Transcript Can actuaries save the world?

The 3rd Younger Members Convention
29-30 November 2004, The Chesford Grange Hotel, Kenilworth
Can Actuaries Save the World?
Keith Lawrence
Nautilus Consultants
www.nautilus-consultants.co.uk
Laurie campbell photography
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The solution?
“University offers 'Swampy' degrees
A Scottish university is offering courses
in how to be an eco-warrior.
Students will learn the arts of
environmental activism such as
chaining themselves to trees, digging
tunnels and launching campaigns.”
www.ananova.com
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What’s it all got to do with actuaries?
1. Impacts on insurance companies & pension funds
… e.g. climate change affects general insurance claims
2. Actuarial skills and tools are relevant
… many environmental issues occur over the long-term, and
are highly uncertain in nature
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1. Impacts on life insurance co.s & pension funds
 CSR and brand
 Ethical investment trend
 Do greener companies perform better?
 Climate change
 Environmental liability insurance
 The image of the profession
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Case study: Climate Change
 Average global temperature is already rising
 20th century was probably the warmest in the last 1,000 years
 Rainfall patterns are changing
 Sea levels are rising
 Glaciers are retreating
 Arctic sea-ice is thinning
 Extreme weather is more common in some areas
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Climate Change: It’s not all bad news
 Varies by sector
 e.g. warmer summers means more tourists???
 Some studies indicate overall economic benefit for USA
 Opportunities for those who adapt first
 Includes financial services sector
 The Carbon Trust
 Uncertain
 Possibility of extreme climate change?
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2. Actuarial skills and tools are relevant
My experience of moving from conventional actuarial work into the
environmental field
Long-term issues
Uncertainty
a) Risk management
b) Option value
c) Portfolio management
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a) Risk analysis & management for projects (RAMP)
identify risks
Flood defences?
analyse the likely
consequences
Climate change?
identify mitigation
strategies
control
residual risks
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b) Option Value
The value of having an option open to you
Giant redwood forest
Timber
Tourism
 Cutting it down is irreversible … you lose the tourism option
 Uncertainty over future value of timber / tourism
 Can modify the Black-Scholes model
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b) Portfolio Management
How to manage a portfolio of investments over time, to meet an
objective.
Objective: Sustainable Development:
“Economic and social development that meets the needs of the current generation
without undermining the ability of future generations to meet their own needs”
The Brundtland Commission, 1987
Can think of 3 types of capital to manage:
 Produced (conventional economic goods e.g. roads & buildings)
 Natural (landscapes, ecosystems, habitats & species)
 Human (a population who are healthy, educated, happy, …)
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What can YOU do?
 Recycling
 Efficient energy use
 Be a thoughtful consumer
 Lobby for better environmental practices in the workplace
 IoA’s Environmental Research Group
(Chairman Nick Silver … see IoA website)
 Think:
 How do environmental issues affect my industry?
 Can we pre-empt these - first mover advantage?
 Have brilliant ideas that will save the world!
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Conclusions
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The world faces serious environmental issues: climate change,
pollution, unsustainable use of natural resources ...
These issues impact on your industry:
Climate change
general insurance claims
Environmental liability insurance
Ethical investment
Image
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Actuarial skills and tools could be valuable:
Long-term issues, uncertainty
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Conclusion: Can actuaries save the world?
CAN take the lead in adapting to change
… and in assessing the impacts on your industry
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CAN apply actuarial skills and tools to some environmental
issues
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Thank you
Keith Lawrence
Nautilus Consultants
www.nautilus-consultants.co.uk
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