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The Actuary The magazine of the Institute & Faculty of Actuaries

The Indian actuarial profession

On 28 August 2006, the Actuarial Society of India (ASI) gave way to the Institute of Actuaries of India (IAI) under the auspices of the Actuaries Act 2006.
So what will this mean for the profession? It can stay put at the crossroads or march forward in the right (or even wrong) direction. Much will depend upon the vision of the new leadership in the shape of the council and its president, who will be elected after the first elections to the council are held.

A peep into the past
The old ASI started in 1944 as a collection of individuals qualified from the Faculty and Institute of Actuaries, with 21 fellow members. The structure remained much the same until 1982 when it took on the legal structure as a scientific and charitable society. The ASI remained part of the UK actuarial profession for education and professional purposes until 1989, when it started its own examinations for Indian fellowship FASI. However, the UK connection still thrives with most of the ASI students also taking UK examinations.
In 1955, the Indian actuarial profession consisted of 102 fellows and almost three hundred other types of member. However, the profession saw a downward trend in the early years of nationalisation of the Indian insurance industry. The creation in 1956 of a monopoly life insurer posed a particular threat to the continued survival of the profession, particularly as the life insurance sector was where most of the actuaries were employed.
Many actuaries left India to work in countries such as the UK, Canada, Australia, and the US, though the profession survived in hibernation until 2000. The year 2000 saw the opening of the insurance industry to private-sector participation, and in close proximity, actuarial service providers started looking at India for actuarial talent.
The insurance regulator, the Insurance Regulatory and Development Authority (IRDA), was keen to introduce the system of an appointed actuary as a regulatory mechanism, and was concerned about the lack of Indian actuarial talent. Meanwhile, the prospective actuarial service providers, although keen to take advantage of the lower cost of Indian talent, were also concerned on the same count. Luckily, the new leadership of ASI, starting in 2000, has managed to turn the profession into a globally accepted and well-recognised profession in just over five years. With a total membership of over 6,500 (compared with 720 in 2000), these recent years of dedication and hard work have seen the Indian actuarial profession notch up the following achievements:
– Mutual recognition of fellowship and mutual exemption of most of the subjects with the UK Actuarial Profession and the Institute of Actuaries of Australia.
– An affiliateship route to facilitate admission of qualified actuaries from other major actuarial bodies.
– An examination system with the breadth and depth of content to prepare tomorrow’s actuary as a business leader and a person of high standards of professionalism and ethics.
– Professional conduct standards that allow the individual actuary to perform within the legal structure of choice and be regulated by the profession.
– Participation in global actuarial activity.
Paradoxically, some of us who were not initially encouraged by the government’s intentions have come to believe that the statutory structure will probably give it strength to set, regulate, and monitor the compliance of professional standards in the public interest. We are looking forward to some 5,000, 10,000, 15,000, and 20,000 fellow members in 5 years, 10 years, 15 years, and 20 years respectively.

The path to the statute
In the year 1998, the then-interim insurance regulator, Mr N Rangachary, prompted the ASI to draft a government bill for regulating the actuarial profession in India. His argument primarily rested on the premise that if the appointed actuary system as a regulatory mechanism were to be introduced, the existence of a statute-based profession was necessary.
The government initially brought in a bill in 2000 which many felt was a poor copy of the Chartered Accountants’ Act. It included establishing governmental control over the profession. It provided that actuarial practice could only be undertaken by an individual proprietor or a partnership of actuaries. If this had been allowed to happen, the major actuarial practices today employing large number of actuarial staff would not have come into being. The bill went to Parliament in 2002, again in 2004, and has finally been enacted as the Actuaries Act 2006. Hopefully the statutory provisions will allow the profession to march forward drawing upon the building blocks laid since 2000.

The Institute of Actuaries of India (IAI) Council
The Act envisages establishment of a council to be composed of the following:
– between 9 and 12 fellows to be elected by fellow and associate members;
– an officer not below the rank of joint secretary to the government of India, to be nominated by central government to represent the Ministry of Finance;
– one person from the IRDA, nominated by central government;
– no more than two people having knowledge in the fields of life insurance, general insurance, finance, economics, law, accountancy, or any other discipline which, in the opinion of the central government, would be useful to the council.
The council will elect three of its members for the post of the president, vice-president, and honorary secretary. The president will be the chief executive officer of the council. The president, vice-president, and honorary secretary will each hold office for a two-year period provided that he or she continues to be a member of the council.

Quality review board
Central government will, by notification, constitute a quality review board consisting of a chairperson and no more than four members, which must perform the following functions:
– fixing standards for the services provided by Institute members;
– reviewing the quality of services provided by Institute members including actuarial audit services;
– guiding Institute members to improve the quality of services, and adhere to the various statutory and other regulatory requirements.

Powers of central government
Central government may, from time to time, issue the council general or special directions, and the council must, under this Act, comply with these directions.
If, in the opinion of central government, the council has persistently failed in discharging these directions then, after being given a opportunity to be heard, it may be dissolved and a replacement council constituted under the Act.

Restrictions on actuarial behaviour
The Act places restrictions on the way actuaries practise.
The Act allows an actuary to practise as an individual, or in partnership, or as a member or an employee of a company.
No person other than a fellow of the Institute can sign any document on behalf of an actuary in practice or a firm of such actuaries. Where a firm of actuaries has more than one office within or outside India, each office will be in the separate charge of an Institute fellow.
If any country prevents Indian-domiciled members from becoming members of their equivalent Institute, prevents them from practising, or subjects them to unfair discrimination, no subject of that country will be entitled to become a member of the IAI or practise in India. This provision ensures that actuaries from IAI are treated on a par with actuaries from professional actuarial bodies in other countries.

Professional misconduct
The Act also defines the terms of professional misconduct. The following actions or inactions are construed as professional misconduct:
– Accepting an assignment as actuary previously held by another actuary without first communicating with him or her in writing.
– Engaging in any other business or occupation unless permitted to by the council.
– Accepting a position previously held by another actuary in such conditions as to constitute ‘undercutting’.
– Failing to obtain sufficient information to warrant the formation of an opinion in regard to any matter contained in any valuation report or financial statement prepared by him or her, or on his or her behalf;
– Not supplying information called for or not complying with the requirements asked for by the council or any of its committees.
– Bringing the profession or the Institute (in the opinion of the council) into disrepute as a result of his or her action whether related to his or her professional work or not. This gives unlimited power to the council to take decisions on the conduct of actuaries, which is possibly open to abuse. It also implies that conduct in personal life would also be subject to the regulation of the council.

No financial support
In a strange final twist, the Act makes it clear that the government does not hold any responsibility to provide financial support to the IAI and that it must support itself. In other words, the government wants to own the profession in India, run it, and govern it, but without any responsibility to financially support it!

The opinions expressed are those of the authors only and do not represent the views of their respective employers.