Questions for the IAA

Questions for the IAA
by Ian G. Duncan

A document came across my desk recently that caused me to think about the profession and the way it is structured and led–at least in the United States. The document that I read is a report by the International Actuarial Association's (IAA) Strategic Planning Task Force titled, "A Strategy for the IAA." Now, I will confess to having only the vaguest idea of the existence of the IAA before I read the strategy document, but it gave me a lot to think about. I've had discussions with Steve Kellison, SOA president, and Jim MacGinnitie, past president of the SOA and chair of the aforementioned IAA Strategic Planning Task Force, about the SOA's link to the IAA and the issues it raised for me. As an owner of a smaller consulting firm, I'm not in favor of paying additional dues to more actuarial bodies. Also, I was confused about the role of the IAA and the national organizations–is the IAA intended to replace the SOA, internationally? I had some tough questions for Steve and Jim. Here are their responses.

Who is the IAA? Who comprises its constituency? My question is this: actuaries affiliate to national, not international bodies. Why do we need an international organization?
The IAA was originally formed in 1895 by the various national actuarial bodies, including the UK's Institute of Actuaries and the Society of Actuaries. The predecessor of the Canadian Institute of Actuaries (CIA) joined after its formation in 1907. For over 100 years it functioned as a membership organization of individual members, although membership in the council was allocated by country.

The IAA was reconstituted in 1998 as an association of associations. The leadership for the change came primarily from the CIA (Paul McCrossan), the SOA (Walt Rugland), and the Faculty (Malcolm Murray) and Institute of Actuaries, UK (Chris Daykin). Individual actuaries continue to affiliate with their national association. The association (SOA, AAA, CIA, CAS, etc.) is the member of the IAA. In the process of an association joining the IAA, membership in the IAA is conferred on their own fully qualified actuaries.

The problem that the IAA was formed in response to was the need to ensure minimum standards for the profession. But the IAA also has become indispensable in dealing with multi-national bodies such as the International Accounting Standards Board (IASB) and the International Association of Insurance Supervisors (IAIS).

I'm still confused. The Institute of Actuaries in the UK has traditionally been a highly international body (with many overseas fellows, including me), conducting exams, etc. in multiple international centers. The SOA is quickly becoming a highly international body. So there are associations with international members that can support those countries that don't yet have a national actuarial association. I agree that there may be a need for some coordination along the lines of the North American Actuarial Council (NAAC), but I do not see the need for a permanent bureaucracy.

Coordination along the lines of the NAAC is, indeed, necessary and desirable, and the IAA is fulfilling that role. The bureaucracy is quite small, consisting of an executive director, two assistants, some part-time help, and a volunteer secretary general. Most of their time is spent coordinating the meetings of the various IAA committees and council, and in assisting with the preparation of public statements. They are housed with the CIA in Ottawa, in a very symbiotic relationship.

One goal in the strategy document is to "enhance the capacity of the IAA to become the main forum for leaders of the profession and coordinate proactive guidance for the global profession." This objective would make the IAA into the global equivalent of the NAAC. The leadership of the SOA and Institute of Actuaries has been meeting for several years, together with the leaders of most of the other major English-speaking, examination administering bodies. This has led to some resentment in the non-English speaking world. The proposal is to remedy the situation by inviting all IAA members. It will probably be necessary to have some split sessions to let the smaller associations concentrate on their issues, while the larger associations discuss their own. But together they can help to guide the global profession.

I have some specific questions about the mission of the IAA:

• How can the international body promote the role of the actuary, which is practiced nationally? National bodies do this; any international intervention will simply confuse an already confused situation.
• How does the IAA promote professional standards? These are the responsibility of national professional bodies (and now the oversight body in the UK).
• How can the IAA represent national bodies in discussions with international bodies? There are probably some international bodies that influence our national bodies (IASB, for example). But the national bodies can respond to international requirements better than an international body. We need to starve international bureaucracy, not encourage it.

The IAA functions primarily through volunteer committees, to which all national actuarial associations can appoint delegates. In practice, the major associations provide the majority of the volunteer manpower, but there are many outstanding contributors from smaller associations. Several of the committees have been successful in promoting the role of the actuary, particularly before the International Accounting Standards Board and the International Association of Insurance Supervisors. Providing a coordinated response from the many individual actuarial associations would simply not have been possible, particularly in view of the short time frames that these organizations have allowed for comment on their rapidly emerging standards.

The IAA also has been able to effectively represent the profession before several other international organizations, including the World Bank, the Asia Development Bank, the World Health Organization, the OECD and the International Social Security Association.

Regarding professional standards, the IAA works in two ways. First, it has minimum requirements for national associations who apply to join the IAA. This is not a concern in major developed economies, but in developing and emerging economies it has proved very helpful. Second, the IAA has been able to develop standards for actuaries who are working under International Accounting Standards. Indeed, the IASB was only willing to allow accountants to rely on actuarial work when they were assured that the IAA would develop appropriate standards.

Does the IAA see itself having an educational role in addition to the national professional educational bodies? If so, why? What educational deficiency is it aiming to close? What is wrong with the current SOA/Institute approach? As a fellow of both the Institute and the Society, I get occasional inquiries from students who don't know whether to sign-up for the Institute or Society examinations; this will only make the confusion greater.

The IAA follows the principle of subsidiarity: don't do at the international level that which can be satisfactorily done at the level of the national association. So when it comes to education, the IAA's work has been focused in developing and emerging economies, and then primarily to jump–start the local process and provide continuing assistance. This work draws principally on the existing educational materials of the larger, more established, national associations.

The strategy document does raise the possibility of creating a lower level, para–actuarial credential on a global basis. This would be something similar to the enormously successful CFA credential. This possibility will proceed only with the support of the several national associations after considerable study.

The strategy document states, as a goal, to "expand supranational relations." What does this mean? My concern is this could increase bureaucracy and intervention in national affairs.

An earlier response identified the World Bank, some regional development banks, and the World Health Organization (WHO) as supranational organizations with which the actuarial profession has already established relationships. Most of this activity is finding ways that we can work cooperatively, usually in helping the actuarial profession to develop in a sound manner in emerging and developing economies.

In follow up, one of the tactical strategies for expanding supranational relations is to "outsource some activities to member organizations." I interpret this statement as the IAA proposing to tax local actuaries to set up an international bureaucracy to outsource these functions back to the national organizations. What am I missing here? Who, other than the bureaucrats, gains from this one?

The outsourcing referred to is the use of volunteers or, where available, national associations. So the Swiss have taken primary responsibility for the IAA relationship with the WHO, since it is headquartered in Geneva. They are exploring the possibility of also working with the International Labor Organization. IAA relationships with the World Bank have been handled by volunteers from several countries, but the idea in the strategy document is to explore having the American Academy of Actuaries handle relationships with the World Bank for the entire IAA, since both are in Washington. Also, the Academy staff might provide more continuity than a frequently changing cast of volunteers.

The "tax" is primarily of volunteer resources, and would only be paid on a voluntary basis.

The strategic document notes a goal "to foster and sustain the resources of IAA." This is a taxation issue. I am a small consulting actuary; I pay a lot of dues as it is. Why should I pay for another set of oversight committees? I note that there will be a "continuous need for a relatively high number of specialized committees, subcommittees, working parties, task forces, etc." Why? What is the demonstrated need? What is going undone currently by the national organizations that the IAA needs to address?

First, the IAA does not invoice individual actuaries. However, each association pays a per–member charge to the IAA. These dues entitle the member organization to participate in IAA activities, and name committee and council delegates. This in turn enables the association's individual members to use IAA resources such as its electronic actuarial library search which accesses literature in the science from around the world.

In the strategy document, the term "resources" predominantly refers to volunteers. In general, volunteers pay their own expenses. The number of committees in the IAA structure is significantly greater than envisioned in 1998 when the IAA was reconstituted as an association of associations. But each new committee was formed in response to a perceived and articulated need, and the larger member associations have appointed delegates to staff these committees. A few committees or task forces have been ended. The thrust of the strategy document is to try to keep the number of committees as small as possible, to use task forces or working parties wherever possible and discharge them with thanks when their project is complete. The committees, as does the IAA in general, make extensive use of electronic communication, keeping expenses and travel needs to a minimum.

Finally, as a member of the SOA and a chair of the Smaller Consulting Firms Section Council, one of the things I like about the Society of Actuaries and its sections is that we are democratic. If the section council does something the members don't like, they can throw us out, either literally or by voting to withhold dues payments. It has a way of sharpening the mind, as we consultants who constantly have to worry about the next invoice payment, are aware. What sort of oversight does the IAA have? How do I make sure their minds stay as sharp as ours?

Your best link to the IAA is through the SOA's IAA Council Delegate. For 2005, Immediate Past President Neil Parmenter fulfilled this role. Neil and Jim MacGinnitie, who serves as the SOA's international secretary, are available to answer questions on IAA initiatives, as is SOA staff person, Martha Sikaras. You can also learn more about the IAA on their Web site www.actuaries.org. We encourage you to give input to the SOA's IAA delegate, International Secretary or any of the SOA's IAA Committee representatives; after all, the IAA is your organization, too.

Ian Duncan, FSA, FIA, FCIA, MAAA, is a consulting actuary in Hartford CT, and chair of the Smaller Consulting Firm Section. His views are, of course, his own. He can be reached at iduncan@soluciaconsulting.com.

To read the report of IAA strategic task force go to http://www.actuaries.org/index.cfm?lang=en&dsp=cttees_exec&act=documents.