My term as president of the CAS has concluded, and this will be the last time I put pen to paper to write this column. I have enjoyed being CAS president immensely. It has afforded me the opportunity to work with a great group of individuals, including CAS staff, member volunteers and leaders of other actuarial organizations. Throughout the year, the work has been rewarding, involving a diverse set of issues with many challenges but with a clear sense of purpose. I think we have made good progress on many of the areas where we set objectives for the year.

I thought I would use this final column to “throw down the gauntlet” for those who follow me.

One area that I had hoped to do more work during my term was research. Research is a key component of the CAS mission. Through an ongoing research program, we develop new approaches and tackle emerging problems so that our profession stays relevant and contributes positively to society.

Over the last year, we have made worthy strides, defining a specific set of research priorities and setting up working parties to focus on them, but there is more we can do. We might take a cue from the Institute and Faculty of Actuaries (IFoA), which has launched a set of high-level research initiatives focusing on major global issues such as retirement income security and longevity risk. The IFoA has articulated each issue and the questions raised by the issues, conducted an RFP process to identify the researchers, and is now providing significant funding to those selected, over a multiple-year time horizon, as the researchers develop answers to the questions. The IFoA’s goal in sponsoring this research is to contribute positively to the development of solutions by offering thought leadership.

Since any initiative of this type would touch on public policy issues, I would expect that the CAS would want to partner with the American Academy of Actuaries (AAA), the Canadian Institute of Actuaries (CIA) and other country-specific organizations in such an endeavor. (As with the IFoA, the issue should be global.) The CAS would fund the research and perhaps develop ideas through collaborating working parties; publication of materials for policymakers would then occur through the AAA in the U.S., the CIA in Canada, etc. This is a similar construct to the one being employed around the Actuaries Climate Index.

While private property insurance provides protection against a variety of perils, it does not provide comprehensive coverage of the economic losses from all perils, and is neither available to, nor affordable for, everyone.

The IFoA did invite the CAS to join in their initiatives, but given that the policy issues mostly related to life and pension, we declined. They also suggested that if we could articulate a similar public policy issue of greater relevance to us, they might join us in supporting an initiative in that area as well. I would favor this partnership, since I think it would contribute to our strategic goal of developing a global property and casualty actuarial community.

Ever since the IFoA first offered to join with us I have been trying to find the time to sit down and draft an articulation of a suitable issue, without success. However, rather than abandoning what I think is an excellent initiative, I thought I would use this final column to “throw down the gauntlet” for those who follow me.

For some time it has struck me that the current system for managing property risk is not as good as it could be. While private property insurance provides protection against a variety of perils, it does not provide comprehensive coverage of the economic losses from all perils, and is neither available to, nor affordable for, everyone. The private property insurance system is supplemented by a variety of public and quasi-public programs that attempt to fill the gaps; these programs work well in some respects and poorly in others. The statistics on take-up rates for flood and earthquake insurance suggest massive levels of uninsured properties, which will push the losses from a major event onto banks and the federal government. Studies of flood claims make it clear that properties need to be rebuilt at a greater elevation to avoid repeat claims; in some cases, some properties should not be rebuilt at all. Political pressures on prices cause property development to continue in disaster-prone areas without adequate consideration of the consequences of further risk concentration. The potential issues in the overall system include gaps in protection, unavailability, unaffordability and misalignment of economic signals and incentives.

Here are some of the questions that I believe need to be addressed:

• Are there catastrophic events of sufficient size that government should share in paying the costs? What is the private insurance industry’s capacity to absorb losses from major disasters, and how might that capacity be expanded if it is insufficient?
• How can insurers be encouraged to expand coverage to be more comprehensive, for example, covering flood and earthquake? Are there real insurability issues with some perils, and how can they be mitigated?
• If there are situations where some perils are commercially uninsurable, would it not make more sense for governmental programs to provide reinsurance coverage to primary insurers rather than offering primary insurance directly, to take the insured out of the middle of coverage disputes (for example, flood versus wind)?
• If the best policy solution is to rebuild to a more resilient standard, how can this be handled within the insurance mechanisms? And, if the best policy solution is not to rebuild at all, how can this be accommodated?
• How can proper economic signals be provided as to the cost of disaster risk, and what is the best way to provide them?
• Can consumers be better educated as to the value of property insurance? Is there a better choice architecture for their purchasing decision process?
• What is the best way to address affordability issues? In some areas price increases have been limited, inadvertently providing subsidies for wealthy as well as lower income homeowners.
• To the extent that climate change has or will affect the frequency or severity of disasters, how can the impact of climate change be reflected in pricing?
• Would it not be better to mandate the purchase of more comprehensive coverage as a condition of obtaining a mortgage? What would the impact on prices of such a mandate?
• Should coverage be restructured into (a) disaster coverage with high deductible to protect against rare significant losses and (b) routine coverage with lower deductible to handle more frequent events? Would this facilitate a better choice architecture for consumers?

There are a plenty of policy questions that need to be addressed, and our members are certainly well-qualified to contribute to developing solutions.

This list is very much a draft, but its main point is to suggest that there are a plenty of policy questions that need to be addressed, and our members are certainly well-qualified to contribute to developing solutions. We would not be alone, as others are already at work in this area. Both Wharton and the Geneva Association have recently published material touching on these issues. However, it is never too late to enter into collaboration with these or other organizations.

As I pass the baton on to the next generation of leaders I would encourage them to consider sponsoring a thought leadership initiative in the property insurance area.

CAS President Stephen P. Lowe is a senior consultant for Willis Tower Watson.