The word ‘insurance' always brings in one's mind two professions — the agent and the actuary. The agent is virtually omnipresent, while the actuary is rarely visible. At present, this rather invisible profession is posing some peculiar problems to the Ministry of Finance.
The Insurance Regulatory and Development Authority (IRDA) comprises a chairperson and not more than nine permanent and temporary members. One of the permanent members is designated as member (actuary). This position is vacant now and is yet to be filled. To fill this vacancy, the government had recently invited applications for the post from among Indian citizens who are fellow members of the Institute of Actuaries of India (FIAI) or the British institute (FIA), having a minimum 15 years experience in actuarial functions in a life insurance company or at least three years experience as appointed actuary in a life insurance company. The consolidated remuneration offered was Rs.2.50 lakh a month. The tenure of appointment was for five years or up to the age of 62, whichever is earlier. A member, after retirement, cannot accept a job in any insurance company for two years. The advertisement may look quite attractive, but it did not elicit any response from any actuary. The reasons are quite simple. An actuary with 15 years experience or, an appointed Actuary, is at present getting about three times the remuneration offered by the government. Since a person cannot be a member (actuary) for more than five years and, after that, he cannot accept a job in any insurance company for two years, no one aged below 55 will be interested in this post. Are the requirements prescribed in the advertisement really essential? As per the IRDA Act, “the Central Government can appoint whole-time members to the regulatory authority from among people with ability, integrity and having experience in life or general insurance, actuarial science, finance, law, economics and others.'' That is, the only requirements are integrity, ability and experience and not any paper qualification.
Can a person, who is not a full-fledged actuary, be able to function as member (actuary)? Certainly, the answer is yes. He will function at the decision making level and not at the departmental level where all actuarial calculations required are made. To understand the nature of decisions he will be called upon to understand the nature of products being marketed by life insurance companies.
Life insurance products are no longer based on simple algebraical formulas. The availability of computers has enabled product designers to introduce complex products similar to mutual fund products but with one important difference. While mutual fund products do not give any guarantee, life insurance products provide long-term guarantees.
How to quantify the liabilities arising from such guarantees? Is the insurance company properly equipped to meet these guarantees? Is the underlying rate of return guaranteed to the policyholder commensurate with the investment environment and the expected long-term movements in interest rates? Is there any mismatch between the assets held and the liabilities underwritten? Are the assumptions made regarding operational expenses realistic or will they result in expense over-run and need for unsustainable levels of capital infusion? These are the aspects to be periodically looked into by the IRDA to ensure security for the policyholders' money. So, in the last two decades, the actuarial science has progressed from simple algebraical and statistical techniques to broader and highly complicated issues of finance and investment.
Deriving actuarial formulas to represent various situations mentioned above is not difficult and can be done by the Actuarial Department of the IRDA. These formulas, however, involve many parameters and assigning appropriate values to these parameters is a really tough task. At this point the decision maker steps in and, for making the right decisions, he should have good knowledge and experience in finance and investment as well as principles and practices of life insurance. Knowledge of actuarial techniques can be of additional help, but not absolutely essential.
The qualifications required for a member (actuary) are: good knowledge of finance and investment; at least 20 years of all-round experience (underwriting, policy servicing, accounts and marketing) in life insurance; actuarial knowledge and software skills can be important additional qualification; good academic record with aptitude for mathematics and statistics; and holding a fairly senior position in a life insurance organisation. For the remuneration being offered, there would be good response from persons satisfying the above criteria and the insurance industry will be the ultimate beneficiary. At present, the member (actuary) looks after life and general insurance. The requirements of the two fields of insurance are vastly different and it is almost impossible to find a person with good experience in both fields. It is, therefore, advisable to have a separate member (actuary) for general insurance. Proficiency in statistics and all-round experience in the general insurance industry should be the basis for selection.