One of the Oscar nominees for best original screenplay 2012 was the film Margin Call, which portrayed 24 hours in the life of a fictional investment bank that teeters on the edge of collapse because its financial risk models were flawed (reviewed in last month’s Arts pages).
Watching it, you may have easily concluded that risk managers are all very attractive, intelligent and were completely essential for the financial stability of the bank.
It is not only Hollywood that has woken up to risk as a topic for discussion. The Institute and Faculty of Actuaries recognised some time ago the growing opportunities for actuaries in the area of enterprise risk management (ERM). As a result, the Chartered Enterprise Risk Actuary (CERA) qualification was established to set the standards in this field, and 1,000 CERA qualifications have been awarded globally. The Institute and Faculty also set up a group to develop strategy on ERM and to recommend how to make the best of the potential market for actuarial skills in this area.
The group has recently reported on its findings. They found that risk management is increasingly recognised as a key issue in the financial sector and is becoming more important in the non-financial and public sectors. Demand for risk specialists is expected to rise, partly as a result of increasing regulation leading to pressure on resources. At present, risk functions are often sourced by a variety of professional groups – accountants, actuarial firms, business consultants and strategists – but there is no single recognised professional qualification or standard.
Where actuaries are involved in risk management, it tends to be in the traditional areas of life and general insurance, pensions and health, as well as investment management and banking. ERM principles are largely global rather than local, so the CERA qualification can play an important role as it can be recognised across regions.
Of course, in this relatively new market, we are competing with other professions and, outside our traditional areas, actuaries are not yet seen as an obvious choice for risk management roles. These often go to professionals with an in-depth knowledge of the business or an existing connection, for example, through audit or consultancy work. But, as a profession, we do have unique qualities, such as:
- The ability to assimilate multiple risks and their interaction across a business;
- Effective communication of complex issues in a business context;
- Strength in financial and statistical analysis and modelling, with professional objectivity about their limitations.
The Profession’s vision for the long term is that actuaries establish themselves as outstanding risk experts across the business spectrum and the public sector, enhancing ERM practice for the benefit of business and society. A suitable success measure would be to see actuaries holding the position of chief risk officer in 75% of UK insurance groups, 25% of UK banks and on 20% of the boards of FTSE 350 companies, with corresponding targets for our international members and a strong presence in middle management and technical roles.
In our traditional areas, the aim would be to maintain the number of actuarial employees and to ensure they have the skills and experience to take on the top risk management roles. For other financial institutions, such as banks, the issue is slightly different. We need to make actuaries more attractive so that more candidates are available within those organisations to take on senior risk roles and to promote actuarial qualifications.
Lastly, to get a presence on a wider range of corporate boards, we will need to educate actuaries in broader business skills and facilitate networking. Our strategy to achieve these aims includes improving the level of ERM education – for example, by running training courses, co-hosting events with existing risk management organisations and increasing opportunities for continuous professional development in this area. Alongside this, we will revisit the exam syllabus to increase the understanding of ERM theory and ensure that it meets the needs of prospective employers.
As a profession, we can also do much to develop our brand in the broader risk management fields and use research opportunities to develop our credentials. Our ERM strategy may not win us an Oscar, but we do believe it will bring many rewards.
Jane Curtis is the president of the Institute and Faculty of Actuaries