Fei Huang

Australians’ life expectancies can vary by more than a decade depending on their income, home ownership, marital status and where they live, revealing a “longevity divide” across the country.

A new Dialogue Paper* published by the Actuaries Institute, Bridging the Longevity Divide, identified an 11.5 year difference in life expectancy at age 60 between men in the most and least advantaged socio-economic profiles examined. Among women, the gap was 9.1 years.

The paper analysed linked, de-identified microdata from the Australian Bureau of Statistics’ Person Level Integrated Data Asset (PLIDA). It examined differences in life expectancy across socio-economic groups using mortality rates observed in 2016–17.

“We know life expectancy differs across the population, but what is striking is just how large those differences actually are,” says paper co-author Dr Fei Huang, Associate Professor at the School of Risk and Actuarial Studies at UNSW Business School.

“Our analysis shows that life expectancy can differ significantly when we consider the combination of people’s circumstances. For example, single, lower-income non-homeowners in disadvantaged areas had considerably shorter life expectancies than married, higher-income homeowners in more advantaged areas.

“These findings provide an important evidence base for individuals, communities and society at large to better understand longevity differences. They are also useful for informing discussions on retirement income, superannuation and broader policy,” says Dr Huang.

As paper co-author Philip Clark, Actuarial Consultant at Azuria Partners, says, “How much someone can comfortably draw down from their superannuation depends in part on how long they can expect to live. As our analysis shows, applying the same life expectancy assumptions to everyone can overlook very different retirement needs and outcomes.

“We encourage the industry to consider how it could use this new evidence to explore expanding the range of retirement income strategies and products that speak to a greater spectrum of Australians. As highlighted in the recent Intergenerational Report from the Government, the retirement income system is expected to play a growing role in the decades to come.”

In addition to retirement income solutions, the findings could also inform public information resources, superannuation fund calculators, and adviser conversations. These could help people in and approaching retirement to better understand their own longevity risk – their personal risk of outliving their savings.

The paper was also co-authored by Andrés Villegas, Associate Professor in the School of Risk and Actuarial Studies at UNSW Business School; Francis Hui, Associate Professor of Statistics in the Research School of Finance, Actuarial Studies, and Statistics at the Australian National University.

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Notes:
* Dialogue Papers are a series of papers written by actuaries and published by the Actuaries Institute as part of its Public Policy Thought Leadership program. The papers aim to stimulate discussion on important, emerging issues. Opinions expressed in this publication are the opinions of the Paper’s authors and do not necessarily represent those of either the Institute of Actuaries of Australia (the “Institute”), its members, directors, officers, employees, agents, or of the employers of the author.

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Victor Bajanov

The rapid adoption of AI in financial services is creating new and amplified risks for the sector, and governance and risk management practices have not kept pace, according to the Actuaries Institute and UTS Human Technology Institute (HTI).

To help close this gap, the Institutes have partnered to produce a practical guidance resource, AI Risk Management in the Financial Services Sector, including an easy to implement and readily adaptable framework for financial services organisations of all sizes to manage AI risk.

A recent survey by HTI found that while 93% of financial services organisations reported using AI, with the remainder planning to do so, less than half reported conducting risk assessments on their internal use of AI. Fewer than one in three respondents reported AI-specific items on their risk register.

“Despite the growing use and importance of AI, many financial services organisations are ill-equipped to manage the scale, complexity, and evolving risk profile of AI systems.

Organisations that choose to do nothing in this space will be exposed to new risks they are not equipped to deal with,” says Actuaries Institute co-lead author Victor Bajanov.

Earlier this year in separate open letters to the industry, Australia’s peak financial services regulators, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC), both called on financial services organisations to significantly step up their governance and risk management of AI.

AI-amplified risks

Mr Bajanov says risks associated with previous technologies are largely driven by human behaviour and are well understood.

In contrast, frontier AI systems don’t follow rules and instead generate responses based on patterns learned from vast amounts of training data. This adds uncertainty to their behaviours and increases the need for effective oversight.

Agentic AI systems create more distance between the responsible humans and the AI system, narrowing the window for meaningful human intervention.

“The financial services sector has well-established processes for managing traditional risks, but AI creates a vastly different risk profile, meaning organisations need to go back to first principles when deciding how to manage AI risks and assign responsibility for oversight. Managing AI risk needs to be much more than a tick-box exercise,” says Mr Bajanov.

HTI Co-Director Professor Nicholas Davis says the essential role financial services plays in our society means organisations have a great responsibility to ensure risk controls are in place to maintain confidence and stability in the system.

“Financial services shapes how we save and spend, who receives credit or insurance and on what terms, and what retirement looks like. As AI becomes increasingly embedded in these decisions and services, effective risk management and governance are vital to maintaining trust and confidence in the sector. This collaboration between the Actuaries Institute and UTS HTI brings together deep expertise in financial risk management and human-centred AI governance to help the sector respond to the opportunities and risks presented by AI,” Professor Davis says.

The AI framework

The AI risk management framework is designed to integrate with existing enterprise risk management processes, rather than replace them. With the flexibility to remain valid as technology evolves, it is grounded in the sector’s regulatory architecture and informed by governance gaps identified by the Actuaries Institute and HTI.

The framework provides practical guidance on how financial services organisations should address four fundamental questions on AI risks:

• Governance: How do we assign accountability for AI risks in our organisation
• Classification: How should we classify AI risks in our organisation?
• Quantification: How might we quantify the risks?
• Controls: What controls are most appropriate for common AI use cases?

The framework includes a toolkit of resources to explain how it can be applied in financial services organisations with significant AI investments. It can also be adapted by smaller organisations, or those earlier in their AI journey, to suit their scale, complexity, and risk appetite.

“AI in this sector can offer significant benefits for institutions and customers alike, improving efficiency, speed, and quality of service. Yet failures in these systems risk significant harm. As experts in data-driven analysis, risk management, and long-term thinking, actuaries are well placed to support financial services organisations with decision making as they embed AI into their operations,” says Actuaries Institute Chief Executive Officer Elayne Grace.

“We’re proud to have worked together to develop this flexible framework that will help financial services organisations of all sizes to safely, responsibly and effectively unlock the benefits of AI to support innovation,” says Ms Grace at a launch event with industry.

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Elayne Grace

We recognise the Government faces significant fiscal constraints and competing priorities in an uncertain economic environment. Within this context, the Actuaries Institute’s 2026-27 Budget submission highlights five critical areas to strengthen Australia’s long-term economic and social foundations:

1. Increased investment in climate risk adaptation and resilience, recognising the growing fiscal and social exposure from natural disasters and the cost-effectiveness of proactive adaptation measures.
2. Implementation of the National AI Plan and AI Safety Institute to build sovereign capability while managing risks.
3. Reform of private health insurance and broader health systems, including addressing mental health funding fragmentation and NDIS sustainability.
4. Supporting a modernisation of life insurance products to improve consumer outcomes, including a Federal recommitment to a product rationalisation framework and support for stamp duty revisions.
5. Measures to address intergenerational equity, including reforms to housing affordability and the tax system.

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Andrew Gale

A new framework published by the Actuaries Institute yesterday could greatly assist millions of Australians to access a broader range of support to improve their financial decision-making and wellbeing.

The Help, Guidance and Advice (HGA) framework would provide a structure under which financial institutions could confidently deliver a wide spectrum of quality and affordable support to their customers.

Experienced non-executive director and chair of the Institute’s HGA Working Group, Andrew Gale, said this would ensure people have access to basic financial facts through to guidance and suggestions on retirement goals, as well as comprehensive personal advice on a range of financial issues.

“Middle Australia stands to benefit most because comprehensive personal advice is out of reach for many, but help, guidance and specific purpose simple advice at pivotal moments would significantly improve their financial wellbeing,” he says.

“Our framework provides the architecture that will enable millions of people of all ages to receive support in different levels of complexity and that fits their individual needs.

“We have a tsunami of retirees coming over the next decade, but many don’t want or need or cannot afford full, comprehensive financial advice. Giving them help and guidance on common issues – such as Age Pension entitlements, and how to think about paying down debt and moving superannuation to a retirement phase account – would allow them to retire with greater confidence.

“Many younger people would also benefit from greater help and guidance – on things like how to consolidate superannuation accounts, better budgeting and the amount and kind of life insurance they should consider.”

The Institute’s paper by the Working Group, Financial Advice Reform and Help, Guidance and Advice, was developed after extensive consultation with superannuation funds, consumer groups, industry and professional bodies.

If implemented, it would significantly expand the capacity of financial advisers, accountants, superannuation funds and digital tools to provide support, including to the estimated 710,000 Australians who are intending to retire in the next five years.

Mr Gale says the HGA framework is needed because existing regulations treat all financial advice as equally complex and fail to distinguish between what is simple guidance compared to comprehensive planning.

“Guidance currently operates in a regulatory grey area between Help and Advice. It provides an important bridge between providing someone with basic financial information and personalised advice. It is widely seen as a scalable and cost-effective mechanism for delivering meaningful support.

“We would like to see greater regulatory and legislative recognition for Guidance so, for example, super funds and their trustees have more certainty in the support they can provide their members.”

“Overall, we believe the emerging Delivering Better Financial Outcomes (DBFO) reforms and legislation represent good reform initiatives. We also believe that further regulatory reform will be required post the DBFO reforms, particularly relating to the acknowledgement and greater utilisation of guidance.”

The Actuaries Institute looks forward to seeing the Delivering Better Financial Outcomes (DBFO) legislation, which is due soon, and critical for increasing access to affordable help, guidance and advice.

Read the paper.

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The Institute believes many Australian retirees could enjoy higher standards of living if lifetime income products such as annuities played a larger role in the retirement system. When considered among the mix of product solutions for funding retirement, annuities distinctly deliver a guaranteed income stream. They are therefore an effective option for retirees wanting to increase confidence and manage the risk of exhausting their own financial resources during retirement (longevity risk).

Danny Bechara, Chair of the Institute’s Annuity Capital Settings Working Group and Member of the Institute’s Life Insurance Practice Committee, said: “APRA has set a sound pathway for how guaranteed income streams could help more Australians optimise their retirement income while maintaining strong capital settings to protect policyholders’ interests.”

“While current capital settings for annuities are not considered the primary reason for Australia’s annuity market currently being small relative to the size of Australia’s broader retirement income system, greater alignment with comparable regimes and capital standards internationally would support the sector’s capacity to scale with Australia’s ageing population demands,” Mr Bechara said.

In its submission, the Institute recommends:

• moving more towards a principles-based approach by permitting the Appointed Actuary of the insurer to better tailor the approach to the specific annuity portfolio; and
• rewarding insurers that demonstrate sound risk management practices and higher risk controls with commensurate reductions in capital requirements.

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Elayne Grace

The Actuaries Institute welcomes the Federal Budget’s cost-of-living relief and equity measures but believes more investment is still required to supercharge the AI economy and to address climate change.

Please attribute the following comments to Actuaries Institute CEO Elayne Grace:

Cost of living and equity measures

“The Institute welcomes cost of living supports, especially the further increase to Commonwealth Rent Assistance, and reductions to income tax and tertiary education debt.

“As highlighted in the Institute’s report, Not a level playing field, safeguarding income and intergenerational equity is a significant societal issue that is likely to worsen without intentional policy.”

Climate adaptation and transition

“The Institute welcomes the substantial public funding, investment incentives and other forms of support for disaster resilience, climate adaptation and the transition to a clean energy economy.

“But we reiterate a significant uplift in public sector investment is required, as well public-private sector partnerships, to close the adaptation finance gap.

“To manage the uncertainty around climate adaptation and transition, Government should accompany these policy and investment programs with rigorous, highly transparent monitoring frameworks. We need to regularly review the success of adaptation and transition measures and stay agile.”

Artificial Intelligence (AI)

“AI creates immense opportunities to benefit Australian citizens, organisations and society. However, the same technology when implemented poorly or maliciously can cause substantial harms.

“The Institute supports the $40 million funding announced to help Australia prepare for and embrace AI technology. But greater AI investment and clarity around policy is required to supercharge and secure Australia’s digital future.”

Retirement system

“While the Institute welcomes the modest measure to include superannuation in the Government’s Paid Parental Leave scheme announced earlier this year, we call on the Government to consider what changes to superannuation and retirement income tax settings would help put our system on a fairer and more sustainable footing for current and future generations.

“With an ageing society and a large swell of Australians approaching or in retirement, a broad framing is required. A national longevity strategy linking together our health care, aged care, the Age Pension and superannuation systems – and making sure these are all widely accessible – will help more Australians to live with dignity in retirement.”

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Jessica Chen

The Actuaries Institute strongly supports the Government’s objective to maximise the benefits of genetic testing while ensuring consumers can access affordable life insurance and the life insurance industry is sustainable.

The Institute’s submission, lodged today, to the Government consultation urges key protections to be included as part of any legislative intervention.

Key protections include setting financial limits below which applicants are not required to disclose predictive genetic test results and ensuring the policy incorporates a periodic review mechanism to adapt to the advances in genetics.

Actuary Jessica Chen, Chair of the Institute’s Genetics Working Group, said, “For genetic science to flourish, life insurance regulation must adapt to give consumers confidence that if they take a genetic test they can still access a reasonable amount of life insurance cover.”

“To maintain a level of fairness across all customers, we advise Government to strengthen regulation by legislating a financial limit below which applicants need not disclose genetic test results, and at a level roughly twice that currently determined by industry through self-regulation,” said Ms Chen.

The Institute recommends a financial limit of $1 million for Death cover, $1 million for Total Permanent Disability (TPD) cover, $250,000 for Trauma cover, and $8,000 per month for Disability Income Insurance.

These better reflect contemporary consumer needs.

The Institute notes it will take years for experience under a legislated intervention to fully materialise which is why a cautious approach of higher financial limits is advised.

Any policy changes should be accompanied by education, guidance and support for consumers, genetic counsellors and the wider community.

Read the submission.

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Mr Musulin is an actuary with more than 40 years’ experience specialising in natural perils, catastrophe risk modelling, public policy development and sustainability, and has assisted industry and government with improving their resilience and understanding of climate change. He is the lead spokesperson for the Australian Actuaries Climate Index^[1] and was the lead author of the Actuaries Institute research paper ‘Property Insurance Affordability: Challenges and Potential Solutions’^[2].

He was the inaugural convener of the Institute’s Climate Change Working Group and has authored several Institute publications, including ‘Home insurance affordability and socio-economic equity in a changing climate’ (2022)^[3], ‘Home insurance affordability update’ (2023)[^[4], ‘Climate Risk Disclosure – financial institutions feel the heat’ (2017)^[5] and ‘Can actuaries really afford to ignore climate change?’ (2014)^[6]. Mr Paddam was also a contributing author to the IPCC AR6 Working Group II Report, has advised the Insurance Council of Australia on evaluating adaptation and resilience measures (2022)^[7] and presented a TEDx talk on climate change and banks and insurers (2022)^[8].

Actuaries Institute President Naomi Edwards said the Institute has long recognised climate change as an important public policy issue, and both Mr Musulin and Mr Paddam have been at the forefront of helping solve the challenge.

“Both Rade and Sharanjit’s contributions have spanned policy development, resilient community building, and disaster recovery funding and have benefited developed and developing nations. They have exemplified how actuaries can use data for good to lead, innovate, and influence change on a global scale and shown the professional commitment actuaries bring to helping solve complex issues.”

The Actuary of the Year award has previously been given to an individual actuary, but the nominations committee agreed that both individuals have been highly influential in the climate change and sustainability space.

Both Principals at Finity Consulting, Mr Musulin and Mr Paddam have volunteered with the Institute for many years and contributed to numerous submissions to government, regulatory bodies, and independent inquiries on climate-related matters. Mr Paddam and Mr Musulin have both received the Institute’s Distinguished Service Award in 2020 and 2022, respectively.

Mr Musulin said: “No individual profession is going to solve the climate challenge alone, but what actuaries add is an understanding of uncertainty and risk. We are trained in thinking about complex systems, and our unique skillset means we have a responsibility to help people understand how these challenges are going to impact their lives.”

Mr Paddam said: “Climate change is a here and now problem, but it is going to manifest over time and affect people in different ways. As actuaries, we look at different groups of people and how they weather those stresses. Our job is to provide long-term thinking to make practical decisions that will build a more sustainable and resilient future for all.”

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Notes
[1] https://www.actuaries.asn.au/public-policy-and-media/our-thought-leadership/climate-and-sustainability-thought-leadership
[2] https://actuaries.asn.au/Library/Opinion/2020/GIRESEARCHPAPER.pdf
[3] https://www.actuaries.asn.au/public-policy-and-media/thought-leadership/green-papers/home-insurance-affordability-and-socioeconomic-equity-in-a-changing-climate
[4] https://www.actuaries.asn.au/public-policy-and-media/thought-leadership/green-papers/home-insurance-affordability-update-and-funding-costs-for-floods/
[5] https://www.actuaries.asn.au/public-policy-and-media/thought-leadership/the-dialogue/climate-risk-disclosure-financial-institutions-feel-the-heat
[6] https://www.actuaries.asn.au/Library/Events/GIS/2014/GIS2014EganEtAlClimateChangePres.pdf
[7] https://insurancecouncil.com.au/wp-content/uploads/2022/02/R_ICA_Resilience_Final_220218.pdf
[8] https://www.youtube.com/watch?v=qXHGifdYlQA

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Elayne Grace

The Australian Human Rights Commission (AHRC) and the Actuaries Institute (Institute) said while artificial intelligence (AI) promises faster and smarter decision making, safeguards are needed to prevent potential discrimination.

A Guidance Resource issued today and prepared jointly by the AHRC and the Institute is designed to help actuaries and insurers to comply with the federal anti-discrimination legislation when AI is used in pricing or underwriting insurance products.

“This collaboration demonstrates the complex nature of the issues facing society, and the need for a multi-disciplinary approach, particularly where data and technology are used to shape the provision of fundamental services such as insurance,” says Elayne Grace, Chief Executive of the Actuaries Institute.

“With AI increasingly being used by businesses to make decisions that may affect people’s basic rights, it is essential that we have rigorous protections in place to ensure the integrity of our anti-discrimination laws,” said Lorraine Finlay, Human Rights Commissioner.

“But without adequate safeguards, there is the possibility that algorithmic bias might cause people to suffer discrimination due to characteristics such as age, race, disability, or sex,” Ms Finlay said.

“This Guidance Resource, prepared in conjunction with the Actuaries Institute, provides practical guidance for insurers on complying with the various federal anti-discrimination laws when using AI,” Ms Finlay added.

The guidance was developed after a 2021 report by the AHRC that looked at the human rights impacts of new and emerging technologies, including AI-informed decision making.

One of the recommendations of that report was that a set of guidelines be developed for use by government and non-government organisations on complying with federal antidiscrimination laws when AI has been used in decision making.

The Actuaries Institute, the peak professional body representing the actuarial profession, strongly supported this recommendation and approached the AHRC with an offer to collaborate.

A survey of Actuaries Institute members this year found at least 70% indicated the need for further guidance to comply in the emerging area/wider use of AI.

Ms Grace said there was an urgent need for guidance to assist actuaries in the exercise of their professional duties, noting this Resource should also provide comfort to consumers that their rights were being protected.

“Australia’s anti-discrimination laws are long standing but there is limited guidance and case law available to practitioners,” Ms Grace said. “The complexity arising from differing antidiscrimination legislation in Australia at the federal, State and Territory levels, compounds the challenges facing Actuaries, and may reflect an opportunity for reform.”

Ms Grace said several intersecting megatrends made the lack of guidance more problematic for actuaries. These trends include the explosive growth of ‘big data’, increased use and power of artificial intelligence and algorithmic decision-making and growing and changing consumer awareness and expectations about what is ‘fair’.

“Actuaries seek to responsibly leverage the potential benefits of these digital megatrends for the consumer, society and business. To do so with confidence, however, requires authoritative guidance to make the law clear.”

Actuary Chris Dolman, who led the Institute’s contribution to the preparation of the Guidance Resource as a representative of the Data Science Practice Committee, said it lists some strategies for insurers in relation to data used by AI systems to address algorithmic bias and avoid discriminatory outcomes.

Mr Dolman said this includes rigorous design, regular testing and monitoring of AI systems. It also provides several practical tips for insurers to help minimise the risks of a successful discrimination claim arising from the use of AI for pricing risk.

“In the insurance context, AI may be used in a wide range of different ways, including in relation to pricing, underwriting, marketing, customer service, including claims management, or internal operations,” he said.

“This Guidance Resource focuses on the use of AI in pricing and underwriting decisions, as these decisions are already likely to use AI and by their nature will have a financial impact which may be significant for an individual. Such decisions may also be more likely to give rise to discrimination complaints from customers. However, many of the general principles outlined may also apply to the use of AI-informed decision making in other contexts,” Mr Dolman said.

Read the full paper.

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Annette King

The Federal Government’s revised 2022-23 Budget, delivered tonight by Treasurer Jim Chalmers, contains fiscally responsible measures which are essential at a time when the nation’s growth trajectory confronts severe domestic and global challenges, the Actuaries Institute said.

The Institute believes the Budget acknowledges myriad challenges including rising prices due to inflation, an extremely large public debt burden and significant funding demands across the domestic economy including the NDIS, aged care, infrastructure, education and healthcare.

“Standout features we commend in this budget are the further strengthening of commitment to address climate change to improve resilience, support for greater access to housing, and setting the stage for the move to well-being budgets in future,” said Annette King, Actuaries Institute President.

“While possible reassessment of tax cuts has been deferred, overall, the Budget has a commitment to fairness and equity that are guiding principles for the Institute when we assess major public policy developments,” Ms King said. “It is especially pleasing to see the broadening of focus beyond economic and fiscal outcomes to also consider outcomes in housing, education, social programs, the environment, and health and disability.”

Amid forecasts of a nearing global recession, the Budget papers show that Australia’s economic performance remains impressive, with growth of 3¼% expected this financial year before slowing to 1½% next year. Unemployment remains low at 4½% through to 2023/24.

Treasurer Chalmers said government debt has risen sharply, with further pressure on the domestic economy due to high domestic and global interest rates. Inflation is expected to peak at 7¾% later this year and then gradually ease to 3½% through 2023-2024.

Referring to longer term structural issues, Actuaries Institute Chief Executive Elayne Grace, said: “The Government will need to tackle economic and social pressures arising from the ageing population, demands on the health, disability and education systems, and concerns about intergenerational wealth distribution including from superannuation and retirement benefits now available from the tax system.”

“The Institute strongly welcomes the Government’s increased statements of commitment to reducing greenhouse gas emissions and investment to help achieve that goal,” Ms Grace said. “In particular, the Institute commends the support for greater take up of electric vehicles, the Powering Australia Plan, and infrastructure around the Climate Change Authority, Safeguard Mechanism and Annual Climate Change Statement to Parliament.

“She said these Budget measures set Australia on a solid path to achieving its global commitments and help reduce the worst risks of a changing climate. “We know that vulnerable Australians are especially exposed to these risks through, for example, the most affordable housing being in the most climate exposed areas,” Ms Grace said.

“The frequency of extreme weather events and natural disasters across the country in recent years highlights the need for collaborative and urgent action to improve resilience.”

The Institute also welcomes the Government’s policies around housing, and in particular to further encourage downsizing through changes to the assets and income tests and super fund investment in affordable housing. Importantly, these measures will help address housing supply issues. The Institute notes because super funds must act in members’ best financial interests, it is a high bar for funds to invest in affordable housing. However, with the continued projected growth of the superannuation sector and economic role it plays as sophisticated investors, it is important to find win-win solutions to address Australia’s most pressing challenges. The Institute looks forward to seeing the policy details as they develop and strongly supports the foreshadowed consultation with industry stakeholders.

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