Making financial uncertainty count: Unit‐linked insurance, investment and the individualisation of financial risk in British life insurance

Abstract

While most scholarship in the sociology of insurance has focused on the making of insurance risk by investigating mechanisms of pooling and spreading, this article examines insurers’ management of financial uncertainty. Based on a large corpus of written sources and 44 semi‐structured oral history interviews, this article seeks to describe and explain a shift in how financial uncertainty is dealt with in British life insurance, away from traditional multipolar arrangements revolving around actuarial prudence and discretion, towards bipolar arrangements that rely on explicit risk quantification and the logic of risk‐based capital to “individualise” financial risk. The article identifies two factors that were key in bringing about this shift: first, the competitive dynamics that unfolded with the emergence of challenger “unit‐linked” insurers in the 1960s, and, second, changes in the professional ecology, as manifested by the changing relations between the actuarial profession and insurance supervisors.

The absorption and multiplication of uncertainty in machine‐learning‐driven finance

“…We further suggest that sociological discussions of risk and uncertainty be extended along a temporal dimension when it comes to ML‐based finance. Unsurprisingly, most sociological debates about uncertainty concern the future (Beckert, 2016; Esposito, 2011, 2013; van der Heide, 2020). This is understandable, but as mentioned earlier, the data explosion within financial markets has made the past and the present increasingly uncertain as well: although both are, in principle, knowable, it has become more and more difficult to establish what happened on the financial exchanges during the past trading day.…”

“…Thus, the article contributes to the literature on uncertainty in economic sociology and the social studies of finance. Several economic sociologists have explored uncertainty (Arnoldi, 2006; Beckert & Berghoff, 2013; Carruthers, 2013; Chong & Tuckett, 2015; Esposito, 2013; Esposito & Stark, 2019; van der Heide, 2020; Langley, 2012; Lockwood, 2015; Pixley, 2014). However, this article is, to our knowledge, the first to explore how market participants deal with and are affected by the uncertainty associated with the use of ML models in financial markets.…”

Private spanner in public works? The corrosive effects of private insurance on public life

“…These policies, often including insurance for premature death, are tax‐subsidized savings vehicles to build private wealth for old age through regular contributions, with a government‐guaranteed basic interest rate (which has fallen from 3% in the 1980s to 0.25% today), and a mandatory annual share of additional profits (GdV, 2020). As German insurers are regulated to invest conservatively in mortgages and fixed‐income securities, these additional profits are lower and less volatile than those of their stock‐investing Anglophone counterparts (Van der Heide, 2020). A similar product has also been offered by employers as group insurance, with premiums directly deducted from pay cheques and eventually resulting in occupational pensions—a tax‐privileged second pillar of the pension system—much smaller than in the Anglophone context (Klein, 2010).…”

“…Since the 1960s, the sector has additionally set up specific investment schemes with a stronger focus on capital market investments, but much less so than in the UK, where life insurance has developed into a more speculative investment without guaranteed returns and direct profit‐sharing such that the risk is carried entirely by individuals (Van der Heide, 2020). Overall, the function of insurance has moved away from insuring premature death to insuring the risk of outliving one's assets in old age and supplementing declining public pensions.…”

“…In the shadow of the sociology of risk and the political sociology of public welfare, a real sociology of insurance—despite some well‐known classics calling for it (Tönnies, 1917; Zelizer, 1978)—has not gone beyond the few science and technology studies (Van der Heide, 2020; Vargha, 2015). Chan's comparative study of Chinese and Taiwanese life insurance cultures is a clear exception (Chan, 2012).…”