A View of the Future

A View of the Future

SOA President Stephen G. Kellison shares his thoughts on the future of the actuarial profession.

It was 55 years ago that we came together for our first spring meeting. And, while a lot of things have changed at the SOA since then, the actuarial profession has undergone an even more dramatic metamorphosis. Strategic planning is how the SOA anticipates and manages change for itself and for the membership. After several years of developing and refining the SOA Strategic Plan, we have shifted our focus from strategic planning to strategic implementation. Implementing the strategic plan successfully means we have the power to seize exciting new opportunities and the foresight to avoid dangerous risks.

I'd like to present two very compelling opportunities–one holding great promise and the other peril–and how we must prepare for each.

Turning Risk Into Opportunity

Key to our preparation is a transformation of the image of our profession. I'm sure you'll agree there is no better time than the present for us to establish a reputation as leading risk management professionals, when companies by the hundreds are making the identification and management of risk the core of their operating philosophy.

This concept is known as Enterprise Risk Management (ERM). Many actuaries, including myself, are convinced that this field of practice truly represents the future of our profession, especially if we plan well and get the word out.

So why is ERM that important? It's important because it addresses a critical need facing all organizations, profit and not-for-profit, large and small. The goal of ERM is to provide a comprehensive and holistic framework to deal with all the risks, whether operational, financial, reputational or business in origin.

ERM begins with identifying the risks facing a particular organization. It continues with measuring those risks and how they interrelate, and then moves to managing risks, using a variety of strategies. Until recently, actuaries typically have applied their unique skills to a specific subset of risks in well-defined areas, such as the insurance industry and employee benefit plans.

Seizing the ERM Opportunity

But remember what I said earlier about preparation? The very skill sets that actuaries already use in traditional arenas have applicability to a much broader range of risks in a much wider array of enterprises. And, by expanding on what we already have, we can take the intellectual high ground and become a net exporter of critical ideas and information to many industries.

But this opportunity does not come free of charge. Tackling ERM will not be easy. More significant than the additional training involved, ERM requires a change in our mindset, which will ultimately lead us to new behaviors. ERM requires a much broader perspective across a range of risks, not all of which lend themselves easily to the type of analysis actuaries typically have done. To succeed in ERM, we will have to get out of our comfort zones and accept–even embrace–a more expansive notion of risk. ERM truly is an area for generalists more than specialists.

So, here is the good news about ERM: We are seizing the opportunity. I am quite pleased to report that the actuarial organizations are working well together on the ERM initiative. The Risk Management Section is now officially a joint section of the Casualty Actuarial Society and the SOA. This year's ERM Symposium, jointly sponsored with CAS, PRMIA and Georgia State University drew nearly 500 participants–showing the most dramatic attendance increase of any SOA event in several years.

We cannot succeed in this initiative by ourselves. We must aggressively build and maintain effective relationships with a number of external audiences, to leverage our scarce resources for maximum effect.

Morris' Review Challenges Our Profession

We are not, however, in show business where they say there is no such thing as bad publicity. The promise of ERM notwithstanding, our profession faces a number of risks, perhaps none more disquieting than a risk to our reputation ushered in by the Morris Review in the United Kingdom.

The Morris Review is an outgrowth of a spectacular insurance company failure, which triggered a scathing report by Lord Penrose. As a follow-up to the Penrose report, Sir Derek Morris was commissioned by Parliament to conduct a full-scale review of the actuarial profession in the United Kingdom.

Here are just a few quotes from the Morris Review:

"The profession has been too insular."

"Too much has been expected of actuaries and too much has been promised by them."

"There is insufficient transparency in actuarial advice."

"Professional Standards are too vague and general."

"There is reluctance to challenge fellow actuarial professionals."

"Reactive disciplinary procedures are used."

How vulnerable are we to these accusations? Comments such as these should give us all pause to reflect on the condition of the profession in North America. Many of the Morris Review recommendations involve professionalism matters within the scope of the American Academy of Actuaries in the United States and the Canadian Institute of Actuaries in Canada. However, the Morris Review also addresses some issues that hit close to home for the SOA.

Here are some of Morris' observations about the U.K. education system:

"The syllabus has failed to take full account of new developments. There has been insufficient attention to communication and general business skills. There have been failures in the exam process."

"The time to qualify has been lengthy. The work-based part-time education model contributes to the insular profession."

In response to the Morris Review, the SOA has appointed a blue-ribbon task force, chaired by President-Elect Bob Beuerlein, to prepare an analysis of the report, and possible courses of action, with particular emphasis on issues directly related to the SOA scope of activities. If you have not read the Morris report, I strongly urge you to do so.

Although the Morris Review poses many challenges to our profession, it also points us to a better path. Both ERM and Morris suggest progressive "Best Practices for a Successful Business Model" in the 21st Century.

Enhancing E&E

As the result of the recent rash of corporate scandals, we live in a world in which professionalism issues are primary, not secondary. It's a world where professionals are accountable, not shielded from blame. It's a world in which greater transparency is a requirement, not an option.

Actuarial work by its very nature is somewhat obscure. This means we must do a much better job in eliminating the "actuarial black box" by making the important work that we do more accessible to those outside the profession.

Not only must we disclose our work, we must pay closer heed to the work of others. Both ERM and Morris vividly demonstrate that globalization is here, and it is very real. One needs to look no further than the inexorable march of International Accounting Standards to find an example of this.

Our exam system must be mindful of the opportunities and risks we face from sources, such as Morris and ERM. This year is the first of a three-year phase-in period for implementing a restructured qualification system for membership. First, practical content is being introduced at an earlier point in the overall study program. Second, in 2006 we will introduce Fundamentals of Actuarial Practice (FAP), which consists of eight computer-based modules. Third, for the first time, there will be direct recognition of university-based training for three subject areas through the Validation by Education Experience (VEE) program. Fourth, starting in September in partnership with the CAS and the CIA, the first examination will be offered via computer-based testing (CBT).

We'll carefully evaluate the experience and determine possibilities for the future. I am personally hopeful that our CBT experience on this first exam will prove successful and that it can be extended to other Associateship exams to help reduce travel time. Additionally, your Board of Governors made an important decision to strengthen Financial Economics content and incorporate this new material into the Associateship syllabus. Admittedly, this change comes close on the heels of the redesign. However, the number of examinations and the new structure will not change.

Organizing for Success

These enhancements are necessary for us to meet our goals in the ERM area, and they also respond to some of the criticisms contained in the Morris Review. To accomplish our goals:

  • The SOA has created four Strategic Action Teams, or SATs. They are: membership value, knowledge management, marketplace relevance and professional community advancement.
  • We've transformed the Strategic Planning Committee into an Issues Advisory Council. These new entities will allow us to identify risks and opportunities more quickly and take action to exploit them.
  • We are greatly strengthening the roles of sections in the organization. We hope to harness the membership energy and entrepreneurial spirit of the sections for the benefit of the SOA as a whole. All of the sections' leaderships are taking a more active role in the functional activities of the organization and creating a closer relationship with the Board of Governors.

The Power of Individual Action

In closing, the success of sections leads me to stress the importance of grassroots involvement by each and every one of us. Take the image campaign for example. Its ultimate success requires strong grass-roots commitment. Local actuarial clubs are another example. I strongly encourage you to get more heavily involved in their initiatives.

I am reminded of my remarks at last year's Annual Meeting. This is your profession. Each of you touches the lives of many people every day that we, as an organization, will never reach. In these encounters, remember that you are not only presenting a positive personal image, but that you are also an ambassador for the entire profession. In many cases, you may be the only actuary that person knows. The fact is, there are not that many of us, which makes our ambassadorial work even more critical.

The actuarial community chose for our image campaign the tag line: Actuaries–the best kept secret in business. These words speak to our importance, but also to a lack of recognition. It is up to us to make this accurate and flattering self-assessment temporary. I have great faith that we can tell our story, demonstrate our unique abilities and remain a secret to the world no longer.

Stephen G. Kellison is president of the Society of Actuaries.