President’s Message MARY D. MILLER
Assessing Uncertainty in a (Mostly) Gradually Changing World
WE LIVE IN AN UNCERTAIN WORLD. Change, the proverbial constant, can move slowly, like a glacier, or
ramp up swiftly, like a flood or an earthquake. Along with change often comes risk, which is something actuaries are charged with assessing, whether in natural or manufactured settings. Indeed, actuaries are uniquely
positioned to offer impartial analysis and objective insights in this still-developing space.
A July New Yorker magazine feature story that received widespread circulation—and raised some alarm—detailed the potential
risks the Pacific Northwest faces from a potential offshore earthquake. The author wrote that scientists found there have been 41
subduction-zone earthquakes off the Northwest coast in the past
10,000 years, or an average of one every 243 years.
The timing of the most recent one, in the year 1700—more
than 300 years ago and prior to the birth of the United States—
was determined by everything from geological evidence to
Japanese tsunami records and multi-generational word-of-mouth stories from Native Americans. So after talking with
experts, including geologists, the author concluded the area is
due, and put the chances of an earthquake occurring in the next
50 years at one in three—and for a large mega-quake at one in 10.
While seemingly sudden, such an event would be the result of
years, or centuries, of the Earth’s plates slowly and steadily pushing against each other until one day they give way, causing the
dramatic tectonic shift that produces a quake and often results in
a tsunami. That is, a long period of slow change finally reaches a
breaking point. Not surprisingly, the story outlined potential damage and risks associated with the eventuality of such a cataclysmic
event, including to schools, roads, homes, and of course, people.
Such careful study seems actuarial by its nature, and is in line
with what we do in our profession. Sizing up such disaster-related
risks also includes the ongoing study of climate change, which has
been progressing at slightly faster than a glacier’s pace over the
past 20 years. According to a 2012 U.S. Environmental Protection
Agency report, seven of the 10 warmest years on record have occurred in the lower 48 states since 1990.
Like the changing Earth, climate change—and discussion and
action on it—also has been slow in developing, in part
due to well-documented political and economic
roadblocks. Physicists and other scientists
theorized about a natural “
greenhouse effect” as far back as the
19th century, and the first calculations of the effects of carbon
dioxide on the atmosphere were
completed just before 1900.
But the world seems to be
reaching consensus on the need for
near-term action. In December del-
egates from about 200 countries,
And the actuarial world is taking steps to address climate
change as well. The Academy is part of a group of other North
American actuarial organizations that are jointly developing
the Actuaries Climate Index (ACI), which is focused on mea-
suring the frequency and intensity of extremes in key climate
indicators based on controlled observational data of tempera-
ture, precipitation, drought, wind, sea level, and soil moisture.
While the ACI initially will cover the United States and Canada, it could later be expanded to other parts of the world, where
reliable data are available. A follow-up initiative, the Actuaries
Climate Risk Index (ACRI), will assess who and what is at risk
because of climate change—and it will quantify that risk. The
ACRI will review where people live and the surrounding infrastructure, and look for relationships between climatic and
socioeconomic factors. Both indexes will function as useful tools
for actuaries, policymakers, and the general public.
These are important issues for casualty actuaries especially
because of the potential multiple-billion-dollar damages from
extreme weather events, such as Hurricane Katrina in 2005
(which resulted in more than $100 billion in damages) and Su-perstorm Sandy in 2012 (almost $70 billion). A 2012 report by
Munich Re showed that the number of weath-er-related loss events in North America
grew by a factor of five in the past
30 years. That compared with a
four-fold increase in Asia and
slower rates of increase on other
continents.
There are no certainties in as-
sessing risk, whether it be weather,
climate change, or a sudden event like
an earthquake. While actuaries cannot
prevent these things from happening, we
can help to quantify the risk and potential dam-
age from extreme events that can occur in our
world. Perhaps this knowledge will re-
sult in more effective risk mitigation
efforts. Time is of the essence. SH
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er-related loss events in North America
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continents.
sessing risk, whether it be weather,
climate change, or a sudden event like
an earthquake. While actuaries cannot
prevent these things from happening, we
can help to quantify the risk and potential damage from extreme events that can occur in our
world. Perhaps this knowledge will result in more effective risk mitigation
