Marcus Bowser, Kirsty Leece and Keith Jennings discuss the work of the IFoAs Risk Management Board with Stephen Hyams and Gemma Gregson
The IFoA's Risk Management Board, chaired by Marcus Bowser, is a cross-practice board supported by five sub-committees.
Risk management is an area that is evolving rapidly and so The Actuary met three members of the 15-strong board to discuss how actuaries are getting involved in risk management and to find out what work is being done to promote and support them.
What are the board's objectives?
Marcus Bowser: We provide support to members working in risk management within the traditional fields of life and general insurance, as well as members using risk management techniques in wider fields such as commodities or banking.
Kirsty Leece: Our objectives in the risk education and continuing professional development (ECPD) area build on the IFoA's overall strategy. We want to push forward thought leadership and have a sustainable delivery of CPD events to ensure our members keep up to date with practices and principles. We are also involved in updating the education syllabus, and we work with other risk management bodies.
How does an actuary's role fit into risk management?
MB: I've always thought about the three lines of defence model as being risk management in the first line, integrated oversight in the second line, and an independent level of oversight in the third line. Our work supports those applying risk management techniques across all lines of defence, with a focus on those in the second line, such as chief risk officers (CROs), and anyone operating in wider fields.
What skills does a successful risk actuary need?
MB: Risk should be considered in everything we do, but there are certain skills that are perhaps more important for those operating in the second line. It's crucial to be a good communicator and to approach things in a second-line role with an open mind. So be a good listener, build a good relationship, understand the other person's point of view and then talk about what it is that you want to achieve. Off the back of that, work together to come up with a solution as to how you take something forward. Often, it is about communicating very complex topics, so it is critical to be able to take those and translate them into something simple that people from a range of backgrounds can understand.
Keith Jennings: I think success in the risk role is about good communication between two groups. You have the first-line-of-defence group, who may have an area they would like to improve and will have thought in quite a lot of detail about the issue. Then you have the risk committee or the board on the other side, who are looking for improvements to be made and you're sitting in the middle to bring all of this together. It all comes down to communication, and underlying all of this are the technical skills and the ability to picture what is required.
What skills are boards looking for in CROs?
MB: I think increasingly, boards are looking for somebody who can challenge across the broad spectrum of activities an insurer is engaged in. A lot of those tend to be quite technical in nature, so having someone who is an actuary - who can very quickly take on board that information, form a view and feed it back in a value-added way - is critical. Actuaries aren't the only people who can do that but I think they're very well placed to do so. I think it's fair to say that, while actuaries should be able to handle the technical aspects of the role, not all actuaries are
well placed to build the relationships and communicate the view in a way that is well received, but I think that's critical for people who want to get into that second-line role.
We are bound by professional standards and they encompass all the sort of behaviours that I would expect of somebody who is on the board of a FTSE100 insurance company, or even a small mutual. As a profession, we've taken a lot of actions to make sure that we're supporting our actuarial CROs to hopefully give them a competitive advantage, and that's part of the remit of the Actuarial CRO Group, which Keith is responsible for.
Can you tell us more about the Actuarial CRO Group?
KJ: The group is a sub-committee of the Risk Management Board and is an important group to allow CROs to come together to have discussions, to understand points of view across different companies and also for general learning and insight.
We meet several times a year and, particularly for newly appointed CROs, it's a great opportunity to meet peers and build connections across the industry. At the moment, the membership is just for actuaries, but we're always open to having non-actuaries as presenters or holding joint events with non-actuarial communities.
How do you promote actuaries' work in risk?
MB: We have recently set up a sub-committee of the Risk Management Board that is focused on bringing together
different people who are taking actuarial risk management techniques and applying them in wider fields. In doing so, members of the group can learn from each other and be at the forefront of pushing the actuarial profession into those wider areas.
We are also promoting our work by showcasing actuarial thinking and how this can be applied more widely. For example, we have recently produced a set of actuarial risk principles that articulate what the actuarial skill set is, the tool kit that we have, and the techniques that we apply in insurance companies. The principles are generic and not industry-specific, and it is very clear how those techniques could be applied elsewhere.
We are sharing these risk principles with senior people in government and other bodies that we want to influence as a profession.
It's all about trying to raise the profile of actuaries and how they can add value in a wider context.
The risk principles can also be used by actuaries as a checklist. Some of the people who might find it useful are those who are working in wider fields or who have been working in insurance in a well defined, narrow role, and move to a new role that has a much wider scope.
KJ: The risk principles are the actuarial way of thinking applied in a risk management context, to give that uniqueness of what an actuary brings to the scenario, as well as something that can be used across a wide range of contexts.
How do risk techniques and skills compare across industries?
KL: We have a great deal of experience and skills from working in insurance companies, and these are definitely transferable to other industries.
MB: In terms of how risk management is executed at companies in different industries, I think a lot of the basics are very similar. The maturity of what different organisations might be doing varies quite substantially and so I would hope that insurers are very much at the forefront of that, along with banks and other industries where people's life savings potentially are on the line.
Likewise, with other industries such as aviation and other commodity-based industries, where potentially there is a risk of pollution and so on, you'd expect a very high bar in terms of the maturity of their risk management frameworks. But, by and large, the techniques used are very similar, although the language used might differ a little from one type of organisation to another.
The bulk of people who align themselves to risk are working within an insurance company or something very similar. Some are in wider fields, such as banking or the oil industry, but this is much more rare. There are fewer actuaries in those roles. Indeed, there are far fewer actuaries managing risks in wider fields, so this represents a potential growth area.
How do you support actuaries who wish to work in risk?
KL: The risk conferences and other CPD events are a great way to see if you are interested, to find out if your skills are aligned, and to learn a bit more about it.
They are also good for networking and to meet people who could potentially work with you in the future. This year we are holding a joint Risk, Investment and Pension Conference in June at the Celtic Manor Resort.
MB: You can also sign up to a regular risk management newsletter, which flags the work of the IFoA and the board.
How does the exam syllabus equip actuaries to work in risk?
KL: One of our aims is to ensure that the IFoA can continue to award the Chartered Enterprise Risk Actuary (CERA) qualification to those meeting the relevant criteria. The CERA qualification, currently through ST9, brings out how you would practically use all of the risk management techniques and skills. The CERA accreditation means that we cannot significantly change the syllabus for ST9, but the earlier subjects will be changing to cover more aspects of risk management, such as copulas and correlations, and the later exams will be more about how to apply those principles. Whatever subjects you study, you will be covering aspects of risk management.
MB: Education has been a key area of work for the Risk Management Board. One of the areas that I have concerns about is that people complete their exams and feel they are life or general insurance actuaries. I think the changes to the exam syllabus will be quite supportive of us applying our skills more widely.
Can we learn from other professional risk bodies?
KL: From the point of view of actuaries developing their risk skills, the more bodies that are presenting and educating people, the better, and if we can support that and work with them then that's great. So we are trying to increasingly connect with other bodies. We can give a lot to the risk management profession, but similarly there are other skills that they can teach us.
MB: Absolutely. We can learn a lot from people with different backgrounds and a diversity of ideas makes for a more powerful outcome.