The guarantee dilemma

Winning promises made now can have catastrophic consequences down the line. But do we learn? It’s time for actuaries to speak up on short-term shortsightedness.

If there’s one thing actuaries understand, it’s time. In long-term insurance, time isn’t just a dimension on a liability cashflow model – it’s the source of our deepest challenges and conflicts. Today’s promise, embedded in a complex product, can become a perilous financial burden decades later. I call this the ‘guarantee dilemma’: the first management team is rewarded for writing business today, while the actual cost of the guarantees they sell may only materialise under a second, future team’s watch.

This is more than a business cycle phenomenon; it’s a systemic flaw. It’s a classic principal-agent problem, mixed with powerful behavioural biases and playing out across insurance companies’ balance sheets globally. And new variations of this dilemma are emerging right now, particularly in Asia’s rapidly evolving markets – showing that the industry continues in the same vein.

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