Modelling isn’t just about money

Last autumn I was at an actuarial event, listening to a presentation on the risks involved in a major civil engineering project and how to price possible insurance covers. It must have been a GI (general insurance), event, obviously. That’s exactly the sort of thing GI actuaries do.

The next presentation discussed how to model how much buffer is needed to to bring the probability of going into deficit at any point in a set period below a specified limit. It sounded exactly like modelling capital requirements for an insurer.

But then the third presentation was on how to model the funding requirements for an entity independent of its sponsor, funded over forty to sixty years, paying out over the following twenty to thirty, with huge uncertainty about exactly when the payments will occur and how much they will actually be. It must be pensions, surely! A slightly odd actuarial event, to combine pensions and GI…

The final presentation made it seem even odder, if not positively unconventional: the role of sociology, ecology and systems thinking in modelling is not a mainstream actuarial topic by any means.

And it wasn’t a mainstream actuarial event. It had been put on by the professions Resource and Environment member interest group, and the topics of the presentations were actually carbon capture, modelling electricity supply and demand, funding the decommissioning of nuclear power stations, and insights from the Enterprise Risk Management member interest group’s work – all fascinating examples of how actuarial insight is being applied in new areas. And to me, fascinating examples of how the essence of modelling doesn’t depend nearly as much as you might think on what is actually being modelled.

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