Not this old outcry again

Life expectancy is one of those funny measures with a cavernous gap between those who think they understand it and those who do.

The latest controversy arose a few days ago a year ago (this post has been in draft for a long time…) because Russia is planning to increase the normal retirement age from 60 to 65 for men by 2028 and 55 to 63 for women by 2034.

Russia propose raising retirement age above life expectancy

WHO puts life expectancy at birth at 66 for men and 77 for women. (as at 2016). Now you may already have noticed a terminology difference here.:

  • “Life expectancy at birth” is a well defined term estimate the mean age at death of someone just born.
  • “Life expectancy” without a modifier generally implies this as well, but can be misunderstood
  • “Life expectancy given survival to age x” or “life expectancy by age x” is how long one is expected to live, given your current age x.

Problematically, terms to differentiate “remaining life expectancy” (the number of years remaining) and “total life expectancy” or “expected lifetime” (the total number of years expected to live including those already survived) are not used consistently.

Every day that you dodge death, your total life expectancy goes up.  An 18 year old, with newly conferred adult status, will have a total life expectancy somewhere between 0 and 18 years higher than their life expectancy at birth, depending on how dangerous childhood was expected to have been in the calculation of the original life expectancy (at birth) calculation.

Progression of Life Expectancy at birth for almost all countries remains on an upwards trajectory

The World Bank has a useful interactive tool for plotting useful figures. Here is the progression of life expectancy at birth for a subset of countries.

Life Expectancy at birth over time by select country

There have been gains even in recent years (opposed to over hundreds of years, where the massive gains are widely accepted).  The gains are not without interruption.

  • South Africa, in particular, was hit by HIV/AIDS for many years. HIV/AIDS affects the mortality of babies and young children through mother to child transmission. This has a particularly potent impact on life expectancy at birth.
  • Mortality improvements in the UK have slowed down dramatically in the last few years.
  • Life expectancy in the US has actually gone backwards in recent years, partly linked to opioid abuse and suicide.

So what?

One of the reasons this blog post took ages to come out is after a bit of rambling I wasn’t sure what the conclusion is.  This would need to be a much longer post to really cover any amount of the detail. However, perhaps this provide a tiny taste of the complexities involved with the terminology (ab)use and the actual numbers and drivers.

Illusory truth

I’ve been using snopes.com to fact check dubious stories since before fake news was a term. I still recommend it to everyone.

I also teach elements of critical thinking in some of the actuarial normative skills workshops I run. By the time students get to me there, they are often already pessimistic and cynical when it comes to core areas of work (to be clear, this is a criticism of the profession, with a silver lining of critical thinking). However, there are plenty of other areas where their minds still seem susceptible to fake news.

This re-energised my interest in this area. I’ll blog on this topic more in future. One area I discovered in my research is the Illusory Truth Effective.

The Illusory Truth Effect is a really disappointing insight into how poorly our brains do at identifying truth. At its core, it says that when subjects are exposed to facts multiple times, even if the facts are highlighted as being false, still increases the probability that those subjects will view the facts as true. So whether it is on a Sunday morning surrounded by friends and family, or on the couch on your own infinitely browsing social media, what you see and hear and read becomes true in some proportion of minds.

It also applies to election campaigns and political rhetoric.

I’m going to test this with my actuarial students next chance I get.

Just what are ancillary own funds?

Reading the Financial Soundness Standards for Insurers (FSIs) is an exercise that can only end in madness. I’m sufficiently familiar with them now that I mostly refer back to them for particularly tricky or thorny issues. Without fail, the words fail to clearly communicate exactly what was intended.

Take ancillary capital as an example. To my mind, the basic principle is clear. I’ve validated this principle in discussions with Capital Requirements Task Group members, SAM Pillar 1 Subcommittee members, multiple actuaries familiar with the Solvency II principles and delegated acts on which we have based on South African rules. Here is the practical definition of “Ancillary Own Funds”

Ancillary own funds are sources of capital that are not on the balance sheet, but could become Basic Own Funds in certain circumstances. As such, they can still sometimes be used to demonstrate solvency.

Basic Own Funds then are on balance sheet items that contribute capital. These are the excess of assets of total liabilities, with very specific types of subordinated liabilities “added back” because they can absorb losses and meet other criteria. There are a few specific rules about other regulatory deductions form Own Funds, but generally, that is it.

(As an aside, the tiering of capital has almost nothing to do with how your assets are invested, and almost everything to do with the sources of capital. This is another recurring puzzle I find myself explaining a couple of times a month for some reason.)

Here’s one odd thing. Since the Solvency Capital Requirement (SCR) is determined as the change in Basic Own Funds in various adverse scenarios, the possible change in creditworthiness or even outright default of a provider of a letter of credit or guarantee or undrawn loan facility has no impact on the SCR. This is part of the reason the use of Ancillary Own Funds requires explicit approval from the Prudential Authority.

If I were to change the formula, I would add change in Ancillary Own Funds to the SCR. I have yet to see a compelling reason to exclude it.

A private exhumation

Is this blog dead? No, but you could be forgiven for thinking so. I will be posting a little more frequently than over the last year. That isn’t a high bar.

Given the long silence, there are quite a few topics I’ve been thinking about and discussing with friends and colleagues. You’ll have to check in from time to time to see those discussions translate to a blog.

On the death of blogs and privacy

Blogs have changed since 2006 when this blog started. I don’t know when “peak blog” was, but it seems to be in the past. The audience monopolisers of facebook, twitter, LinkedIn, youtube, Instagram and more have, by turns, elevated and expanded voices, then monetised, controlled and manipulated those same audiences. In some, often ultimate tragic, scenarios, audiences are pushed to extreme views as an inevitable result of revenue-maximising, attention monopolising algorithms.

Brexit and Trump are the two big stories about the role of social media and revenue-maximising, attention-sink algorithms. There are countless more. I found this sobering TED talk about the disconnect between reality and perceptions. The talk uses a small Welsh village as a powerful example to demonstrate the impact of social media and at the same time the lack of transparency that makes these claims difficult to provide and all the more terrifying.

My journey away from the brink

In the last few months I’ve been on a security and privacy journey. Ironically, I harbour suspicions that this journey itself may be the result of the same pressure to extremes that youtube in particular is famed for. But each time as I try to opt out of webs of tracking and analytics cookies and code I am reminded how much tracking and identification is going on in the background and how defenceless almost all internet users are.

Sheepishly, I realise my prior habits of eagerly providing all my contact details and information to google, facebook and LinkedIn for vague, unspecified reasons makes me some of the most naïve out there.  Facebook has been dead to me for several years. Since then, the base of research highlighting facebook’s adverse role in mental health, time-wasting, election meddling and terrorism makes that decision look even better than it feels.

Some unsoliciated privacy advice

If for some reason you are still on facebook, download your data (including contacts and birthdays if that is important) and delete your profile. Then avoid the nagging siren songs for a couple of weeks from facebook to try to entice you back onto the rocks. Your life will be better.

For now, I think I will continue to use Twitter and LinkedIn to post new blogs to reach a greater audience where users have become so used to those being the only places to monitor for anything.

I still watch clips on youtube, but I do so without logging in and with tracker blocking extensions loaded up in full force. I am aggressively migrating away from Gmail (about 90% complete) and now only check Gmail via an email client that doesn’t require me to log in to google. It’s easier than you might think. I hope you too will ditch Gmail, so that my emails to you aren’t also put into the machine for their monetary purposes.

I’ve ditched Chrome and am fortunate to have an iPhone and, generally, Apple seems less utterly compromised on this front.

Whatsapp remains a problem. Facebook owns WhatsApp and collects tonnes of metadata. Download signal and use that and help me slowly wrench the network benefits away from them.

Born again without google trackers

So that’s all background to this technical update on this blog, which is actually the primary purpose of this post. Almost since inception, I have used google analytics to track users and interest on my blog. It’s useful to understand which posts are most useful and interesting. However, I feel I owe you at least as much privacy protection as I’m trying to give myself. As of a couple of days ago, I have removed google analytics from this site and am using a self-hosted tool which keeps your data out of evil hands.

You are very welcome to block this tracker too.

Future blog topics?

I will explore thoughts on privacy (and longevity, and AI and risk and capital and hyper-selection and fairness and more as usual) in coming blogs.

Possibly helpful resources on privacy

Here are some of the resources I’ve discovered and have influenced my thinking and the tools I’m using as widely as possible.

Slides from micro insurance sessional meeting in 2018

I had several requests for these slides. At some point they should also be available on ASSA’s website, but that process seems to take a curiously long time.

Here are the Micro insurance sessional 2018 slides for anyone interested, provided of course without warranty or guarantee at all and with the understanding that the views expressed are not me employer and are not even all mine as this was partly the output of committee debates.

Why isn’t there more micro insurance in South Africa

After a recent Actuarial Society sessional presentation I gave on micro insurance and the regulatory developments, I was asked why there aren’t more micro insurers operating in South Africa. Here is a slightly paraphrased version of the full question:

The larger insurance players seem reluctant to enter the market. Why do you think this market has been slow on the uptake? The regulatory barriers to entry certainly don’t appear to be that restrictive so either existing insurance companies are not flexible enough to offer the products required or it’s a poor business decision/larger risk that they’re unwilling to take on. Do you have an opinion on what is causing the low number of microinsurance players in the market?

So here goes. Certainly a far from complete or perfect answer, but a starting point based on my discussions with many people and entities actively interested in pursuing the market over the last few years.

What do we mean by micro insurance in the South African context?

The issue with micro insurance is scale, particularly of distribution and distribution costs. Okay, followed closely by premium collections (and that is about maintaining scale so that you don’t lose insurance policies as quickly as you sell them). These are the two issues that need to be solved for real success for any new micro insurer or a new platform for micro insurance.

Micro insurance and funeral insurance

Whether micro insurance is big in South Africa or not comes down to how one defines “micro insurance”.  There are major life insurance players that have funeral products with modest premiums, below R100 or even R50 per month. So those large insurers (major traditional insurers plus the bancassurers) are operating in this space already, but as “assistance business” as the current licence category is termed.

Under some definitions, South Africa is already one of the largest micro insurance markets in the world. On other measures, there are still plenty of excluded people who could benefit from appropriately priced, appropriate value insurance on a micro scale. I still hope to see viable products with premiums below R10 per month (and not on some misleading bundled basis) or even less on a micro-transaction basis.

These players are less interested in the particulars of a micro insurance licence because they have yet to see a material benefit. Product restrictions and the complexity of an additional licence don’t warrant lower capital since they aren’t actually constrained by regulatory capital but rather by their own view of economic capital.

Distribution innovation

Some of these players have tried innovative products (pre-paid funeral plans, allowing skipping premiums) with low, no or at best moderate success. The bancassurers push heavily into ATM, USSD and call centre sales rather than branch sales because they are lower cost, and sometimes lower risk of anti-selection. Getting life insurance via the banking apps is an easy step (and some have taken it) so probably the view is that a dedicated app just for insurance is unnecessary.  The banking brands (target of popular complaints as they sometimes are) are still generally well trusted. Continue reading “Why isn’t there more micro insurance in South Africa”

Bitcoins, deflation and the slightly silly impact of loss

I think Bitcoins and the Blockchain are amazingly cool.  I still don’t think Bitcoins are a useful currency and I worry that many of Bitcoin’s biggests fans also like the gold standard, Austrian economics and some other crazy stuff.

What impact will the loss of Bitcoins over time have on the economy? Continue reading “Bitcoins, deflation and the slightly silly impact of loss”