesn’t vary his or her asset allocationin retirement:◦ Interestingly, the allocation of pension members in our

sample is relatively constant until approximately age 80.◦ From age 80, allocations to growth assets actually increase.

We recognise that this is not likely to be a result of an activechoice at advanced ages. Rather, it is more likely to be afunction of members with higher growth allocations having theirmoney last longer (or having larger balances to begin with)rather than an active decision made by individuals.

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Perhaps wealthier retirees understand the value of growthassets and they also live longer than poorer retirees.

Such nuances represent only a small part of the complexity ofthe Choice universe and demonstrate the need for funds tounderstand their members better. In this case, to offer the rightsuite of Choice investments and to develop retirement productswhich assist pensioners’ money to last well into their retirement.

The recent Financial System Inquiry recommendation for fundsto offer a Comprehensive Income Product for Retirement (CIPR)will give the market an innovation kick-start after a long periodof focus on default products with the MySuper reforms.

This article was originally published on Rice Warners InsightsBlog

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A quizzical nightBy Gautham Suresh ()

From geography to Game of Thrones and dodgeball, the YoungActuaries Program 2015 Trivia Fusion Night threw up some diceychallenges. Gautham Suresh reports.

I am pleased to report that the SKL sponsored Trivia FusionNight last month was stuffed with a nutritious variety ofquestions that tested the most seasoned “Trivia Masters”.

Close to 50 participants randomly allocated across 6 teamsturned up at the Institute to go head to head against each otherin a bid to secure the top prize, aptly and somewhat triviallycalled, “The Winners Pot” and the Fusion heavyweight title for2015.

Given the mix and variety of interest expected of theparticipants, the MC, yours truly, strived to bring about a rangeof multiple choice and open-ended questions that allowed themembers to socialise and wow the crowd with their extensive,and sometimes lack of, general knowledge, balancing skills andability to handle the complexities of pulling tissues out of atissue box. The questions ranged across a quizzical variety ofthemes including geography, Game of Thrones and dodgeball.Further, to add to the mix, a “use your ears” round providedsome good vibes that complemented the three “hands on”challenges.

Some more notable questions that caused a decent amount ofgossip and soft-spoken whispers amongst the teams were:

• “What are the 5 “D’s” of Dodgeball?”• “Who is the most famous resident of the Island of Sodor?”• “The name of the Eurovision 2015 winning song?” Hillary Cao does her balancing best!

Despite the totally respectable number of correctly answeredquestions, some teams found themselves someway short of animpregnable position. However, that changed as the question-

1st Place FusionWinners 2nd Place 3rd Place

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answer structure merged into a test of coordination and pacethrough a series of challenges. However, the challenges facingthe participants did not offer much in the way of a reprieve fromthe brain teasers given the need to use both the mind andagility. The challenges were:

• “A Bit Dicey”: a challenge where team members wererequired to build a tower of six dice on the end of a paddlepop stick

• “Tissue pull!” a challenge which required team members toempty out a tissue box in the quickest time using only a singlehand; and the

• “Caddystack”: a challenge that required 2 golf balls to bebalanced on top of each other.

With all that going on during the night a supportable supply offood and drink provided the energy needed to push the teams totheir best, and by the end of the challenges the paddock wascleared and the “Trivia Masters” had cemented their pole

position. The 2nd and 3rd place were differentiated by only twoseconds during the “Caddystack” challenge.

This memorable night could not have been possible without thesupport of the Institute staff, sponsors SKL and the six teams ofmembers. YAP would like to congratulate the winners andeveryone who participated and hopefully had a wonderful time.

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Colloquia Spotlight on Insurance and Risk inAustraliaBy Michael Sherris ()

The 2015 ASTIN, AFIR/ERM and IACAColloquia of theInternational ActuarialAssociation bringscutting-edge research toSydney this August. Theevent is set to cover theNDIS and Group Lifeand Disability Crisis inAustralia, along withother areas of interestto the internationalprofession.For the first time in many years, three International ActuarialAssociation (IAA) Colloquia are being held in Sydney. ASTIN,AFIR/ERM and IACA will hold a joint event from 23 to 27 August2015.

The Colloquia is held every year in different parts of the world(mostly in Europe) covering a broad range of topics.

ASTIN, which stands for Actuarial Studies in Non-Life Insurance,was created in 1957 as the first section of the IAA. Its mainobjective is to promote actuarial research, particularly in non-lifeinsurance.

AFIR/ERM, which stands for Actuarial Approach for FinancialRisks, was founded in 1988 as an IAA section promotingactuarial research in financial risks and problems. The last timeASTIN and AFIR/ERM were held in Australia was in 1997.

The International Association of Consulting Actuaries (IACA)began to hold meetings every other year from 1960.

““TTogether these sections have pioneered the entry of theogether these sections have pioneered the entry of theprofession into non-life insurprofession into non-life insurance, financial risk and the ERMance, financial risk and the ERMarena at an international level.”arena at an international level.”

The meetings provide an opportunity for practitioners andresearchers to share knowledge and experience in those areasof interest. The August event will feature plenary presentationsfocused on current issues where all participants can hear fromleaders in the profession.

Presentations will cover developments in Australia of interest toan international audience such as the National DisabilityInsurance Scheme (NDIS) and the Group Life and Disability Crisisin Australia. Other presentations cover risk modelling and riskcommunication; both critical topics for actuaries.

The AFIR/ERM Colloquia will include topics: PortfolioOptimisation, Longevity Risk, Risk Management, Broader Risksand the Risk Environment. Participants seeking to update onresearch in these areas will find these sessions of interest.

ASTIN topics include ERM, Reserving, Credibility, Reinsurance,Pricing and Underwriting, and Risk Measures. These are topics atthe heart of actuarial work in non-life insurance so participantsshould find new perspectives in the sessions.

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The IACA sessions include presentations on Demographics, DataProblems and Solutions, Regulator Trends and ShareholderReporting.

These presentations take the form of concurrent sessions wherethere is a choice of sessions depending on your interests. Thepresentations feature key results from international universityand industry researchers which aim to present the main ideasand implications rather than the detailed research backgroundso that practitioners can gain insights into the ideas andpotentials applications to their business.

““There is something here for everyone as well as the opportunityThere is something here for everyone as well as the opportunityto broaden perspectives, learn new methodologies and catch upto broaden perspectives, learn new methodologies and catch upwith research in these areas.”with research in these areas.”

AFIR/ERM includes a session where the Bob Alting von GeusauMemorial Prize Paper will be presented.

The paper is “On the Calculation of the Solvency CapitalRequirement Based on Nested Simulations”. This prize is for thebest paper published in the ASTIN Bulletin on an AFIR/ERMtopic.

Along with the Plenary and scientific program there is of courseextensive networking opportunities, including Welcome Cocktailsand a Gala Dinner to give local and international participants thechance to catch up and enjoy the best of Sydney Harbour.

Check out the Program and Register to attend the Colloquium.

View the video here:View the video here:https://youtu.be/nY1BrT6MTCY

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Three Actuarial Success StoriesBy Rob Paton (rjp1310@optusnet.com.au)

Rob Paton recounts how the AustrRob Paton recounts how the Australian public has benefitedalian public has benefitedfrom the work of actuariesfrom the work of actuaries

Much of the work by actuaries occurs behind the scenes. Oftenteams are involved, making individual recognition impossible.Often similar work is being done by actuaries generally. Oftensuccess can be judged only after long periods have elapsed, andeven then successful projects are less worthy of publicdiscussion than failures. So the collective work of actuaries oftengoes unnoticed, and success becomes expected and notrecognised.

Key strengths of the actuarial profession are our generalcompetency within our specialities (evidenced by our trainingand exams), our ethical behaviour (evidenced by our Code ofConduct, our Professional Standards and Guidance), and ourenforcement. These strengths have encouraged clients,regulators and public policy makers to entrust the actuarialprofession with important work which affects the financial livesof the Australian public. Please enjoy these three examples,especially if you recognise your work

1.Private Sector EmployeeBenefits: Conversion ofDefined Benefits to DefinedContributions: 1980 to 2000Today’s political environment provides many examples of theimmense difficulty involved in making major changes whichaffect the finances of individuals. The financial consequences ofhigh inflation and low investment returns of the 1970s onemployee defined benefit plans (and on the required employercontributions) shocked employers and unsettled trustees. Thetaming of inflation and the recovery in investment returns in thesubsequent decades opened up the possibility to private sectoremployers of settling these defined benefit arrangements on afair financial basis. Furthermore, funded defined benefitsuperannuation was not consistent with the “totalremuneration” approach which gained traction with privatesector employers over the 1980s (the “salary plus benefits”approach had applied up to that time in Australia, and continued

to apply in the Americas and Western Europe until changes tosome accounting expense requirements along with the GlobalFinancial Crisis forced changes to commence in those locations).

“…Australian actuaries saw the public benefit of theseconversions and provided appropriate advice to enableequitable implementation of the employer’s decision…”

From the early 1980s, some Australian early adopter employerscommenced working with actuaries with the objective ofreplacing “salary plus benefits” with “total remuneration” for allemployees. These employers required that both existing andnew employees were covered by “total remuneration”, andtherefore that future service defined benefits were converted todefined contributions on an equitable basis. Inevitably this ledto offers being made to employees to convert past definedbenefits to a defined contribution amount. The many Australianactuaries who worked on these conversions determined anequitable value for the ongoing defined benefits to enable eachcurrent employee’s “total remuneration” to be calculated,determined an equitable value for each employee’s accrueddefined benefit, oversaw the transfer of investments, insuranceand administration to a defined contribution environment, andparticipated in the communication of the offer to employees.These were major projects.

Over these 20 years, thousands of defined benefit plans(covering hundreds of thousands of members) were convertedto defined contribution, most commonly on the basis ofindividual employee consent. To the best of my knowledge,there were few post-event challenges by employees to thevalidity of these conversions.

The substantial unfunded employee benefit liabilities of manyemployers overseas at the time of the Global Financial Crisis arethe evidence for the considerable benefits which theseconversions provided to private sector employers in Australia,who benefitted from employee cost predictability and reductionin potential adverse financial outcome, along with increasedoverall employee engagement. Commencing from the 1990s, allAustralians have benefitted from Australia’s low rates ofunemployment and steady economic growth, with the “totalremuneration” approach being one contributing factor. Definedbenefit to defined contribution superannuation conversionswere an important contributor to the growth of industry fund

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superannuation, which in turn led to the introduction of theSuperannuation Guarantee from 1992.

While ongoing defined benefit advice was diminished for theprofession, the fact that so many Australian actuaries saw thepublic benefit of these conversions and provided appropriateadvice to enable equitable implementation of the employer’sdecision is evidence of the Australian profession acting not in itsown interests, but in the public interest.

2. Statutory Roles forActuaries in GeneralInsuranceThe insolvency of HIH in early 2001 ushered in substantialchanges to the prudential regulation of General Insurance inAustralia, including the statutory role of Appointed Actuary toeach ongoing general insurer. While the General Insuranceindustry’s pre-2001 opposition to increased prudentialregulation and to the introduction of a statutory role foractuaries had been successful with politicians prior to the HIHinsolvency, even the light touch regulation Australian politiciansof the early 2000s embraced the need for strengthenedprudential regulation, which commenced from 2002 amidcontinued industry opposition, and was extended from 2006 bythe requirement for the Appointed Actuary to prepare an annualFinancial Condition Report.

“The General Insurance Appointed Actuary regime proved thatthe actuarial profession in Australia was capable of delivering onsubstantial new statutory roles…”

That the Appointed Actuary regime has been a success for theGeneral Insurance industry and its policyholders is taken as agiven these days, and is evidenced in at least four ways:-

• The absence of failures of General Insurers to date since theregime commenced in 2002;

• A general reduction over time in the amplitude of GeneralInsurance price cycles;

• No failures of Medical Indemnity Insurers to date sinceMedical Indemnity Insurers were brought within the GeneralInsurance regime in 2008 (prior to 2008, medical indemnitywas provided by mutual societies with a history of financialinstability); and

• Despite the opposition of the General Insurance industry in2002 to the Appointed Actuary regime, surveys of Directors(in particular), and Senior Managers (to some extent) fromabout 2009 have acknowledged the value of most elements ofthe Appointed Actuary regime in assisting them to betterunderstand the financial drivers of their businesses.

The General Insurance Appointed Actuary regime proved thatthe actuarial profession in Australia was capable of delivering onsubstantial new statutory roles, and of winning over Boards andManagements over time as the appropriateness of the adviceprovided was demonstrated in financial results and in improvedunderstanding.

3. Statutory Roles forActuaries in Private HealthInsuranceAfter the 1990s decade of private health insurance (PHI) entityfailures and highly variable premium increases from year toyear, the Commonwealth Government and the then PHIprudential regulator (PHIAC) mandated actuarial involvement in

the preparation of an insurer’s projections which were requiredto support the insurer’s application for the necessary annualpremium increases. In the early 2000s, most insurers had noconnections with actuaries, and the Boards and Management ofmost insurers opposed the imposition of “unnecessaryinterference and cost” from the mandatory involvement of anactuary.

Despite PHI industry opposition, this small, behind the scenes,mandatory actuarial role commenced from 2001, leading toreductions in insurance entity failures, and reductions over timein the variability of annual premium increases as the drivers ofyear to year variability in insurance margins in this low margininsurance business were better understood by Boards andManagement. The mandatory duties of actuaries were increasedgradually over subsequent years, until a full Appointed Actuaryrole was introduced from 2007, including duties related to“Notifiable Circumstances”.

At the Actuaries Institute April 2011 Convention, Raewin Daviesand Adam Jupp presented the results of a PHI industry wideinsurer CFO survey of the Appointed Actuary role whichconcluded (amongst other conclusions):-

• 80+% of insurer CFOs who responded stated that the annualFCR “is valuable to their Board”, and 60% of CFOs stated thatthe annual FCR “is valuable to Management”;

• For a significant minority of CFOs, recommendations in theFCR were regarded as “important to the business”; and

• If regulations were changed to delete the requirement for anannual FCR, 80+% of CFOs expected that their insurer’s Boardwould continue to require an annual FCR to be prepared.

By 2013 and 2014, when the effects of reductions in premiumrebates introduced by the then Commonwealth Governmentwere commencing to adversely affect the policyholder (andtherefore the financial) experience of most insurers, all insurerswelcomed the Appointed Actuary’s analysis as the progressiveadverse impact on the insurer’s assumed future financialexperience from these complex changes was included in insurerprojections, including regulatory capital and risk capitalcalculations, and required future premium increases. Thecurrent position contrasts with the 1990s decade during whichmost insurers faced a different adverse external environmentwithout the assistance of an Appointed Actuary.

SummaryThese examples illustrate the past benefits to the Australianpublic from the work of the actuarial profession in Australia, ofwhich each of us can be quietly pleased. The examples illustratehow the profession as a whole has worked together in threedistinct areas of core actuarial practice. Doubtless there areother equally good examples. These Australian examplescontrast the position of actuaries overseas, some of whom haveseen statutory roles removed over the last 20 years. These threeexamples are relevant at this time when the role of theAppointed Actuary in Life Insurance is under review, and somein the profession are agitating for the Life Insurance AppointedActuary role to be removed or curtailed substantially.

What do you think have been the public benefits from our work?

While the opinions in this article are Rob’s alone, Rob thanks theactuaries who reviewed the historical accuracy of the successstories and provided their comments for Rob’s consideration.

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In the Margin: July 2015 - Beyond QWERTYBy Genevieve Hayes (inthemargin@actuaries.asn.au)

We now live in a world where there are more internet-connecteddevices than there are people and the computer keyboard is fastreplacing the old faithful pen as the preferred means of puttingwords onto paper. Yet, in spite of the ubiquitous nature of thekeyboard, not all keyboard layouts are created equally.

For those of us living in English speaking countries, the keyboardlayout you are most likely familiar with is the QWERTY layout, sonamed after the first six characters of the top row of letters. TheQWERTY layout was first created in the 1870s by ChristopherSholes. Prior to Sholes’s invention, typewriter keyboardsfeatured an alphabetical layout which was particularly prone tojams caused by clashing typebars (the metal arms on which theletters were mounted). Sholes, therefore, devised the QWERTYlayout as a means of speeding up typing by separatingcommonly used letter pairs (such as ‘st’ or ‘th’) and thusminimising jams. Since then, QWERTY has become the defaultkeyboard layout for English speakers. Yet, it is not the onlylayout that exists.

The most common QWERTY alternatives are those that exist incountries that speak languages other than English. These layoutswere based on the same principles as QWERTY, but were tailoredto better reflect the linguistic nuances of other languages.French speaking countries, for example, use the AZERTY layout,while Russian keyboards use the JCUKEN layout, which isdesigned to accommodate the extra letters of the Cyrillicalphabet. Nevertheless, even within English speaking countries,alternative keyboard layouts exist, the two most common beingthe Dvorak layout (named after its inventor, August Dvorak) andthe Colemak layout.

The Dvorak and Colemak keyboard layouts were invented tomake typing faster and more efficient. The Dvorak keyboard, forexample, places the most commonly used letters in the middlerow, and favours the right hand over the left (using the QWERTYlayout, only 32% of keystrokes are made on the middle row andover half are made with the left hand). Some studies have shownthat the Dvorak and Colemak keyboards do allow for fastertyping speeds, yet others have failed to do so. Either way, if youwere to swap your standard QWERTY keyboard for a Dvorak orColemak keyboard, it would almost certainly result in months ofpain, as you unlearn QWERTY and get up to speed with the newlayout. Still, proponents of these keyboards believe theinvestment is worth it, and at the very least, given how

uncommon these keyboard layouts are, it will guarantee that noone will ever use your computer at work ever again.

What’s Your Type?The following quotes have been written using a standardQWERTY keyboard, but in each case, some sort of (distinct)transformation has been made (for example, by the typistshifting the starting position of his or her hands on the keyboardand then typing normally or by mapping the current keys to newletters). Note that all punctuation has been removed from thequotes to avoid confusion.

1. YTU YP SBPOF SMU BOTHPD PT ARPD EOYJ YJR RNPAS BOTID2. BCSS ZKJSC LFDGJ KYM LYIBL BPKE EPCF CUJIDE EPCF EDCKE

VGDSHYO QGLE SHRC HEL K DCKS LJIDE3. RUTW QRQL KWQ QXQV CJTQW EFKV EFQ PKEQW YV BR

EUYJQE4. 63W F84T8H8Q H92 WQH5QW E98HT 58J3 8H Q R3E34QO

048W9H R94 Y8W 8HRQJ97W D48J3

For your chance to win a $50 book voucher, identify the fourtransformations, decode each of the quotes and email yoursolution to: inthemargin@actuaries.asn.au.

Tower Heist (Actuaries 198Solution)The solution to the skyscraper puzzle given in Actuaries 198 is:

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14 correct answers were submitted. The winner of this month’sprize, selected randomly from among the correct entries, wasMichael EabryMichael Eabry, who will receive a $50 book voucher.

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A Defining MomentBy Peter Martin () and Stephanie Quine (stephanie.quine@actuaries.asn.au)

With nominations closing for2015 Actuary of the Year, theimportant contribution ofPeter Martin (2014 Actuary ofthe Year) and his journey tothe control rooms ofAustralian public policy isworth remembering.From teaching school kids to reviewing NDIS and militarycompensation scheme costings, Peter’s impassioned speechtraced his path into a profession he formerly knew nothingabout.

Peter Martin accepted the award at the GI Seminar Gala Dinnerin Sydney.

“Sometimes, just a few particular moments in time can, in effect,define a whole life,” Peter said.

The first moment came at 30 years of age, when Peter wasintroduced to actuary Cathy Nance who encouraged him to trythe Part I exams (then called Part A exams).

“I didn’t know what an actuary was or what they did. I guess I’dheard that, perhaps, they tended to be a little bit bookish!” Petersaid.

He entertained the idea of entering the actuarial world as hestudied for and completed the exams.

Brisbane was experiencing a recession and actuarial jobs werehard to come by at that time so his career-change momentumslowed and he continued in the classroom.

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Eight months later, however, a letter arrived in the mail from aformer family acquaintance. In it was a newspaper clippingadvertising a position in the Government Actuary’s office inCanberra.

“By virtue of that one random letter I ended up moving toCanberra…and there I met Donald Duval,” said Peter, describingthe Government Actuary during the early to mid-1990s as agreat mentor with “massive intellect”.

““When, one day, Prime Minister HowardWhen, one day, Prime Minister Howard… ut uttered the wordstered the words‘incurred but not reported’‘incurred but not reported’…we kind of felt we’d made itwe kind of felt we’d made it” – Peter” – PeterMartinMartin

Up until that time, the Government Actuary’s Office wasprimarily working on superannuation. Peter’s appointmentoccurred soon after the move of the office from APRA toTreasury.

Then, in 1995, Peter was asked to look at why the costs of themilitary compensation scheme had doubled in the space of acouple of years.

“Donald wisely engaged the help of David Minty and Geoff Atkinsto guide us in the way of general insurance actuarial thinkingand approaches [and] with that, the Government Actuary’s officewas on its way in the world of general insurance,” said Peter.

Over the subsequent years, he demonstrated to Government thevalue of actuarial advice in a policy‑setting context.

The HIH collapse, September 11, and then the collapse of UMPand the difficulties in the medical indemnity industry meant asteep learning curve for both Government and its Actuary’soffice.

“But learn they (and we) did,” said Peter, “in one sense, we hitthe high-water mark when, one day, Prime Minister Howard, inanswer to a question time question, uttered the words ‘Incurredbut not Reported’. We kind of felt we’d made it.”

““The importance of actuarial valuation and control cycleThe importance of actuarial valuation and control cycletechniques in ensuring the long-term sustainability of thetechniques in ensuring the long-term sustainability of thescheme cannot be overstated” – Peter Martinscheme cannot be overstated” – Peter Martin

More recently, in 2012, Peter led a review of the costingundertaken by the Productivity Commission in relation to theNational Disability Insurance Scheme (NDIS). He then providedinfluential advice on enshrining the roles of scheme actuary andreviewing actuary in the governing legislation.

The guiding philosophy for the NDIS differs fundamentally fromthe approach which has been taken to funding disability supportservices by Governments in the past. The importance ofactuarial valuation and control cycle techniques in ensuring thelong term sustainability of the scheme cannot be overstated.

“Peter has played a key role in enhancing the stature of the“Peter has played a key role in enhancing the stature of theactuarial profession within Governmentactuarial profession within Government” Daniel Smith” Daniel Smith

Peter’s input, and his membership of the SustainabilityCommittee for the NDIS, helped inject these concepts intodiscussions around the design of the scheme and maintain thatfocus going forward.

It is a measure of his influence, and the respect in which Peter isheld that, in the period since his appointment, the AustralianGovernment Actuary has been assigned a legislative role inareas as diverse as medical indemnity, family law and visacharging arrangements.

Peter dedicated his Actuary of the Year award to all public sectoractuaries, especially the team in Canberra, including hiscolleague of 20 years, Susan Antcliff.

“At the risk of sounding biased, I think the contribution theymake to the public policy discourse is disproportionate to theirsmall size,” he said.

As well as playing a key role in enhancing the stature of theactuarial profession within government, Peter has activelycontributed to actuarial education by participating in theCommercial Actuarial Practice course and guest lectures at theAustralian National University.

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Academia is not the “real” worldBy Adam Butt (adam.butt@anu.edu.au)

This month’s guest editorial comes from Adam Butt, SeniorLecturer in Actuarial Studies and Statistics at ANU.

I’ve been in academia now for over 10 years. Before that I spentaround seven years (some as an intern whilst I was studying atMacquarie University) at a pension/superannuation consultingfirm. I was lucky enough in 2005 to score a lecturing job atAustralian National University (ANU) without any researchbackground whatsoever (I did my PhD part-time alongside myteaching commitments).

“The main reason academia is not the “real” world is the level ofcontrol I have over my work.”

Despite my relative lack of corporate experience, I know enoughto know that academia is not the ‘real’ world. Although I canhear the howls of “traitor” from my academic brothers andsisters, I’m going to plough on and explain why.

The main reason academia is not the “real” world is the level ofcontrol I have over my work. Sure I get told what courses toteach (although the course I am teaching this semester is one Idesigned myself from scratch), and I have a “Performance andDevelopment Review” once a year, but by and large I decidewhat I want to do in a typical day. If I want to make a minoradjustment to the course I teach – then I go ahead and do it. If Iwant to change the area in which I research, then I am free to doso. If I want to apply for funding to teach a Massive Open OnlineCourse (MOOC), then I am free to do so. For any of these things Iam required to obtain no or minimal material from my Head ofSchool.

This freedom creates some interesting dynamics. How busy I amis completely dependent on how often I say yes or no to themany opportunities that I come across. Many academics areincredibly busy people; they say yes to most or all of theseopportunities and are rewarded with fast promotion (both intitle and financially). I myself try to take a pragmatic view andam comfortable saying no when necessary. I have a youngfamily and value that even more than my job at ANU. There arenot many corporate jobs where you can regularly say no to yourcolleagues and superiors without negative consequences.

“innovation can be as much a danger as an opportunity inindustry…”

Does this freedom come with risks attached? Sure, if I makepoor decisions then I might not get promoted and there is evena small chance I might lose my job.

All of this sounds like it is too good to be true. And perhaps it is.But I would also argue that it is necessary to produce innovativeand world-changing research. Innovative research can takeyears or even decades to bear fruit, and it is often uncertain atthe start of a project if the research goal will even be possible.An environment of safety with regards to the implications offailed research is necessary for this innovation to be attempted.Otherwise we would all be simply making incremental andunnecessary adjustments to what has already been done.

I hear regularly about the “disconnect” between academia andresearch, and sure there is actuarial research out there that Ithink has no connection at all with industry. But even whereconnection is deliberately sought (for example through ARCLinkage Grants), there are often challenges in managing theshort-term goals and timeframes that industry often focuses on.In addition, innovation can be as much a danger as anopportunity in industry, which I think is a factor that leads to thevery slow introduction of, for example, dynamic investmentproducts such as lifestyle strategies in pension/superannuationfunds – in this area academia is miles ahead of industry,although still wrestling with implementable research.

Is there a moral to this story? I’m not sure. In any case I feel veryblessed to be in a job that I love!

This is an edited version of a blog post from 8 July.

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Half Time Reflections on an Actuary'sContributionBy Kitty Leung ()

After 30 years as an actuary, IAG’s former Chief Actuary andcurrent Executive General Manager of Risk and Performance inthe Personal Insurance division, Tim Clark, talks about what he’slearned at the Actuaries Institute Leadership Forum. Kitty Leungreports.

Actuaries know everythingEarly on in his career, Tim, like many other young actuariesprobably, thought he knew a lot about everything. After all,actuaries tend to be quite bright and inquisitive individuals withan educational background that provides a great theoreticalbasis and breadth of knowledge. They understand the systemand how everything fits together very well. Tim used his broadunderstanding and applied assumptions in fancy models tocome up with IBNRs which he presented to the business. He willnever forget what the underwriter dubbed his analysis –“Interesting But Not Relevant”.

“Tim had done something that many actuaries often do quitenaturally when asked to perform a piece of work; dive straightinto the data and analysis.”

You see, Tim had conducted his analysis independently and hadnot thought to involve key stakeholders as part of the processwhich meant that he didn’t have their buy in. His advice was nottrusted nor relied upon which threatened to limit thecontribution that he could provide to the business.

Tim had done something that many actuaries often do quitenaturally when asked to perform a piece of work; dive straightinto the data and analysis.

Tim Clark (far right) chaired Plenary One of the Institute’s OneDay General Insurance Seminar in June.

But others know a lot as wellThe underwriter has a much better understanding of the policiesas he is the one out there talking to the clients and asking abouttheir business operations. An actuary needs to tap into thisknowledge. Looking at just the data and statistics is not enoughas changes in experience will only become apparent much later.‘Soft’ information can be equally as important and provide abetter lead indicator.

“How can you tell if the housing market is going up or down? Youcould collect data on sold house prices and perform somemodelling. Or, you could just observe how the real estate agenttreats you.”

Tim used real estate as an example to illustrate this. He posedthe question “how can you tell if the housing market is going upor down?” You could collect data on sold house prices and

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perform some modelling. Or, you could just observe how thereal estate agent treats you. If he has no time for you, thenhouses are selling well and prices are going up; if he is willing tobend over backwards and organise private inspections includingchauffeur service, then prices are going down!

Actuaries should always challenge their own assumptions tounderstand the business better. Talking to others often yieldsanswers to questions you didn’t originally ask but were probablywhat you should have been asking for all along.

Some actuaries know somethingsOther actuaries are another good source of knowledge, andnetworking is an important part of this. Tim recommendedbeing smart about networking, making a plan so that you can getwhat you need out of it. A good chance to learn from others isby getting involved in projects where there are a lot of differentpeople who you can learn from. Finding out more about howother people think can also help you become more aware ofyour own unconscious biases so that you can better understandthem and reflect on how it might impact on your work.

“It’s clear that you cannot be an expert on all things and that youwill have to rely on, and trust others, where your knowledge islacking.”

If others know lots and I knowsome things, what don’t Iknow?This is the logical question that follows once you become moreaware of the limitations of your own knowledge. It’s clear thatyou cannot be an expert on all things and that you will have torely on, and trust others, where your knowledge is lacking. Butof course you shouldn’t just trust everything that you are told –instead, you need to apply a credibility lens to it.

As an example, if an underwriter tells you that the loss ratio thisyear will be x% for a long tail portfolio then this should havezero credibility. Instead, if he told you that they are pricing to aloss ratio of x% but that it could be this plus or minus y% thenthey start to become more credible. If the underwriter can tellyou all about the large claim that happened last week and thelessons they’ve learnt from it but that he’s worried about otherclaim types that might come into the portfolio then this showsthey are able to link things together in a bigger system contextrather than just giving you the answers that they think you wantto hear.

Get curious

Tim encouraged us all to show curiosity in subjects and mattersoutside of our own work and expertise as it can open up manyopportunities. Tim was attending a global risk managementconference where he actively participated in the conversationsdespite this not being his background. This impressed the CROwho then promoted Tim from Hong Kong to Zurich to be thehead of Operational Risk.

Be open to feedbackConstructive criticism is a good way to better understand yourshortcomings and change. Tim advised creating as manyopportunities for people to provide you with feedback and

asking them open questions as this may provide you with aresponse you did not expect.

“At first he hated it and wanted to quit but with the help of asupportive manager, he shifted his thinking and understood thathe needed to rely on others to know the details…”

Learn from every interactionTim believes you can always learn something from everyone andevery conversation. He talked about how an interaction with hisyoung son helped him better understand human behaviour. Timhad caught his son playing a seven-day poker tournament gameon his father’s phone and his first course of action was toconfirm that the boy wasn’t betting with real money. Once thatwas established, Tim was curious about why his son was sofrustrated – the boy said that he would do well in the first fewdays, but then he would always lose. It turned out that wheneverTim’s son was dealt a good hand he would bet unlimited leadingto small winnings early on. But inevitably as the tournamentwent on, someone with a better hand would come along and hewould be wiped out.

This to Tim illustrated a common behaviour he observed in theworkplace. People tend to respond to small positivereinforcements which cloud the potentially large downside risk.In an insurance context, people often think that a policy that hasbeen performing well and making money historically willcontinue to do so. But this could easily change if the client has alarge claim or two. However, this tends to be forgotten and theyare offered a low price.

“Tim felt scared and inadequate when he first took on the role ofGroup Operational Risk Manager as it took him out of hiscomfort zone…”

It is even more difficult for people to comprehend and thinkabout risks that they have never experienced before (forexample, insurance cycles can often be decades long and manypeople have not even been working for that long a time). Timspoke about a presentation he gave at an underwritingconference where he tried to bring across the importance ofthinking about risk beyond the everyday and what you alreadyknow by talking about the Titanic. The tragic accident thatoccurred was beyond anything that anyone had expected:

• Icebergs were never found as far south as that one was.• The ship had been built to withstand four panels being

breached but alas five were.• Hitting the iceberg head on would have caused less damage

than scraping open the entire side of the ship but thesescenarios had never been discussed and the captain did whathe thought was best.

Life is not linearTim reflected that his career has always been about where hecan continue to make a contribution and learn. As such, he hasnever liked planning out a five-year goal for himself – Timbelieves that life is not linear and opportunities do not just comeone after another providing you with a step up the career laddereach time. Instead, expect bumps along the way and times whenyou are unsure about what your next step should be. One needsto develop resilience in spite of challenges and remember thatyou can always learn something from your mistakes.

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Take opportunitiesAs there is no clear straight path, grab onto opportunities if theycome to you and take a risk. Sometimes it might seem like thiscould be a step back in your career but it may end up openingother paths instead. Tim felt scared and inadequate when hefirst took on the role of Group Operational Risk Manager as ittook him out of his comfort zone and he was no longer at thetop of the information ladder. At first he hated it and wanted toquit but with the help of a supportive manager, he shifted histhinking and understood that he needed to rely on others toknow the details and let him know the important things so thathe could do his job well.

Ensure it reconcilesTim’s last point was about being satisfied and happy that youropinion and advice is sound. While you need to rely on others aspart of your work, you still need to ensure that it makes sense. Ifyou can tell the story behind your opinion, then you understandthe underlying issues well and you can stand behind what you’resaying to each respective stakeholder. This will also increase thepower behind your words and your credibility when you presentyour results.

Tim’s reflections were well received by the audience with a Qand A following his presentation. One of the questions askedwas whether Tim thinks about what other paths he may haveclosed off by making the decisions that he has. Tim replied thatthere is no point in having regrets. He is happy as long as he isstill able to learn and contribute, and if you are not enjoyingyour job then you should go out and change it. However, he didmuse that he would have loved to have been a professionalfootballer.

The full presentation and audio recording of the session isavailable on the Actuaries Institute site.

PhotogrPhotograph credit:aph credit: InsurInsurance Council of Austrance Council of Australiaalia

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On the Pleasures and Benefits of Collaboratingwith Other ProfessionsBy Dr Anthony Lowe (anthony@anthonylowe.com.au)

Dr Anthony Lowe, Chief Executive of Prostate Cancer Foundationof Australia, reflects on collaborating with people from diverseprofessional backgrounds and the benefits of doing so.

I am often asked why an actuary would become Chief Executiveof Prostate Cancer Foundation of Australia (PCFA) and, inparticular, whether I still use my actuarial skills in my job. It’snot just actuarial colleagues who ask – the last person whoasked me was a medical oncologist!

The answer is, yes, I certainly do use my actuarial skills everyday in my work. Most obviously, like every non-profitorganisation, PCFA is also a business (running on a very tightmargin) and the actuarial training provides us with a solidgrounding in business skills. In my job that includes how tokeep a very close eye on management financials; think abouthow the economic environment may affect future fundraisingand partnerships; keep abreast of the effect of tax andregulatory changes; and ensure we reserve properly for multi-year research grants. These are all skills I learned as asuperannuation actuary and it’s professionally very fulfilling tobe able to apply them in a broader environment for the benefitof the cause. I would certainly encourage any actuary with aninterest to become involved with community organisations liketheir local school or college, either on a board or as a volunteer,as we have a lot to offer and it’s very rewarding.

Perhaps more importantly for me, PCFA has many medicalresearch activities involving multi-disciplinary teams ofprofessionals. In my role I collaborate with people from a broadrange of disciplines including health economists,epidemiologists, surgeons and psychologists, and they all bringtheir particular perspectives to our work. All actuaries, ofcourse, interact with a wide variety of other professionals. In mycase it’s mainly health professionals, but for many it will beaccountants, risk management specialists, lawyers and others.

Much of modern evidence-based medicine is founded on skillsand techniques which are core to the actuarial training, such asstatistical analysis; calculation of cost effectiveness; discountingof future costs and benefits; and estimation of life expectancy.

By way of example, three recent projects PCFA has beeninvolved in include:

• Estimation of life expectancy of men with multiple medicalconditions needed for the development of a clinical guidelineon prostate cancer testing. This project is co-funded byActuaries Institute and PCFA and involves a team ofepidemiologists at ANU and Karolinska Institute and LeonieTickle at Macquarie University

• Statistical analyses including chi-square analyses andhierarchical multiple regressions to describe the predictors ofmedical help-seeking for sexual dysfunction in prostatecancer survivors working with psychologists at MenziesHealth Institute Queensland and Cancer Council Queensland

• Building a Markov health state transition model of the cost tothe Australian community of prostate cancer diagnosis andtreatment working with health economists at GriffithUniversity.

It is gratifying, instructive and humbling to collaborate withcolleagues from diverse professional backgrounds. One thing Ihave learned is not to assume that actuaries have a monopolyon what we think of as our core professional skills. For example,somewhat unexpectedly to me, the psychologists I work withhave very strong statistical skills; the epidemiologists know agreat deal about mortality tables; and the health economistswell understand the need to discount future costs. I’ve alsogained a greater appreciation of the applicability of actuarialskills outside the financial services industry where I spent thefirst 20 years of my career.

It is equally interesting to observe how different professionaltraining leads our collaborators to approach a problem in aparticular way which may be very different from the wayactuaries would typically approach it. This even extends to tools:the health economists automatically assumed they would buildthe Markov health state transition model in TreeAge Pro – like atrue actuary I would have used Excel! There’s no right or wronganswer, just the different insights, accepted conventions andapproaches of each profession.

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As actuaries we have strong mathematical and analytical skillsthat are increasingly rare in today’s Australia and which, if usedbroadly, can enable us to take a leadership role working in multi-disciplinary teams. The great pleasures of collaborating withprofessionals from diverse backgrounds are the richness itbrings to working life; the opportunity to learn new skills; andseeing familiar actuarial skills through a different lens. I wouldlike to think it also makes me a better actuary and a betterambassador for our profession.

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Compulsory Health Insurance - Shouldgovernment still be the health insurer of firstresort?By Jamie Reid (jamie.reid@finity.com.au), Matthew Crane (matthew.crane@finity.com.au), Kris McCullough(kris.mccullough@finity.com.au) and Collin Wang (Collin.wang@finity.com.au)

Funding healthcare costs governments more and more eachyear. As our population’s wealth and life expectancy continue toimprove, this doesn’t look like slowing down any time soon. Evenso, private health insurers in Australia are currently preventedfrom directly funding key primary care services. Could andshould insurers be given more of a role in the funding ofprimary care?

Primary care is the initial contact between a patient and thehealth care system. Key primary care services that healthinsurers are currently prevented from funding include all GPservices and medical specialist services outside hospitals. TheNational Commission of Audit (NCoA) considered this problemand concluded that “governments should not act as the insurerof first resort. Governments should help families and individualsmanage risk on their own behalf.” As a result the NCoArecommended:

• health funds be allowed to expand into more areas ofprimary care; and

• the purchase of private health insurance be a mandatoryreplacement for Medicare for high-income earners, as well asa number of other deregulatory measures aimed atimproving efficiency.

EfficiencyWhen considering healthcare funding efficiency is what it allcomes down to in the end. A mere shift of funding from publicto private (individuals or insurers) is no better for society as awhole. But health insurers are incentivised to improve theefficiency of the system – healthier members mean lower claimscosts and a better brand perception. Expansion into primarycare could provide the catalyst for health insurers to deliverthese efficiencies – for the first time, information would beavailable about the primary health services accessed by itsmembership which, along with pricing deregulation, should

enable insurers to make more efficient risk management andpricing decisions.

This is why the NCoA said health insurers should be allowed tobecome “genuine health care partners that support theirmembers to navigate the health system and assist them tobetter manage chronic conditions.”

Current insurer activities inprimary careAlthough direct funding is not allowed, most of the large healthinsurers partake in indirect funding of primary care activities.Examples include:

• Medibank’s ‘GP Access’ trial in Queensland, which offered itsmembers bulk-billed GP visits, guaranteed same-dayappointments and after-hours access to GP home visits.

• Bupa’s arrangement with Healthscope GPs, which also offersbulk-billed GP visits and other discounts.

• HCF’s collaboration with the National Home Doctor Service toprovide an after-hours, bulk-billed GP service.

• A Bupa-branded GP clinic in the Sydney CBD.• Medibank and others collaborating with state governments to

reduce hospital admissions through improved monitoringand preventative care for patients with chronic diseases.

We’ve investigated the viability of two scenarios, applicable todifferent income thresholds, at either end of the primary carespectrum:

1. GP onlyGP only – the most high-profile health reform proposal inrecent years was the GP co-payment, and GPs have been themain focus of private health insurers’ primary care initiatives.Under this scenario, the government is no longer the insurerof first resort for any GP costs.

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2. All primary careAll primary care – the government is no longer the insurer offirst resort for any primary care costs.

GP onlyWe estimate that the government currently pays around $4.8billion per year through Medicare rebates for GP services.However, transferring that full amount to the private sectorwould almost certainly be a ‘no-go’ policy zone for thegovernment. Many of these services would be for people on lowincomes who may struggle to afford insurance premiums or out-of-pocket costs.

In order to be more palatable from a fairness perspective,Medicare rebates on GP services could be removed only above a$60,000 income threshold (or the government purchasesinsurance for those earning less). However, driven in part by thenumber (and cost) of GP services for children and retirees, thisreduces the potential government savings to a relatively modest$780 million – hardly enough to warrant such a significantchange to the health system.

All primary careThe table below shows our estimates of the government’soverall annual contribution towards primary care costs forpeople above various income thresholds:Threshold Government primary care cost

ThresholdThreshold Government primary careGovernment primary carecostcost

No threshold $21.2 billion

$60,000 p.a. $3.3 billion

$80,000 p.a. $1.9 billion

$100,000 p.a. $1.1 billion

This scenario results in significantly more dollars beingtransferred than the GP only scenario. The flip side is that it alsofaces more controversial fairness issues. Even so, it is possiblethat implementing such a change on people earning more than$80,000 or $100,000 a year could be perceived as being fair(although opponents would be concerned about the creation ofa two-tier system). And the $1 billion to $2 billion savings to thegovernment at these thresholds would certainly be meaningfulenough for further consideration by policy makers.

Even if private insurance wasn’t compulsory, it’s likely that manyhigher-income earners would still purchase it, given the range ofrisks covered and the potential costs of self-insurance. As such,it would mean 5% to 10% additional revenue for the privatehealth insurance industry. This may well be a large enough sumto entice insurers to invest in developing efficiencies in thepursuit of additional growth.

ConclusionHealth reform requires financially meaningful changes whichboth increase efficiency and are regarded as fair. We tried to

find reform options that tick all the boxes and, perhapsunsurprisingly, didn’t find the magic bullet.

Across a number of spending areas, government has removedor reduced the level of support provided to those with higherthan average incomes. For example, high income earners nolonger receive health insurance premium rebates, certain familytax credits or the baby bonus. There are suggestions that highincome earners may also lose other benefits, for example, withregard to superannuation. Some of these changes have resultedin fairly small savings for the Federal budget. Set against thisbackground, it appears likely government won’t always be theinsurer of first resort for primary care benefits.

However, our analysis suggests that there doesn’t seem to bemuch to gain from simply shifting GP rebates from governmentto private health insurance. But if only a small proportion of thepopulation was required to obtain private health insurance forall primary care costs, this could have a meaningful impact onthe private health insurance industry. As such, it could be aneffective ‘pilot scheme’ for more significant health reform at alater date.

You can find the full paper on primary health care and otherhealth insurance research at finity.com.au

Read paper

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Career Insights with Dr Michael GoodwinBy Kelvin Chan (kelvin.hy.chan@gmail.com)

Kelvin Chan reports on an insightful YKelvin Chan reports on an insightful Young Actuaries Progroung Actuaries Programam(Y(YAP) visit to Hong Kong.AP) visit to Hong Kong.

We all have different backgrounds and bring our unique set ofskills and perspective to our actuarial careers. So how does aveterinary surgeon transition into being a highly sought afteractuarial advisor in Asia?

Dr Mike Goodwin discussed his work history and the importanceof actuaries in business

It was a pleasure to have Dr Michael (Mike) Goodwin, previouslyCEO Asia Pacific for QBE Insurance International Ltd, share hisinsights with us in Hong Kong on 11 June 2015. Over the course

of 20 years in general insurance, he has gathered experiencefrom working in different parts of the organisation and acrossAsia to understand the business thoroughly from end to end.

His experience in Asia makes him a valuable advisor toinsurance companies looking to expand in the region. With Asiaoffering over 50 countries, 100 languages and economies atvarious stages of development there is tremendous scope foractuaries to add value. However, it pays to have a reality checkand be flexible. With such a culturally diverse region, is itsurprising that relationships and customs play such a big part indoing business?

“…being inquisitive and appreciating that learning never ends isthe best way to reach your potential…”

Communication and working with diverse teams is critical andso is getting qualified regardless of where our future interestsmay lie, as this is a passport to the “best job in the world”(CareerCast 2015). As an example, though Mike’s path hasmoved away from veterinary surgery, he retains a keen interestand even compares the problem-solving process to issues foundin the actuarial field.

We finished off the evening with a lively discussion coveringtopics ranging from veterinary science versus actuarial science,what students should focus on in Asia to the challenges ofworking with and managing expectations of the Board.

As a student, and throughout your professional lives, beinginquisitive and appreciating that learning never ends is the bestway to reach your potential whether you choose to pursue yourcareer in Asia or in Australia.

Dr Goodwin will present again in Kuala Lumpur on 2September 2015 as part of the Young Actuaries Program. Findout more here.

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7 Tips to Ace Actuarial StudiesBy Kirsten Flynn ()

Actuaries Digital Editor Kirsten Flynn asks five newly qualifiedactuaries for their best study tip and gives two of her own, tohelp you whiz your next actuarial exam.

Passing Actuarial exams isn’t easy! It requires hard work,perseverance and sacrifice. It might mean falling behind onGame of Thrones (and begging your friends not to spoil it foryou), staying home to study while your friends are at the beach(at least pale is in this season), or pulling all-nighters at work soyou can get that study day (who needs sleep anyway). But beforeyou think about throwing the towel in (you can do it!), take alook these tips from newly qualified Fellows on how to succeedin your Actuarial exams!

1. Make a list (and check ittwice) – Kirsten Flynn

Make lists of the points you need to consider, or the steps youneed to take, when you get asked questions on a particulartopic.

When you’re under pressure in the exam, it’s easy to forget thesimple stuff (like that a

question on assets most likely requires you to comment on theliabilities as well)!

2. Start with the easy question– Justin Si

In the exam, do what’s ‘easy’ first. When the exam begins, readall the questions and make an assessment of which questions

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you think you can answer most confidently and start there. Bygetting pen to paper sooner, you can break through my examnerves and get the boost you need to continue on. Throughoutthe exam, move on quickly when you get stuck and complete thequestions you’re more certain about. This leaves the remainingtime to think about the more perplexing questions with lesspressure, as you’ve already answered everything else to the bestof your ability!

3. Study smart = efficiency –Gautham Suresh

Given the nature of the study material (both density and depthof understanding required) and the manner in which examquestions are delivered, studying efficiently becomes key.Achieving this means identifying the areas that you are lesscomfortable with and becoming more comfortable by looking atpast exams, case studies, examples, etc. specific to these areas.

4. Sacrifice (in moderation) –Chenthuran Suthersan

Be prepared to sacrifice (which may mean not seeing yourfriends or family for an extended length of time). Having saidthat, make sure you take breaks, because you will burn outwithout rest. Working full time and spending your weekendsstudying is draining. Remember Actuarial exams are a marathonnot a sprint!

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5. Become the teacher –Michael Zhou

Understand the material with an aim to teach. It’s not enoughthat you understand a past exam solution and can replicate it,you must also be able to apply concepts from the material tonew (unseen) exam questions. If you are not able to articulate orteach a peer the material, then you have more work to do.

6. Read Widely – KirstenFlynn

Read beyond the course material, particularly in the areas youdon’t have experience. For my life exams, I didn’t have anyreporting experience (I’d only done pricing work), so I readfinancial statements, the financial condition report of mycompany, APRA publications and more. To help me get up tospeed on general insurance valuation techniques (when Idecided to take the general insurance exam without ever havingworked in general insurance), I looked at product disclosurestatements, course material from overseas institutes and my olduniversity notes!

7. Get into a routine – ViolaChan

I found the most difficult part of studying was getting started!Establish a regular routine, to help condition you to go into“study mode”. This could be starting studying at a regular time,listening to a study playlist or making a study snack to get you inthe mood. For me, I put on a Pandora radio station (so I don’thave the distraction of fiddling about with the playlist) and setout some chips.

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Sisters Are Doin’ It For Themselves…By Estelle Pearson ()

President Estelle Pearson looks behind the numbers to kickstartconversation on gender diversity in the actuarial profession.

One of the objectives that I set myself at the start of the yearwas to do something to encourage our female members to beambitious about their careers. Why, you may ask? What do theInstitute’s own statistics on gender diversity show? Well here ishow we look.

FemaleFemale MaleMale

Banking 31% 69%

Data Analytics 35% 65%

Education 30% 70%

General Insurance 36% 64%

Health Insurance 38% 62%

Investment & FundsManagement

17% 83%

Life Insurance 35% 65%

Reinsurance 31% 69%

Risk Management 37% 63%

Superannuation 32% 68%

All Other 31% 69%

Total 33% 67%

Around a third of our 4,300 members are women, and this ispretty consistent across the various practice areas – with the

notable exception of investment and funds management, whereless than 20% of members are female.

Looking at membership by age, there is a distinct change in theshape of our gender diversity over time.

All members Fellow Associate Student

Age Female Male Female Male Female Male Female Male

20-35 40% 60% 33% 67% 45% 55% 41% 59%

36-50 30% 70% 27% 73% 37% 62% 40% 60%

51+ 11% 89% 10% 90% 17% 83% 0% 100%

Total 33% 67% 25% 75% 40% 60% 41% 59%

While women were only 10% or less of members 30 years ago(inferred from the proportion of female members over 50), theyrepresent 40% of members currently under 35. I was however alittle surprised to see that, even in this younger age bracket, onlyone-third of Fellows are women – suggesting either that ourfemale members are taking longer to reach the Fellowshipqualification, or are more likely to choose to stop at Associatelevel.

In terms of leadership positions at the Institute, womencurrently make up –

• 33% of Council members.• 25% of the membership of Practice and Council Committees.• 29% of the Convenors of Practice and Council Committees.• 57% of Young Actuaries Program Organising Committees.

Our own statistics on diversity do not appear too shabby,although we still slip below the 30% ‘critical mass’ figure in somecases (this is the level at which diversity becomes moreeffective). However we work in industries where there remains awide disparity between the sexes in terms of executive positionsand pay; for example, I counted only three APRA authorised

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general insurance companies with a female CEO. And this isdespite research that now concludes that having more women insenior roles is positively correlated to better companyperformance. Most large and even medium-sized organisationshave established diversity committees, and some companieshave set targets for female representation within the executiveranks. The Australian Institute of Company Directors launched amajor initiative this year asking boards to ensure that 30% oftheir directors are female and urging the S&P/ASX200companies to achieve this target by the end of 2018. So with anarticle in the press at least once a week on gender diversity, thisseemed like an opportune time to do something within theactuarial profession aimed at our female members.

Following a discussion with the other women on Council – JennyLyon, Hoa Bui and Lisa Simpson – together with Institute DeputyCEO Elayne Grace, we decided to start with a couple of ‘ActuarialWomen’s Forums’ in Melbourne and Sydney in June. We werefortunate to have the support of a number of female actuaries ininfluential roles agreeing to participate, and both the Sydneyand Melbourne events sold out. Thanks to Angela Tong for herreport on the Sydney event, which appeared recently inActuaries Digital. Looking at the feedback on the events I tooktwo key messages. First, there was almost universal demand formore events of this nature. Second, this should be the start of aconversation across our profession on diversity more generally.

The two women’s forums were an opportunity to bring togethermembers from across our various practice areas which, giventhe ever increasing level of specialisation within the profession,happens much less often than in the past. I was part of twoother important cross-practice events in May – the Insightssession on the Role of the Appointed Actuary held in Sydney,and the Actuaries Summit held in Melbourne. As well as over450 of our own members, the Summit drew Presidents or theirrepresentatives from six international actuarial associations. Forthose working outside the life and superannuation sectors Ithink that it is too easy to dismiss the Summit as not being‘relevant’. As someone who has spent almost their whole careerin the general insurance sector, I got a lot out of the plenarysessions (the economy, geopolitical risk and effective publicpolicy to name a few of the topics covered) as well as theconcurrent sessions I attended (the sustainability of hospitalcover in health insurance, the early days of the NationalDisability Insurance Scheme, digital disruption, child protectionand retail analytics). We can always do better of course; I knowthat David Bell has some views on the low level ofrepresentation of female plenary speakers and I have someideas on broadening the content of the program even further,however I think that we start from a very positive place and theorganisers of the Summit deserve our thanks and praise.

The Insights session on the Appointed Actuary (AA) role drew anaudience of 160 across life, general and health insurancehighlighting the importance of the AA role to the profession.While there has been a regulated role for actuaries in the lifeindustry since the 1940s, the role is much more recent ingeneral insurance (2002 in the wake of the HIH collapse) andhealth insurance (2004). The session followed from the work ofthe Life AA Taskforce, and at the urging of APRA who areundertaking a holistic review of the AA role across life andgeneral insurance this year (and assumed the regulation ofhealth insurers from 1 July). The session was a perfectopportunity for the profession to engage with APRA and todebate what the role of the AA was, is and should be. We will besetting up a discussion forum shortly to allow the profession tocontinue this conversation, and we will draw on this to provideinput to APRA’s wider review of the AA role.

If you have any comments or questions on this article, my recentreport to members on the June Council meeting or any other

Institute matters, please don’t hesitate to contact me atestelle.pearson@actuaries.asn.au

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MRA signed with Canadian InstituteBy Actuaries Institute (Actuariesmag@actuaries.asn.au)

A new agreement between the Actuaries Institute AustrA new agreement between the Actuaries Institute Australiaalia andandthe Canadian Institute of Actuaries has paved the way forthe Canadian Institute of Actuaries has paved the way forgreater career opportunities in the profession.greater career opportunities in the profession.

The Mutual Recognition Agreement (MRA) allows, for the firsttime, for mutual recognition of Associates as well as Fellows.

“I am pleased to have taken part in this momentous signing andhope the membership will greatly benefit,” said Estelle Pearson,2015 Actuaries Institute Australia President.

The agreement stipulates the conditions upon which a memberof the Canadian Institute will be admitted to the AustralianInstitute and vice versa.

This is the first of the Australian Institute’s continued efforts toinclude Associates in all future MRAs in order to provide agreater breadth of potential career opportunities overseas.

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Airborne – a view of data analytics in AustralasiaBy Hugh Miller ()

Taylor Fry actuary Hugh Miller on the exploding demand foractuaries in data analytics.

In April this year, Qantas Loyalty, a subsidiary of the airline, tooka 51% stake in Taylor Fry, a general insurance actuarialconsultancy founded in 1999.

This came as something of a surprise to many traditionalactuarial clients, including insurers and injury managementschemes. However, it follows a growing trend with Woolworths,the supermarket giant, taking a 50% stake in Quantium in May2013.

InsurInsurance analyticsance analytics

Insurance is an industry with remarkable complexity; pricing isoften opaque to the consumer and these days is often tailoredto the individual characteristics of customers. Online quoteshave intensified competition.

There has been huge growth in the amount of data available(geographic, meteorological, demographic, telemetric,competitor as well as the traditional claims history) tounderstand insurance risk and demand.

“The complexity of things – the things within things – just seemsto be endless. I mean nothing is easy, nothing is simple.” AliceMunro

Increasingly, actuaries have brought their skills to deconstructthis complexity, driving growths in profits and market sharethrough the use of sophisticated pricing models and priceelasticity models.

However, models that overfit to spurious trends or ignore thebigger strategic picture can lead to poor results. Without theguiding hand of an experienced and skilled actuary, this can leadto a winner’s curse, rather than a winner’s boon.

The challenge varies across insurance classes. For instance,injury management schemes such as workers’ compensationschemes have huge heterogeneity in injury types and recoverypathways. Better understanding these pathways via analyticsallows optimisation of support offered to claimants, leading to awin for both scheme funders and injured customers.

Insurance represented much of the early analytics work at TaylorFry. Although the core functions of pricing, reserving, claimsmanagement have remained the same over time, our actuarialwork has also been shaped by technological change andadvancements in statistical modelling.

Government and welfareGovernment and welfare

Many governments have now recognised the power of data andanalytics for maximising the effectiveness of finite fiscalresources. Taylor Fry provides an annual actuarial valuation ofthe New Zealand welfare system, estimating benefit paymentsthat clients are expected to receive over their working agelifetimes. By monitoring how this cost is changing, the effect ofpolicy and operational changes can be measured, enablingbetter management.

Actuarial skills used in identifying high-risk segments (such asclaimants likely to have long return-to-work durations in injurymanagement schemes) can be adapted to target social welfareclaimants that are also likely to take a long time to return-to-work. Targeted investments can be developed to improveemployment outcomes and thus reduce lifetime cost – giving animproved outcome for both the claimant and the government.

“We should measure welfare’s success by how many peopleleave welfare, not by how many are added.” Ronald Reagan

This framework allows governments to measure their return oninvestment in interventions, thereby demonstrating value fortaxpayer money.

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Our models for the NZ government build in a large variety of riskfactors including region, education and age to show howpeople’s circumstances affect their pathways through thewelfare system. Over the past three years the government hasreduced lifetime welfare costs by over 10%, even after allowancefor favourable economic performance. Disciplined measurementand implementation has made this investment approach towelfare a powerful demonstration of effective governmentanalytics. Other countries are watching closely, with Australiarecently announcing an investment approach to welfare thatuses annual actuarial valuations.

Another notable feature of our work is that it is one of our firstsupercomputing jobs; calculations are spread across a bank ofcomputers and our projections quickly create terabytes ofinformation.

There are many other government activities where increasinglyactuaries have been applying data analytics. There is hugepotential for actuaries to add value in government sectors suchas fraud and compliance, health, justice, housing and education.

Loyalty solutions and airlinesLoyalty solutions and airlines

With a new majority shareholder, airline analytics will continueto be a core part of our work. Most of our work is in the loyaltydivision; Qantas, like many airlines, has a large and profitablefrequent flyer program. Taylor Fry’s Analytics services assistsQantas in leverage this program in a number of ways.

We assist Qantas to increase engagement in the frequent flyerprogram through targeted communication and offers. Analyticscan maximise the useful information given to customers whileminimising ineffective communication, leading to betterengagement and increased sales. As actuaries, we have beenapplying our skills in predicting insurance customer behaviourfor many years, and we have transferred those skills to predictthe response of customers to marketing communications.

“If you want to be a millionaire, start with a billion dollars andlaunch a new airline.” Richard Branson

Qantas is also expanding its range of business services,leveraging the vast amount of information it has on its 10.7million frequent flyer members. Qantas Loyalty helps itspartners to acquire and grow its customer relationships, with afocus on proving the effectiveness of campaigns.

One example of these services is digital advertising. Byoverlaying analytical insights from the frequent flyer programwith behavioural data from the online world, clients can createtargeted and effective online ad campaigns to drive sales andbrand recognition. Technically this means we now arecompetitors with companies like Google, which can seemdaunting! However, with the right mix of data, measurement andanalysis we believe there’s significant value to be created.

Other industriesOther industries

We have also been involved in some analytics projects in otherindustries including telecommunications, energy and banking.Again, these industries are characterised by the availability oflarge amounts of data, which can be analysed using our skills, toassist companies in understanding the long term implications oftheir decisions, and driving their planning based on thoseinsights.

Recurring themesRecurring themes

“Twice and thrice over, as they say, good is it to repeat andreview what is good.” Plato

While every analytics project is different, there are a number ofrecurring themes in our analytics work:

• Ensuring our work adds valueadds value. This means constantly askingwhether a solution will have a positive impact on business,and whether there is a practical implementation of aproposed solution.

• A bias towards understanding long-term implicationslong-term implications.Traditional actuarial work often involves projecting over longterms, and this skill is vital in many other contexts.

• It takes timeIt takes time to move into a new industry. Successfulmodelling depends on a deep understanding of the language,dynamics and challenges of an industry. This also means a lotof research, as well as working with and learning from otherexperts.

• There is a lot of competitioncompetition. In Australasia traditionalactuarial work is performed by a relatively small number offirms. However in the broader analytics space competitorsinclude economists, technology companies, start-ups,management consultants, software vendors and even acompany’s internal analytics team. This involves learninghumility – recognising that many other people are doing lotsof work, much of it high quality. There are no AppointedAnalyst statutory roles!

Source of successSource of success

“Whatever you are, be a good one” Abraham Lincoln

While all success relies on a mix of planning and luck, we thinkthat the following factors have had the strongest contributing toour analytics practice.

Firstly, strong technical skillsstrong technical skills are needed in data analysis andmodelling. In a world where better prediction translates directlyinto revenue or savings, being able to provide a good technicalsolution to a problem is paramount. This increasingly requiresexpertise in statistics and computer coding. It also requiresmaking your IT department your new best friend. Keeping ontop of developments in academia can also be rewarding, as bestpractice continues to develop.

Second is business insightbusiness insight. Many analytics projects have sufferedfrom either ‘solving the wrong problem’ or ‘losing the forest forthe trees.’ Best practice analytics goes beyond describing currenttrends; it must recognise how a model can be used to driveoperational change and improvement.

Third is integrityintegrity. The actuarial brand is widely respected and thepublic generally believe that fellows are appropriately skilledand give honest, impartial and objective advice. We arefortunate to have inherited this reputation and recognise theneed to maintain it in the advice we give.

The analytics industry is wide and fragmented, and growing;actuaries are only a part of a landscape that is rapidly evolving.However, our experiences suggest that actuaries have a valuablerole to play.

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Finalists announced for Insurance IndustryAwardsBy Actuaries Institute (Actuariesmag@actuaries.asn.au)

The Australian and New Zealand Institute of Insurance andFinance (ANZIIF) and founding partner Asia Insurance Reviewhave announced the finalists of the 2015 Australian InsuranceIndustry Awards.

These awards, now in their 12th year, recognise the industry’stop performing individuals and businesses and aim to foster aculture of professional excellence.

“The Awards are an opportunity for the Australian insuranceindustry to join together to celebrate achievement andcommunity. As one of the highlights of the insurance calendar,the Awards play a vital role in recognising and promoting thecontribution of our industry and the work that individuals andbusinesses undertake to ensure that the community is well-served,” said Prue Willsford, CEO of ANZIIF.

“The candidates showed a very high degree of commitment tostandards of excellence and originality that convinces me that inmany ways the Australian insurance industry is ahead of thepack globally,” said Sivam Subramaniam, Editor-in-Chief of AsiaInsurance Review.

The winners will be announced at the Australian InsuranceIndustry Awards in Sydney on 19 August 2015. The finalists foreach category are:

Small Broker of the YSmall Broker of the Yearear

Consult Insurance Solutions Pty Ltd

Simplex Insurance Solutions

Medium Broker of the YMedium Broker of the Yearear

GSA Insurance Brokers

Planned Cover

Scott Winton Insurance Brokers

LarLarge Broker of the Yge Broker of the Yearear

Aon

Jardine Lloyd Thompson

Marsh

Willis Australia

Underwriting Agency of the YUnderwriting Agency of the Yearear

All Parks Insurance

Brooklyn Underwriting

DUAL Australia Pty Ltd

PetSure Australia

Small-Medium GenerSmall-Medium General Insural Insurance Company of the Yance Company of the Yearear

Hospitality Employers Mutual Limited

National Transport Insurance

LarLarge Generge General Insural Insurance Company of the Yance Company of the Yearear

Allianz Australia

CGUQBE Insurance (Australia) Limited

Life InsurLife Insurance Company of the Yance Company of the Yearear

AIA Australia

CommInsure

MLC

TAL

Innovation of the YInnovation of the Yearear

Allianz Australia

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Aon

Gratex International

Professional Services Firm of the YProfessional Services Firm of the Yearear

Barry.Nilsson. Lawyers

DLA Piper

Finity

Minter Ellison

Service Provider to the InsurService Provider to the Insurance Industryance Industry

Gratex International

JB Hi-Fi

recoveriescorp

WWomen’s Employer of the Yomen’s Employer of the Yearear

BT Financial Group

Insurance Australia Group

TAL

YYouth Development Employer of the Youth Development Employer of the Yearear

Ansvar Insurance

BT Financial Group

Munich Reinsurance Company

YYoung Insuroung Insurance Professional of the Yance Professional of the Yearear

Victoria Norden – (Auto & General)

Katherine Ashby – (BT Financial Group)

Chris Healey – (Swiss Re)

Alexandra Blannin-Ferguson – (Willis Australia)

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Firm visit opens students up to possibilitiesBy Rahual Ram ()

A 4am bus trip to reinsurance and data analytics companies inSydney proved well worth it for senior actuarial students. Advicefrom experienced actuaries helped challenge stereotypes anduncover mysteries shrouding ‘real world’ actuarial work andcareer opportunities. Rahual Ram reports.

One early morning in May 2015, a group of 20 penultimate andfinal year ANU actuarial students boarded a bus up to Sydney toattend the annual AFEC Actuarial Trip. The aim of the trip was toprovide an educational insight into the inner workings ofactuarial firms and the type of work that could be expected froma qualified actuary in the industry. This trip has been aconsistent tradition of AFEC for the last seven years and it waswith excitement that I attended this trip as an organiser thisyear.

With this in mind, my team and I approached many Sydneyactuarial firms including AMP, Reinsurance Group of America,Quantium, Ernst & Young, PwC, Zurich Financial Services andDeloitte who we were lucky enough to fit into our tight two dayschedule. Being able to secure such prestigious and diversefirms was a real privilege for the students attending the trip as itgave a rewarding insight into the applicability of actuarial skillsthroughout the financial sector. Each company prepared a shortpresentation followed by a networking session where a range ofactuaries from both the life insurance and general insurancedivisions were present to answer any of the students’ questions.

“There is quite a bit of mystery and complexity that shrouds theactuarial trade which imbues a lot of uncertainty in students.”

For many of the students, this was their first time venturing intothe financial capital of Australia so when we boarded our bus at4am I received a lot of nervous questions on what exactly someof the firms did. In particular, the reinsurance and data analyticcompanies seemed to be shrouded in a veil of mystery as totheir actual inner mechanisms.

It wasn’t till we actually visited RGA and Quantium that itbecame clear as to how the actuarial skills we learn in universitycould be applied to reinsurance and data analytics. The feedbackfrom all the students was overwhelmingly positive in relation toboth these companies. Most of us had walked in expecting a dulland boring discussion on the role reinsurance and insuranceplays in the Australian economy but were pleasantly surprised

by the diversity and complexity of the work undertaken. Inparticular, the presentations linked various skills, such asmodelling risk and financial instrument pricing, that we hadlearnt through our university degrees with real life applications.This aided in clearing some of the mystery surrounding theactuarial industry by providing solid products to theoreticalconcepts for many of the students, including myself.

“it was surprising to see that all firms, including the corporates,didn’t fit into this stereotype.”

The students also appreciated the friendly and open atmosphereat RGA and Zurich. In the case of both these companies, wewere greeted by the Chief Actuaries in their respective fieldswhich shocked many of us as we were not expecting to be ableto talk with actuaries who had progressed so far into theindustry. RGA, in particular, had both their Chief of PricingActuary in the Asia Pacific Region, Alissa Holz, and Regional Headof Human Resources, Andrew Bishop, who had just flown infrom Japan that morning, in attendance. They made time in theirbusy schedules to give us a presentation on why they decided tofollow the path to becoming an actuary and what exactly theirjobs entailed. Zurich also had a very informative presentationfrom actuaries in each of their operating divisions which reallygave the students a well-rounded and holistic image of theactuarial industry.

“…the firms really helped to ease a lot of the concerns studentshad regarding the difficulty of the path to becoming an actuary”

AMP, EY, PwC and Deloitte all gave presentations from theiractuarial divisions which the students, including myself, foundextremely informative. In particular, the firms helped contrastthe varying types of insurance such as life and generalinsurance. I found this helpful in compartmentalising the skillstaught in the core technical modules at ANU such as LifeContingencies and Risk Theory. It really assisted in solidifyingthe theoretical material taught in these courses with real lifeexamples. They also helped illustrate the divergence betweencorporate and consultancy firms in the types of work andapplications of actuarial skills. The general view before the tripwas that consultancies had a larger range of projects but longerhours whilst corporates dealt with repetitive work from 9am to5pm each day. However, it was surprising to see that all firms,including the corporates, didn’t fit into this stereotype. In fact,

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the corporates were relatively more innovative and diverse intheir application of actuarial techniques.

I also received feedback from a range of students saying howthe presentations from these firms changed their perspectiveson pursuing their Part II and III qualifications. The general viewwas that the Part I qualification is relatively easier than thesubsequent Part II and III exams which is an intimidating barrierfor most students studying an actuarial science degree.However, through both the presentations and the networkingsessions, the firms really helped to ease a lot of the concernsstudents had regarding the difficulty of the path to becoming anactuary. The team from PwC and EY were particularly helpful inthis regard as they invited several recent graduates along whohad just completed their first Part II exams. These graduatesadvised that Part II exams were very practical and hence, if youworked in the actuarial industry, you could easily relate to thematerial being taught making it much easier to understand.

Overall, the actuarial trip was a great and rewarding experiencefor all the students that attended. From an actuarial student’sperspective, it is quite difficult to make the link between what isbeing taught in university and the practical applicationspresented within the industry itself. There is quite a bit ofmystery and complexity that shrouds the actuarial trade whichimbues a lot of uncertainty in students. It isn’t till you talk withfellow actuaries that have walked down the path before you thatit really becomes clear the kinds of diverse and interestingapplications that actuarial skills have within the real world. Thatis why I believe the actuarial trip was an immensely valuableinsight as the students not only got to meet future potentialemployers but were also able to pierce the veil and discover theinteresting opportunities within the actuarial industry.

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Report challenges debate on climate changeversus economic growthBy Nick Wood ()

Nick Wood, director of Climate Policy Research, comments onthe recent publication: ‘Health and climate change: policyresponses to protect public health” by The Lancet Commission.

At first glance, the findings of the report are unsurprising. It is asolid and well-rounded analysis of the risks to global health fromclimate change: The sort of thing that you would expect fromthe UK’s pre-eminent medical journal with contributions fromthe UK and Europe’s top academics, with an excellent 3 minutevideo summarising the findings.

Source: Lancet Commission

However, when you read the report in detail, it becomes veryobvious that it is much more than that. The research introducesa critical element into the debate; that of the risk to health fromeconomic growth based on fossil fuels.

“The effects of climate change are being felt today, and futureprojections represent an unacceptably high and potentiallycatastrophic risk to human health” – Lancet Commission’s‘Health and climate change: policy responses to protect publichealth’

The involvement of African and Chinese academics in theresearch provides a development perspective (often missed in

the developed world debates) and their message is clear: Thecombination of urbanisation, the effects of climate change andeconomic growth based upon access to cheap fossil fuel (themain plank in the argument that coal is good for humanitybecause it provides cheap energy for developing nations) risksreversing half a century of gains in development and globalhealth.

This is no longer a two-sided argument between mitigation andeconomic growth.

“Protect cardiovascular and respiratory health by ensuring arapid phase-out of coal from the global energy mix. Many of the2200 coal-fired plants currently proposed for constructionglobally will damage health unless replaced with cleaner energyalternatives.” – Lancet Commission’s Health and climate change:policy responses to protect public health’

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Welcome to New Members - June 2015By Actuaries Institute (Actuariesmag@actuaries.asn.au)

Welcome to the Institute’s newest members!

AustraliaMichaela India ANDERSON (WA)Declan Michael BURKE (NSW)Sijing CHEN (NSW)Samuel Colin James COYTE (SA)Sarah Anne DICKSON (NSW)Dean Michael EXIKANAS (NSW)Zheng FENG (NSW)Victoria Yuan GAO (NSW)Jamie GATT (VIC)Hui HUANG (QLD)Andrew James IEMMA (NSW)Lucky Yulius JOENG (NSW)Andrew On Du LAU (NSW)Ruixuan LIU (NSW)Yi Han LOW (NSW)Edwin LU (NSW)Serena MIN (NSW)Umais Mehmood MINAI (NSW)Romilla Sudarshini MOHAN (NSW)Tinashe Slyvester MURINGAKUMWE (NSW)Bowei NIE (NSW)Niamh NOLAN (VIC)Harriet Toto OLITA (WA)Omotebi OLUBIYI (NSW)Michael QIUM (NSW)Jaymil Parshad RAVAL (NSW)Denise RHIND (NSW)Kieran Andrew SMITH (NSW)Jasmine Eva TAN (NSW)Shen TIAN (NSW)Duc Trung VO (NSW)Cindy VUONG (NSW)Hao-Chin WANG (NSW)Jingjue WANG (NSW)Xiang ZHENG (VIC)

OverseasXincheng CAI (Singapore)Wai Ho CHOI (Hong Kong)Sue Yi CHOW (Malaysia)King Sang LEUNG (Hong Kong)Gabriel Loukas Daniel LYDEN (New Zealand)Brett James MAINWARING (New Zealand)Maria Camila PLATA VALENCIA (New Zealand)Joshua Graham REID (New Zealand)Joan-Claire Mac SHACKLETON (Singapore)Leonardi TJOKRO (Indonesia)Joseph TOH (Singapore)Stephanus WIDJAJA (Indonesia)Cheng XUE (China)Jingwei ZHENG (New Zealand)Runjie ZHU (China)Songchen ZOU (Hong Kong)

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From Big Bang to Data TransformationsBy Amanda Aitken (amanda@actedge.com.au) and Yifan Fu (yifan.fu@aonbenfield.com)

We love talking about ‘big data’ but what does the buzz wordmean for industry? Yifan Fu and Amanda Aitken sum up eightexpert presentations, painting a picture of how data isinforming boards and transforming the insurance market.

If you didn’t make it to the Actuaries Summit or GI One DaySeminar, we can tell you some interesting themes emergedacross the Data Analytics sessions.

The exponential pace of change within the industry is clear.Unstructured and external data (of which there is plenty!) can bejust as valuable, if not more so, than structured, internal data.The challenge is harnessing and making sense of it, whileprotecting individuals’ privacy.

Actuaries have a lot to contribute in the field of Data Analytics,being able to combine strong mathematical and technical skillswith great business acumen and holistic knowledge of abusiness’s operations, but there are many other professions alsovying for a seat at the table.

This article provides highlights from event sessions focused onthis growing field of actuarial work. We hope it inspires you tolisten to and read more on these great presentations.

Digital Disruption to DigitalTransformationStephen Huppert, a partner at Deloitte, took his audience on aride through the latest technological advancements, includingrobotic bank advisors in Japan and drone insurance assessors.He asked us to imagine a future of super intelligent roboactuaries and questioned whether this future represented athreat or opportunity. Stephen took us through examples of BigData uses within insurance and touched on the need for balancebetween an individual’s right to privacy and the benefits of BigData.

Highlighting that digital disruption is one of the biggestuncertainties facing the finance sector today, he challenged hisaudience to rethink whether disruption can actually be a forcefor good, often leading to increased efficiencies within anorganisation.

The aim of Stephen’s session was to give his audience “thecuriosity to go away and learn more”.

AudioPresentation

Disability Income DataKPMG’s Michael Dermody and Chris Scheuber from MLCpresented several Data Analytics driven solutions to improve thefuture outlook for the Australian disability income product.Many of their insights were gained through discussions withdirect disability income writers, reinsurers and claims systemvendors.Michael and Chris proposed a range of actions for disabilityincome writers, including connecting data systems, leveragingunstructured data, collecting new data and increasing overlapbetween teams (eg underwriting, claims, strategy). Theysuggested that starting small and gradually building analyticalcapability over time can be a useful strategy, particularly whensome problems are so big that you may not need much data tofind them.

Michael and Chris found it heartening to see evidence ofactuarial involvement in Data Analytics, but feel that actuariesneed to be more involved in prescribing what data to collect.Their presentation ended with some interesting discussionabout software tools currently being employed within the field.

AudioPresentation

Generational Differences inConsumer BehaviourRobert Baskin, a data scientist at Quantium, presented acustomer behaviour case study to demonstrate the potential useof Data Analytics within the retail industry. He analysed the levelof product take-up and repeat purchasing for the following fourcustomer cohorts:

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• Traditionalists or “Gen Safe”• Baby Boomers• Generation X or “Gen Stress”• Generation Y or “Millenials”

Who would have known that Baby Boomer shopping baskets aremost likely to contain salmon and thank you cards, while you’remore likely to find beer and pregnancy tests in the baskets ofGeneration Y! Robert not only summarised the findings from hisanalysis, but provided several interesting insights such as thechanging customer mix over a product’s life cycle and the needto adapt product messaging to respond to this change.

Robert articulated that the beauty of data analytics is its abilityto show you what’s happening and then “it’s up to you to eitherdesign analysis to understand why or to speculate”. He alsoflagged the importance of tailoring your information to youraudience.

AudioPresentation

Big Data in the BoardroomTim Trumper, an advisor to the Board of Quantium, gave us ataste of some of the exciting ways Data Analytics is being usedby companies around the world to outstrip their competitors,including:

• Amazon’s real time learning models, helping them togenerate 30% of their revenue through a cross sell algorithm;

• Walmart’s use of mobile phone data to know what theircustomers are buying and from who;

• Intel’s microscopic body temperature camera, which detectshow your body reacts to different products as you walk downthe supermarket aisle; and

• Netflix’s click stream data mining, which helps them answersuch questions as which colours help them sell moreproducts.

Tim discussed the ever changing nature of information sourcesavailable to businesses and cautioned Boards not to wait for adisaster to strike before trying to understand what’s going onaround them.

Audio

The data industry itselfQuantium’s Karl Marshall opened his presentation with anoverview of the current Data Analytics industry and forecastedits annual growth rate to 2020. In simple terms, Data Analytics isbooming and is one of the exciting new areas of actuarial work.He discussed the relationship between data, analytics andtechnology and encouraged companies to integrate their owndata with external data sources to deliver the best analyticaloutput.

Karl highlighted the importance of effective delivery in terms ofboth timing and context. He also shared Quantium’s experienceof utilising India as an analytics hub and provided observationson the strength of actuaries in the field of Data Analytics.

Presentation

A holistic view of dataMatt Kuperholz from PwC shared his own transformation from“computer nerd” to actuarial analyst working in the DataAnalytics field, providing a good reference for other actuariesconsidering a move into this space. He highlighted three relatedskill sets and how they combine to form the core skills neededfor a data scientist, discussing the need for multi-disciplinariansgiven the dynamic nature of a data scientist’s work.Matt reflected on the value of combining internal, external andsocial data to improve business understanding and finished hispresentation with an example of how to improve data use ingeneral insurance risk rating, to provide better businessunderstanding and assist with strategy deployment.

Presentation

Data lead transformationIAG’s Julie Batch shared her observations on how industries havebeen transformed by information technology. She stressed theimpact of “disruption technologies” to traditional business andcompared different organisation and industry responses tothose changes and their (sometimes disastrous) outcomes.She listed several areas in the general insurance industry underthreat from new technologies, with actuaries included on thislist! Her comments about “the death of the actuarial professionin 50 years’ time” generated a lot of discussion amongstparticipants and provided a great challenge to the profession toconsider how we should adapt to the changing environment toprevent extinction!

Presentation

Day-to-day analyticsoperationsDarren Rob from Allianz started with an overview of how datafeeds into analytics, which leads to report findings and finallyresults in actions. He borrowed Suncorp’s Descriptive,Diagnostic, Predictive and Prescriptive approaches todemonstrate the changes we face as an industry in terms ofbusiness intelligence.

Discussing the requirements, foundations and benefits for aninstitutional analytics team, Darren described the day-to-dayoperations of analytics within general insurance, from traditionalactuarial valuation work to advanced customer and partneranalysis. He compared different structural options for analyticsteam and the similarities and differences between actuarialteams and mixed analytics teams. Darren shared his valuableexperience as an actuary working with analytical professionalsfrom different backgrounds. He values the quality of theactuarial profession, however stressed the need for teamcollaboration and soft (people & communication) skills.

PresentationAudio for “Data and Analytics: Bottom Up or Top Down?”

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ACTUARIES INSTITUTEABN 69 000 423 656LEVEL 2, 50 CARRINGTON STREETSYDNEY NSW 2000 AUSTRALIA

t +61 (0) 2 9239 6100f +61 (0) 2 9239 6170e actuariesmag@actuaries.asn.auw www.actuaries.asn.au