A Look Ahead


A Look Ahead

In 2006, the actuarial profession embarked on a campaign to promote itself. The marketing efforts are directed at potential employers of actuaries, particularly in broader financial services and other industries. The goal is to publicize what actuaries can contribute in these sectors through exploiting the opportunity in risk.

Another major initiative of the profession is the new Chartered Enterprise Risk Analyst (CERA) credential. Introduction of this credential is complementary to the marketing efforts. A major opportunity for actuaries in non-traditional industries is seen to be enterprise risk management. The FSA education contains a heavy emphasis on the complex financial aspects of contingent claims in long-duration contracts. This is overkill for the type of risk analysis needed in most industries. At the same time, the FSA syllabus (except for the material covered in the risk management track) seems to miss the forest for the trees, due to its lack of a holistic overview of risk management as it can be applied to any organization. Overall, the requirements for obtaining an FSA are unnecessarily excessive for the generalist risk manager.

The CERA exams are intended to provide a good foundation in basic actuarial techniques as well as the vocabulary of the emerging science of risk management. Combining this knowledge with the unique characteristics of the industry and the organization they work in, CERA credential-holders will be well-positioned to develop effective and practical risk management solutions that achieve optimal results for their companies.

Together, the marketing campaign and the CERA credential have the potential to profoundly impact the actuarial profession. Since our profession will not put its seal of approval on mediocrity, the CERA, with its rigorous certification process, will undoubtedly gain credibility. If a proper balance is struck, and the requirements for the CERA are not as onerous as for the FSA, the number of CERA credentials granted is likely to be significant. I expect university students in actuarial science programs to qualify for the CERA en route to the FSA. If the profession's marketing targeted at non-traditional opportunities is successful, a subset of actuarial science graduates will move outside the insurance industry and potentially drop pursuit of the FSA after obtaining the CERA credential. Some may enter non-traditional employment directly from college.

As another side effect of successful expansion into new industries, universities will be able to launch a parallel effort in expanding the enrollment in actuarial science programs which will feed into the CERA credential. Job opportunities in a broad range of industries, combined with a less tedious path to qualification compared to the FSA, may attract new types of students with diverse skills into college actuarial programs. I suspect the curriculum in these programs will change significantly, with less emphasis on the valuation of traditional contingencies and a growing focus on a broader range of risks and the techniques for managing them. The syllabus may contain less of the traditional in-depth mathematics of risk measurement common in college actuarial education in the past. Instead, we may see more of the qualitative techniques for managing risk that are needed in enterprise risk management to deal with situations where the risk may not be easily quantifiable.

These changes in the education of actuaries could have a favorable impact on the profession, resulting in a new dynamic type of actuary. Like many stereotypes, the common perception of actuaries is both flattering and unflattering at the same time. With a well-deserved reputation for being brainy and exact, actuaries have been losing ground as business leaders due to a somewhat unfair reputation for rigidity and inability to look past the numbers. The next generation of actuaries may be able to preserve the good aspects of the reputation while not accentuating the negative.

If the CERA becomes a "hot" credential and actuaries branch out into many industries, it is unclear how that might impact the FSA designation. Certainly, the growth in the insurance business in developing economies has brought a tremendous growth in the number of actuaries in Asia. However, the number of actuaries in the United States and Canada has grown very slowly in comparison. I discuss below two effects the CERA credential could have on the traditional FSA career path.

First, the type of person who becomes an FSA may change somewhat, as a consequence of the previously discussed changes in the type of person graduating with an actuarial degree. I expect this impact to be positive to the extent it alters negative aspects of the current stereotype. Second, alternative opportunities for actuaries may reduce the supply of actuaries seeking traditional roles and the FSA designation. If the market clears, wages in traditional positions should increase. In the long run, actuaries in the insurance industry who hold the FSA designation may be fewer in number, better compensated and have a broader range of skills, which sounds like a happy ending overall. These effects will be moderated by cross-border labor arbitrage that will probably impact the actuarial profession like many other professions have been affected.

The trends I am speculating about here, if they happen, will manifest over decades. At this point, shortly after the first CERAs have been awarded, and while the number of pioneers that have braved into non-traditional positions remains small, it is anybody's guess what will come to pass. As the profession continues to make efforts to re-invent itself and broaden its identity, it is hard to predict if anything significant will come of these initiatives. If we look ahead, imagine the future and act with collective vision, our profession can be the master of its destiny, rather than a victim of circumstances.

The term actuary has never achieved a widely-recognized place in the common vocabulary in the manner of lawyer or accountant. It has remained a relatively obscure word, requiring definition and explanation, even when speaking to accomplished and well-educated people. Sometimes, actuaries themselves struggle to explain what actuaries do. If it happens at some point that the majority of SOA members are CERAs rather than FSAs, it is not unlikely that the word actuary will become further marginalized and we will become a profession of "risk managers." Ironically, this may be the ultimate measure of the actuarial profession's success.

Narayan Shankar