INARM

By Jean-Yves Rioux, FCIA

In the summer of 2009, the Enterprise Risk Management (ERM) Applications Committee of the Canadian Institute of Actuaries (CIA) asked members, who listed ERM as their primary or secondary area of practice, to participate in a Strengths, Weakness, Opportunities and Threats (SWOT) survey about actuaries and ERM. The results of the survey were compiled to form a consensus view related to the following:

1. As actuaries, how can we promote ourselves in the ERM arena (Our Strengths)?
2. What are the potential areas of improvement for actuaries related to ERM (Our Weaknesses)?
3. What are the foreseeable forces and trends that will impact actuaries wanting to compete as ERM specialists?

Twenty-three percent of the 103 members who were solicited to participate responded to our survey. The members of the ERM Applications Committee reviewed the results and are confident that the responses can be used to develop promotional material for the profession, and to make recommendations on potential areas of development for actuaries.

The following four, open-ended questions were asked of those surveyed:

1. What are the strengths/skills that actuaries possess that give them an advantage in competing for leadership roles in ERM functions?
2. What are the weaknesses/knowledge gaps that put actuaries at a disadvantage in competing with other risk practitioners for leadership roles in ERM functions?
3. What are the key forces or events that will likely have a positive impact/influence on actuaries practising in the ERM services arena?
4. What are the key forces or events that will likely have a negative impact/influence on actuaries practising in the ERM services arena?

 

THE CONSENSUS VIEW

Our Strengths

It is well-known that actuaries have excellent technical and mathematical skills. They have the ability to model and forecast financial risks and to identify, assess and quantify risks. With their exceptional analytical skills, actuaries are well-positioned to develop risk management solutions to complex problems. Not only do actuaries have broad and detailed knowledge of insurance, they also have broad cross-disciplinary education that spans economics, financial markets and risks. Actuaries understand the inter-relationships between assets and liabilities. In addition to understanding risk transfer, actuaries also have a good understanding of various risks and their dependencies. Actuaries are able to delve into details and understand the overall financial impact.

Our Weaknesses

Actuaries have been too focused on insurance. As a result, they sometimes have less knowledge of non-insurance-related risks and business. Due to their focus on insurance risks, actuaries more often than not, have a narrow view of risks. Actuaries should broaden their knowledge to allow them to use a holistic approach to risk (as opposed to a narrow, silo approach). Actuaries sometimes have difficulty raising their sights from the details to see the “Big Picture.” They are perceived as being too technical and detail-oriented. Actuaries need to improve both their communication and negotiation/influencing skills, which should help them better market themselves and the profession. Actuaries are generally not well-recognized as risk management and ERM experts.

Positive Forces

ERM has become a hot topic these days. The recent problems revealed by the economic crisis highlight the importance and the need for risk management and ERM capabilities. Many corporate players now place increased emphasis on risk management: rating agencies assess ERM capabilities, and professionals and regulators are following the trend in developing and improving risk-related requirements and guidelines. Actuarial organizations are busy promoting ERM. A single, globally-recognized ERM designation has been approved and this should increase the recognition of actuaries as risk professionals.

Negative Forces

There is a limited, if not negative, perception regarding actuaries’ skills as they relate to risk management. Past actuarial mishaps in the areas of variable annuities valuation and pension funding and valuation have reinforced this view. Furthermore, there is currently strong competition from other risk management organizations such as the Global Association of Risk Professionals (GARP) and the Professional Risk Managers’ International Association (PRMIA).

Linking the Consensus with the Institute’s Strategic Plan

In addition to compiling the results, the ERM Applications Committee compared the essence of the responses to the 2010-2015 CIA Strategic Plan and the CIA’s Operating Environment in 2009. The results revealed that many issues that surfaced in the survey were addressed under the Strategic Plan’s objectives. Some of these were directly related to ERM while others were broader.

The pertinent CIA objectives and goals are related to the following:

• Support relevant research (2.2): Conduct public policy research: retirement, Enterprise Risk Management (ERM), health care financing, automobile insurance, and other emerging issues.
• Promote the profession (3.2): Further develop and promote the expertise of actuaries in ERM.
• Influence international matters (5.3): Maintain and develop collaborative relationships with other relevant international bodies. (5.4): Participate in the development and implementation of the global ERM designation.
• Operating environment – Weaknesses: Insufficient emphasis on business education. Lack of visibility of the profession.
• Operating environment – Opportunities: Highlight the contribution of the role of the profession in risk management given the current economic situation. Establish the profession as leaders in ERM. Promote the actuarial profession so that it is seen as the “go to” profession for financial and risk management issues.
• Operating environment – Threats: Actuarial field/role is being eroded by other professionals or associations (e.g., financial engineering, risk management). Loss of credibility for the profession if major pension plans or financial institutions fail. Perception among relevant stakeholders that actuaries have a narrow technical focus.

The ERM Applications Committee welcomes your comments on possible initiatives to address any weaknesses or to build on our strengths in the ERM arena.

Jean-Yves Rioux, FCIA, FSA, CERA, is a member of the ERM Applications Committee.