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The Actuary The magazine of the Institute & Faculty of Actuaries
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Presidential afterword - Crunchiness

The question of how the profession should discharge its obligation to act in the public interest has been brought to the fore again by David Forfar’s articles in the July and August issues of The Actuary. While I do not agree with all of David’s analysis or suggestions, he is right to draw attention to the need to clarify responsibilities for public interest matters in the post-Morris environment.
The Professional Conduct Standards (PCS) describe the respective roles of the profession and individual actuaries succinctly as follows:
‘The actuarial profession has an obligation to serve the public interest. Collectively it seeks to do so by informed contribution to debate on matters of public interest and by influencing those with power to protect and enhance the public interest. Individually members must maintain and observe the highest standards of conduct.’
This is helpful, but still leaves many members uncertain about what they should be doing, if anything, beyond complying with technical and ethical standards, including the PCS. Moreover, individual actuaries are not the only ones looking for greater clarity the letter from Paul Seymour, chairman of the Board for Actuarial Standards (BAS), published in last month’s Actuary, refers to the need to define the respective roles of standard-setters and prudential regulators in relation to public interest issues. Joint Councils will be considering the subject again soon, and I am hopeful that the various interested parties will make progress in agreeing a way forward during the current session.
Whatever the outcome, I believe there will always be a role for the professional bodies in highlighting areas where current or emerging practices may give rise to future problems. We have not always done this very effectively in the past instead, we have often been willing to live with comfortable uncertainty. In an article written in 1988, Nico Colchester coined the term ‘sogginess’ to describe such a state of affairs. The opposite of sogginess is ‘crunchiness’. His theory, applied to economies, was simple: ‘Crunchiness brings wealth. Wealth leads to sogginess. Sogginess brings poverty. Poverty creates crunchiness. From this immutable cycle we know that to hang on to wealth, you must keep things crunchy.’
This theory translates very well to other areas, including regimes designed to protect the interests of long-term savers. A crunchy regime is likely to be more effective than a soggy one. While we are not primarily responsible for designing such systems, we are often well placed to spot potential problems and raise awareness of them. I believe that a crunchier approach by the profession will help raise our public standing. The recent press release on the need for members of defined benefit pension schemes to take care (and independent advice) when considering an inducement to transfer out, which was prompted by Stewart Ritchie, Faculty president, is a good start.

Silos or communities?
The project to implement the profession’s new strategy is now under way. The various work streams are making good progress, and Joint Councils had an opportunity at their meeting on 7 September to debate some of the more contentious issues that have surfaced so far.
One such issue is how the profession should be structured. In particular, should we continue to organise our activities along practice lines, or would a functional structure be more effective? The latter approach might involve establishing a number of cross-practice committees to replace the present board structure, perhaps including the following:
– education;
– practice development and services;
– professional affairs;
– external affairs.
Under this model, much of the work of the current practice boards would fall to the Practice Development and Services Committee, which might have a number of subcommittees, also with membership drawn from all main practice areas, covering inter alia liaison with members, knowledge-sharing, research, CPD, sessional meetings, networking, and publications.
I have heard two expressions recently which neatly encapsulate the advantages and disadvantages of the current practice-based approach ‘practice silos’ and ‘practice communities’. One is pejorative and alludes to a lack of cross-fertilisation of ideas and perhaps a lack of consistency of methods and assumptions between practice areas. The other conveys a much more positive impression, emphasising the advantages of belonging to a well-defined subgroup of the profession with common interests.
So far, the relationship between individual members and their practice area has typically been a relatively loose one. We do not have ‘sections’ or ‘special interest groups’ which members sign up to, as the Society of Actuaries does for example, nor is there much direct communication between practice boards and members working in the areas they cover. General insurance actuaries are perhaps the closest thing the UK profession has to a practice community, thanks to the popularity of the GIRO convention and its link to research and career development. There seems to be scope to do much more in this area.
If we retain a practice-based structure, the need for consistency and sharing of ideas across practice groupings will still have to be addressed. The advent of principles-based technical guidance from BAS should help in this respect, as should some of the other influences which are tending to blur traditional practice boundaries for example, the recent introduction of a common approach for determining pillar II capital requirements for life and general insurers, and the surge of interest, from the life industry and elsewhere, in buying out liabilities from defined benefit pension schemes. In addition, we must find a way of nurturing new areas of activity that do not fit neatly into existing practice areas.
But perhaps a functional structure, supported by special interest groups, would be a better model? There is plenty for the Structure work stream to think about!
- Nick Dumbreck
Comments from members on this, and other aspects of the profession’s structure, would be welcome please send them to Peter Stirling, project manager of the Structure work stream (email peter.stirling@actuaries.org.uk, tel 020-7632 2177).)

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