Royal chartered professional body Institute and Faculty of Actuaries (IFoA) has released a 36-page report examining the role played by actuaries in the pricing of UK home and motor insurance.
“This report on pricing in the UK motor and home insurance market is the second thematic review undertaken as part of our actuarial monitoring scheme,” noted by Neil Buckley, lay chair of the IFoA regulation board. “It points to the IFoA’s continued commitment to independently review key areas of work where actuaries have significant involvement and influence.
“Our recommendations from these reviews are intended for a range of stakeholders with members and their work at the core. However, we also use the review to carefully consider our own standards, guidance, and education to ensure the IFoA remains relevant.”
The IFoA’s recommendations fall into three categories – member recommendations, regulator recommendations, and education recommendations.
One of the member recommendations states: “Actuaries should always consider potential conflicts of interest, including recent guidance on the ethical application of data science. This is particularly important given the increased use of data and complex models which may result in a risk that the balance of commercial decision-making and customer fairness is distorted.
“Aiming for an appropriate balance is not the sole responsibility of actuaries, but is something actuaries should seek alongside other insurance professionals.”
Education-wise, it is recommended that the IFoA’s pre-qualification education syllabus covering general insurance pricing be reviewed to ensure that there is sufficient coverage of customer fairness in pricing and product design, and of the use of new and emerging data and modelling techniques.
Buckley added: “Actuaries, alongside all financial service professionals, have an important role to play in promoting the principle of customer fairness.
“The insurance industry will currently be considering how best to implement the recently announced measures from the Financial Conduct Authority (FCA) on general insurance pricing practices. Actuaries and other technical specialists can support in this area with clear communication and transparency around their work.”
Meanwhile Alan Marshall, IFoA review actuary and lead on the thematic review report, thanked the actuaries and organisations whose insights allowed the trade body to conduct what Marshall described as a comprehensive and meaningful review.
“The report’s recommendations are aimed at our members and regulators,” he said. “For actuaries, the focus is on existing professional standards, engagement with new FCA regulations, and appropriately balancing commercial drivers and customer fairness. In terms of regulation, the IFoA and Financial Reporting Council should consider areas where additional guidance on standards is necessary.”
Marshall highlighted the need to review technical actuarial standards and the IFoA’s pre-qualification syllabus covering general insurance pricing.
He declared: “We will be engaging with our members, with relevant regulators, and within our own organisation to consider next steps as we take these recommendations forwards.”