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Structure Matters

Structure Matters

In the case of the number of actuarial orgs, could less be more?

This will be my last column in The Actuary as your President. It has been a great honor and privilege to serve the actuarial profession in this capacity. I treasure the support so many of you have expressed during the past year. The SOA is blessed to have such strong commitment from so many dedicated volunteers, as well as top-notch staff support. It has truly been the highlight of my career as an actuary.

I would like to take this opportunity to discuss with you what I believe is a major structural impediment to achieve the destiny to which we all aspire. Put simply, there are too many actuarial organizations for a profession of our relatively small size. Our overall organizational structure collectively is too complex and the end result is sub-optimal.

This is not a new issue by any means. The first major initiative to restructure the actuarial profession was launched in the mid- to late-1970s. The effort seemed quite promising at first, but it ultimately came to naught. Subsequent attempts in the late 1980s and early 1990s met a similar fate. However, in my judgment, the challenges being presented by our organizational structure today are greater than ever and the need for the profession to address this issue in a meaningful way has become compelling.

Before getting into the substance of my comments let me qualify that I see this as largely, perhaps uniquely, a problem facing the profession in the United States. If we look around the globe at countries with developed actuarial professions, we find no other country facing the organizational complexity (even redundancy) that we see in the United States.

There are five major actuarial membership organizations and three supporting non-membership organizations headquartered in the United States.1 Each has its own rationale for being created, time of formation, unique history and current purpose. The stories all differ, but a couple of major themes are evident. The first theme is the desire to serve the needs of some constituency that is a subset of the total actuarial community, usually by area of practice or by type of employment. The second theme is the desire to concentrate on a subset of the totality of functional activities that need to be provided by all the organizations collectively.

So, what is the problem? Actually there are many, but let me highlight five of the most significant.

  1. There is no strategic vision for the profession as a whole. Each organization has its own strategic vision, but collectively they do not really add up to an integrated and coherent strategic vision for the profession as a whole. Unfortunately, this is a case in which the sum of the parts does not equal what should be the whole.
  2. Despite repeated good-faith attempts to define "who is responsible for what," lack of clarity still pervades everything we do. Areas of overlap are many. Few of the important functional activities being provided are uniquely within the purview of only one organization.
  3. Effectiveness and efficiency are difficult to achieve under the current structure. On the large majority of major initiatives and activities, the current structure requires a lot of communication and coordination, both among volunteers and staff.
  4. Despite our best attempts to avoid it and wishing it were otherwise, competition among the organizations inevitably arises. Every organization wants to provide services that increase value to its members, wants the best people involved in its volunteer structure, wants its staff to deliver results that increase membership value, and so forth.
  5. To the world outside our profession we appear to be a fractured, convoluted, even disorganized profession. In fact, we probably appear the very same way to our own members and employers!

I could go on, but this is enough of an indictment to make my point.

What has been the profession's response to this situation? The response has been to try to define more clearly "who is responsible for what" and to try to improve communication and coordination on key activities. When the initial attempt at reorganization of the profession in the 1970s failed, the Council of Presidents (Presidents and Presidents-Elect of the membership organizations in North America) took on this mission and developed a Working Agreement among the organizations. This is still the approach being used today, under the banner of the North American Actuarial Council (the Council of Presidents renamed).

The leaders of the various organizations over the years have put forth a tremendous effort and certainly have done much to improve communication and coordination. My experience in the two years I have been on the NAAC has been that the leaders of all the various organizations are people of good will putting forth a lot of effort to make the current structure work. And there is no doubt that the actuarial profession is better off for all this effort than it would have been had we not developed a structured, organized mechanism for improving communication and coordination.

However, this is a classic case of treating symptoms rather than the disease. The basic problem is structural and all the efforts at better communication and coordination do not change that reality. It is wishful thinking and a fallacy to believe that we can solve this problem strictly with better communication and coordination. We cannot.

The time and effort spent in inter-organizational communication and coordination activity is very substantial. Moreover, it is important to stress that all this effort at better communication and coordination is not confined to just the presidential officers on NAAC. In fact, that is only a small piece of the picture. This need for inter-organizational communication and coordination permeates the entire volunteer structure of all the organizations and is an every day fact of life for the staff of the various organizations.

I have spent many hours in this type of activity during my Presidency, as have all my peers in the other organizations. These encounters can be seductive because the discussions are usually interesting and you do have the impression that you really are making progress on some issue that is important to the profession.

However, I have found it insightful to try to detach myself from the engagement to assess what was really accomplished. I continue to remind myself that we are a relatively small profession with limited resources. Every hour spent in coordination and communication activity is an hour not spent actually doing something to advance the goals of the profession.

The challenges in addressing this issue are daunting. I will list three of the more salient ones.

  1. Each organization has a proud history of accomplishment. They have a current membership and other constituencies with an expectation of receiving at least the services provided in the past and hopefully more. They have many volunteers serving diligently in well-defined roles. They have a governing board and staff with fiduciary responsibilities to take actions in the best interest of the organization. Status quo, despite its obvious flaws, is always the path of least resistance in this situation.
  2. Making structural changes of this type is not simple. It would take a lot of hard work to accomplish. There are a myriad of details to work out. The transition period would be difficult. Undoubtedly, there would be many instances in which there were more questions than answers. It would divert resources from other activities that we know are important.
  3. There have been past efforts to reorganize the profession that have failed. Current leaders are reluctant to devote time and energy to a complex, difficult mission that they perceive to have a high probability of not going forward to implementation.

Can it be done? Yes. There are examples of not-for-profit professional membership organizations that have succeeded in doing this. Was it easy? No. Were the members of the organizations involved better off after doing it? Usually, yes. There are good case studies to look at in this regard.

Why do I believe that the actuarial profession should tackle this daunting challenge once again? It is because I believe that we live in a different world in the 21st Century than we did in the 20th Century. Our profession is facing many significant challenges for which our organizational structure is more of an impediment than it was in the past. Most of the important strategic goals of our profession currently involve initiatives and programs that cut across most, often all, the organizations. Furthermore, we are increasingly interacting with audiences external to the profession for whom our current organizational structure could only be described as Byzantine on a good day. I have personally witnessed many situations throughout my career in which our organizational structure has been a negative when dealing with audiences external to the profession.

We no longer have the luxury of being able to support so many different organizations. Membership concern about the future of the profession is more acute than in the past. Membership expectations involving the performance of their professional organizations is higher than ever before and is rising. Financial pressures and resource limitations for all the organizations are growing. The bar has been raised.

As one simple, but quite important example, consider what the profession is trying to accomplish in the Enterprise Risk Management (ERM) area. Every actuarial organization has a strong interest in this project. Every actuarial organization is doing things related to this project. We are dealing with many external audiences in trying to carve out the role we believe that the actuarial profession should play in ERM. Will we fail to achieve our goals if we leave the current organizational structure intact? I hope not, but I am not certain of it. Would we improve our chances if we had a simpler, more understandable, and more nimble structure? I believe the answer is a resounding yes.

If you do not agree with me that the U.S. actuarial profession has a structural problem, then I present a challenge to you. Go to some family member or friend who is not an actuary and describe the current structure of the actuarial profession in the United States to them in some detail. Try to get them to see the logic in our current structure. Ask them if they feel we can be effective operating this way. See what they say.

I recognize that some of my comments may be provocative and uncomfortable. Many will accuse me of being Don Quixote on a futile quest. However, it is the prerogative of outgoing Presidents to provide advice and counsel to their successors and perspective on the condition of the profession to the membership. My plea for the profession to meaningfully address this issue is offered in that vein.

If we do not choose to tackle this challenge, then I think we need to at least be honest with ourselves as to the price the profession is paying and the ramifications of that course of action. If we do choose to tackle it, it will be painful and difficult. However, in my judgment, future generations of actuaries would look back at the leaders of the profession in the early 21st Century and be able proudly to say: "See! this our fathers did for us."2

Stephen Kellison is president of the Society of Actuaries. .

1 Five Membership Organizations: American Academy of Actuaries, American Society of Pension Professionals & Actuaries, Casualty Actuarial Society, Conference of Consulting Actuaries, Society of Actuaries. Three Non- Membership Organizations: Actuarial Standards Board, Actuarial Board of Counseling and Discipline, The Actuarial Foundation.

2 John Ruskin