ACTUARIAL SCIENCE & SUSTAINABILITY

Emerging Risks: Actuarial Science, Climate and Pandemics

Emerging risks are defined by the International Risk Governance Council as, “new risks or familiar risks that become apparent in new or unfamiliar conditions.” By the definition of the concept there is uncertainty when it comes to these risks. There is little understanding of how to assess them or at least how to assess them most accurately. Climate change is the number one emerging risk for actuaries in recent years. Although the recent pandemic has also added a new and difficult risk to assess. 

Monitoring stock price

Climate Change

In 2018, climate change became the number one emerging risk among actuaries. While it has been an emerging risk for a while, prior to taking the number one spot it was often viewed as something that was far off in the future. Only in recent years has the presence of global warming been more noticeable and widely accepted. One of the biggest impacts that has made it more important in the actuarial field has been the threat of physical damage, such as rising sea levels and increased natural disasters.  

An important concept when it comes to mitigating these risks, in a way that actuaries can help in the solution, is eco-economic decoupling. This concept refers to a strategy that allows the economy to continue to grow without the negative environmental effects. The International Resource Panel has published reports on this topic and emphasizes the need for the following:

  • More efficient use of resources  
  • More recycling  
  • Reducing waste  
  • Helping the developing world achieve more sustainable growth. 

By identifying these risks and mitigations, actuaries can better assess the financial impacts of climate change and develop models that aid in getting more accurate numbers and projections.

Global Pandemics

The COVID-19 pandemic has affected the world in a variety of ways, and when it comes to the actuarial field, it has impacted just about everything that actuaries evaluate including but not limited to: 

  • Liabilities on insurance risks 
  • Morbidity and mortality in healthcare 
  • Uncertainty in financial markets
  • Impacts on the workforce
  • Disability and workers compensation 

There is growing evidence that additional pandemics are likely to occur given humanity’s impact on the environment, spread across the globe and the globalization of travel, goods and services. Actuaries will need to include this “emerging risk” as part of their assessment models in certain cases.

Learn about sustainability and the courses in this major.

ADVANCE YOUR KNOWLEDGE OF ACTUARIAL SCIENCE AND SUSTAINABILITY

Learn what sustainability risk management is all about and its importance

Learn the important things to know in this field

Learn how sustainability fits into your courses

Learn how sustainability relates to your career