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The Actuary The magazine of the Institute & Faculty of Actuaries

Risky business

For as long as I have been a member of the actuarial profession, we have talked and enthused about moving into different fields from our core areas of life and pensions. In my career, we have made general insurance and investment advice additional core areas, although we have not made ourselves unique in these areas, merely pari passu with others.

We now have a new opportunity to expand our influence in the area of risk, or enterprise risk management (ERM), to be specific. This has arisen both from an increasing awareness that managing risk is at the core of success for enterprises of all shapes and sizes, and from the proposed Solvency II regulations for insurers, which base the regulatory regime upon an assessment and embedding of risk.

While accepting that this could be an area of expertise where actuaries are well placed to be among the leaders, we should be cautious about overstating our core competences. To use a much hackneyed phrase, we need to know what we know, and more crucially, know what we don’t know. Our training gives us the strong ability to create, operate and communicate the results of financial models, and these are a key part of any risk system. However, there is much more to managing risk and operating in an ERM world than models. In a sessional paper I co-authored entitled Governance and Risk Management in United Kingdom Insurance Companies (March 2009), we set out the numerous non-modelling aspects of risk management, which are also crucial to ensure success as models.

We need to acknowledge that there is more to risk management than simply enhancing models and, by doing so, acknowledge that for many, our current skill-set is in need of enhancement to enable us to operate at the leading edge of this work. It cannot be a coincidence that many current insurance chief risk officers are not actuaries. While there are some actuaries in these roles, that reflects more on their wider skills and capabilities, rather than their expertise as an actuary being a requirement for the role.

As a profession, we must tread carefully when arguing that we are well placed to lead in this area of expertise. We could materially damage any potential roles in this way by suggesting that we are finished articles and natural candidates to undertake these new roles when it is not generally the case, and is known by those outside the profession. Instead, we should acknowledge that the ERM world is a new one with much that we have seen and done before, but also one where much is new and still developing. We clearly have some of the skills required for it, but equally clearly we have gaps. We should understand what these gaps are and take steps to close them through a variety of CPD options.

The Profession is playing its part in this. A new ERM course is being introduced to the examinations shortly; those who are members of the ERM special interest group receive a monthly e-mail giving news, information, and CPD opportunities; and at least one (normally two) sessional meetings each year will be on an ERM-related topic.

Within our own places of work, we should strive to ensure risk is seen as an alternative career and not just as an area one works in for experience — I have always believed that if we believe ERM is important, then we should be promoting it as a separate career path. We should also promote risk as an appropriate area for normal rotation during training.

However, for our involvement to be successful we must acknowledge what we don’t know and take willing steps to change the ‘don’t knows’ to ‘knows’. At the centre the Profession has done this; my hope is that other members who wish to be (or are) active in this field can do likewise.

Roger Dix is chairman of the Professionalism Awareness Committee and a member of the ERM Practice Executive Committee. He works in the area of Risk in Financial Services.