A Decentralised Future: What Does it Mean for Actuarial Work?

Bali, a popular remote working location

This blog post was first published in the July 2021 edition of The Actuary magazine. I wrote it as a call to arms for actuaries to learn about blockchain, and to start building on decentralised networks. Further reading and learning resources are at the bottom of the post.


The actuarial profession has historically thrived in the insurance and risk management industries. While many of us have moved successfully to “non-traditional” actuarial areas, the profession has more to do to become the “revolutionary” elite Elon Musk hoped for when he tweeted about hiring actuaries to develop Tesla’s insurance proposition. The imminent arrival of fully autonomous vehicles is just one of a number of technological megatrends which are poised to change our industry and how we work.

Decentralised Autonomous Organisation (DAO)

The lockdown triggered by the COVID-19 pandemic has made remote working mainstream. Collaboration tools – the likes of Zoom, Slack, and Notion – enable teams to organise and work together without the need to be physically confined within the same four walls.

Virtual collaboration is of course not new; numerous open source software projects are built and maintained by teams of strangers coordinating online. Decentralised Autonomous Organisation (DAO) – an organisational concept and software tool to coordinate human and capital resources – is the latest in this trend.

As an organisational concept, DAO is egalitarian. It eschews the traditional hierarchical structure in favour of bottom-up grassroots decision-making. There are no managers, only leaders when there is a need for one. The most influential people in the organisation are those who contribute and add the most value. To solve the agency problem, DAO promotes radical transparency and honesty; interests are aligned through a shared purpose and a set of tangible principles to follow.

As a software tool, DAO provides a trustless way to pool money and facilitate collective decision-making. DAO utilises smart contracts, software code deployed on the blockchain, to escrow funds, and to allow participants to submit and vote on proposals without the need for a central authority. In some cases, DAO utilises crypto-token economics (tokenomics) to further align the interest of participants.

Decentralised finance (DeFi)

The blockchain technology underlying DAOs is also changing the provision of financial products and services. Known collectively as decentralised finance (DeFi), these financial products (e.g. lending, investment, and insurance) are digitally-native and fully automated. Users interact directly with DeFi without the need for intermediaries like banks or insurance companies. DeFi products are governed by a community of users; this community-first approach harks back to the concept of a mutual but with improved transparency and governance.

DeFi is still at an experimental stage. It is far from mainstream adoption due to current limitations and risks. One of many such risks is design flaws in smart contracts; these can be exploited and result in a loss of fund. As the technology matures, DeFi is potentially disruptive to the traditional finance industry.

Role of actuaries

Actuaries’ problem-solving skills and, more importantly, our ability to communicate technical subject matters and provide clarity will be more valuable than ever. DeFi products, like traditional financial products, need to be designed and a multitude of risks need to be priced and managed.

Some of these technical challenges will be familiar to us; for example, in building a DeFi insurance product, how do we mitigate moral hazards, reserve for liabilities, match assets and liabilities, and maintain solvency of the fund?

Some areas like smart contract risk will require upskilling, but the management of this risk is similar to model risk management, where actuaries are already making inroads. A higher calling, perhaps, is that actuaries can contribute to the development of a digital financial system that promises to be more transparent and more inclusive. Actuarial work has never been more exciting.

The future is already here – it’s just not very evenly distributed.

William Gibson, science fiction writer

Modern-day philosopher, Alain de Botton, concludes in his book, The Pleasures and Sorrows of Work, that work distracts us from thoughts of our mortality. His observation is perhaps less relevant to actuaries who contemplate death on a daily basis while engaging in the modelling, pricing, and transferring of longevity and mortality risk.

Nevertheless, de Botton has a wider point; work demands myopic concentration on the tasks at hand. Being busy with work is the perfect excuse for dismissing the bewildering changes around us. The dynamic future demands, at the very least, a curious mind. As the science fiction writer, William Gibson, once said, “the future is already here – it’s just not very evenly distributed”.


Bottom line: Decentralised Autonomous Organisation (DAO) is an organisational concept and software tool to facilitate virtual collaboration. The blockchain technology underlying DAOs is also being used to build a fully digital financial ecosystem, known as decentralised finance (DeFi). Actuarial skills are highly relevant in designing, pricing, and managing the risks of DeFi products.

Further reading:

Learning resources: