It is a distinct privilege and a personal pleasure to address the 21st ICA on the topic of "Generalized Models of the Insurance Business".

 

As I read through the 42 papers offered on this topic, I became somewhat uneasy at the variety and divergence of the concepts and models presented, and this feeling was only heightened when I began to reflect upon the many and varied papers and textbooks in insurance and risk theory which have appeared in the past decade.

• To comprehend all of this is, as we say in English, "like trying to take a drink of water out of a firehose."
• What could a physicist-engineer-operations researcher who has not had extensive actuarial practice hope to add to this topic, which is central to the profession?"

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Then, something begins to happen which provokes a crisis within the profession.

• In the physical sciences, this might be anomalies in experimental data which cannot be explained away, or the empirical discovery of a completely new phenomenon not covered by the old paradigm.

I believe the correct analogy in actuarial science, which is governed by the laws of economics and the marketplace, is that some new phenomenon, such as hyperinflation, changing living habits, or the application of novel technology begins to affect our collective social and economic behavior, which in turn contradicts the assumptions behind traditional insurance products.  (p5)

• At first, the reaction to these crises is simply increased activity within the old paradigm, as attempts are made to study the anomaly and to patch up those methods and models which worked so well in the past.

But at some point, the difficulty in the paradigm-nature fit will not be able to be set right by the traditional processes, and, precisely because of the excellent, specialized communication network between specialists:

"...the anomaly itself now comes to be generally recognized as such by the profession.

More and more attention is devoted to it by more and more of the field's most eminent men.

If it still continues to resist...many of them may come to view its resolution as the important subject matter of the field" [K7, p.8 21.]

Many divergent partial solutions will be attempted, and specialists from neighboring disciplines will try their hand at resolving the anomaly through the introduction of other points of view and methodologies. 

Corporate management, regulators, and legislators will also try to resolve matters directly through their powers, rather than waiting for the community to resolve the anomaly.

Through this proliferation of ad hoc adjustments, the rules
governing the paradigm will become increasingly blurred, practitioners may begin to disagree on the nature and basic hypotheses of the field, and shared standards of value and judgement may be called into question.

Then finally occurs what Kuhn calls a scientific revolution --
the appearance of a competing paradigm which begins to accumulate a weight of evidence and coherence and to attract an increasing number of disciples and camp-followers -- especially if it satisfactorily resolves the pressing anomaly and provides useful guides to action by the practitioners who pay the bills and the regulators and legislators who answer to the general public. But this revolutionary process may proceed slowly, for it often requires an important, discontinuous shift in world-view in the scientific community. 

Some practitioners are forever resistant, because lifelong, productive careers and reputations commit them to an older tradition of normal science. And often, the arguments which
are most convincing in favor of the new paradigm are not easily explained in the old terminology. (p6)

1980 - AP - Models in Insurance Paradigms Puzzles  Communications and Revolutions, William S. Jewell - 128p