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The powerful skills of data analysis and statistical interpretation enable insurance companies to develop responsive solutions to evolving risks.

We are living longer. The life expectancy of a Canadian increased 11 years from 71 years in 1960 to 82 years in 2015, according to the World Bank. There are many reasons to celebrate this fact. We get more opportunities to eat birthday cake, we have more time to celebrate with good friends and family, and more occasions to experience what brings us joy in life. But ageing can also be fraught with risk. While individuals face the increased risk of illness or disease, society must face the risk of the costs associated with longevity.

Rebecca Rycroft spends a lot of her time assessing these risks. As a principal and actuarial consultant at Oliver Wyman, a leading global management firm, her job is to weigh all the variables that make up longevity risk and determine how these variables impact the insurance industry.

"It's the actuaries who are tasked with making sure that life insurance companies have the money required to cover the future claims, based on available data and actuarial models," says Ms. Rycroft. This assessment doesn't stop once a person is approved for an insurance policy. "The assessment is ongoing and must be adjusted based on future, predictable, as well as improbable risks so that those companies have the financial strength that people are counting on."

The challenge of competing priorities, competing risks

Ms. Rycroft often faces the task of balancing competing variables, from how long people are living, to what happens if a person cancels their insurance policy, to the impact interest rates have on future funds. "I use the data to create assumptions, and then build models to reflect those assumptions," she says.

Important to her role as a life insurance actuary is the pooling of risks to cover future potential losses. "Insurance works with the law of large numbers," explains Ms. Rycroft. "Our actuarial math works when there are many lives pooled together to share the risk. We can estimate the average age of death for a large group, and get pretty close to the right answer. In contrast, when trying to predict the average age of death for one life, we are quite often way off." That's the logic behind the math and the reason why so many Canadians can sleep soundly at night, knowing their family and loved ones will be sufficiently taken care of should the worst happen.

Ms. Rycroft never planned to be an actuary. It wasn't until she took an actuarial science course at university that she realized how powerful the skill of data analysis and statistical interpretation truly is in a world dominated by facts and figures.

"Mortality isn't new," she says. "What's new is how we can use the data to analyze, make assumptions, and find solutions."

Old methods, new data, and inventive solutions

While expectations and the needs of Canadians may change over time, one thing that does not is the analytical methods employed by actuaries. Ms. Rycroft points out that while risk factors and variables may change, the underlying math used by actuaries stays static—but that doesn't mean the role of an actuary is static or stagnant. "Updated statistics, larger data sets, and adaptive technology enable us to excel at our roles," says Ms. Rycroft.

For instance, the Office of the Superintendent of Financial Institutions (OSFI) recently changed the capital requirements for insurance companies. The implementation of these new regulations doesn't come into effect until January 1, 2018. However, to prepare for the impact, actuaries have spent the last year recalculating risk formulas and understanding the strategic impact on the insurance industry.

Then there are financial reporting changes coming (IFRS 17), which are being supported by the International Association of Actuaries. The association developed a common ground on how risk should be measured, notes Ms. Rycroft, and this gives Canadian insurance companies and any business addressing risk robust tools for assessing a firm's financial strength and the ability to cover policyholder risks.

What Ms. Rycroft is perhaps most excited about these days is how the insurance industry collaborates with technology. Known as "insurtech," these innovations help to find savings and develop efficiencies within current insurance industry models. One example is the use of online applications and virtually instantaneous acceptance. (It actually takes about 15 minutes for an applicant to find out if they qualify for the life insurance, but in the world of insurance, this is a land-speed record.)

"From the actuaries' perspective, we'll have new information and we need to make the appropriate adjustments to our future assumptions," says Ms. Rycroft. "There's a lot changing and actuaries are making sure that's being accounted for appropriately."

Ms. Rycroft considers all these changes and advances in the insurance industry to be positive steps forward. Better data collection, more robust data sets, and these technological advancements help those tasked with making sure the solutions match the forecasts. "We can sharpen our pencils because we have more information, modelling abilities, and computer power. We're doing a better job of measuring risks and understanding new risks that can be quantified and considered."


This content was produced by The Globe and Mail's Globe Edge Content Studio in consultation with an advertiser. The Globe's editorial department was not involved in its creation.

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