The Great Risk Transfer – One year on

man playing jenga while reading report with graphs

John Taylor, Immediate Past President of the Institute and Faculty of Actuaries reviews The Great Risk Transfer ahead of the launch of the campaign's recommendations.

A year ago on January 31st 2020, the IFoA launched a major campaign for the year, The Great Risk Transfer. It was set up to investigate the increasing transfer of risk from institutions to consumers when it comes to planning their finances. While this shift gives consumers greater freedom to manage their affairs, making these financial choices can be extremely complex and, even where good choices are made,  the scarcity of risk-sharing mechanisms means significant risks often remain. As the campaign kicked off, we put out a call for evidence to understand the drivers of this trend and which groups are being affected. We also wanted to hear examples of how the problem is being overcome, alternative approaches to how risk is shared between institutions and consumers, and whether there are any barriers to innovation in this area.

Little did we know then how many other challenges would be coming our way as the year progressed. Covid-19 has introduced more uncertainty, rocked markets, and forced the idea of individual risk management into the consciousness of populations around the world. We have seen many governments reversing the prevailing direction of risk transfer to protect workers and businesses. But many of these measures have been designed to provide a short-term boost and we have yet to see if there will be a long-term change in policy. In this environment, it felt more important than ever to investigate the root causes and societal implications of risk transfer and open up a public conversation about which risks are worth taking and who should stand behind those risks.

In July, we released our interim campaign report which helped to further our understanding of the different ways risk is being shifted. We were able to consider specific examples in the areas of pensions, insurance, employment and health. A wide range of submissions allowed us to view this through a more global lens, with input coming from as far afield as India, Israel and Singapore. From the start, we knew it would be essential to take an evidence-based approach so we are grateful to all those who have provided us with examples of how and where the transfer of risk is happening in people’s day-to-day lives.

There is evidence that individuals have, over time, taken on a larger share of risk. We want to consider how to equip them with the skills to make complex decisions and to examine options for reducing exposure to risk. The key themes from the interim report have laid the groundwork for the policy recommendations that will be detailed in the final report. This will be released in the next few weeks and will give decision makers specific ideas on how to address the question of how governments, regulators, companies and individuals share the burden of risk.