Actuaries eye risk roles

Risk & Insurance, Oct 1, 2004 by Lawrence Richter Quinn

Actuaries are ready to shed their "green eyeshades" image for a shot at the brass ring--moving up the corporate ladder to become enterprise risk managers and chief risk officers, both inside the insurance industry and outside in the wider world. To do that, they'll have to move beyond their old comfort zone.

Here's an idea that will make your head spin: Actuaries ascending to the top spot of enterprise risk management and taking on the role of chief risk officer. For those managers now holding the risk leader's seat, whether they're corporate insurance risk managers, auditors, accountants, treasury executives or running risk trading operations at energy companies, banks, manufacturers and service companies, actuaries stepping into their shoes may sound incredible, perhaps downright blasphemous.

But make no mistake: The actuarial profession wants its members to be top risk dog. They're far more passionate about it, they say, than those who were schooled in corporate insurance buying or in trading derivatives at consumer and investment banks.

And the Risk and Insurance Management Society had better take note. Unlike other professions and their associations that traditionally have claimed the risk mantle, the two major actuarial associations are investing serious money in a multiyear campaign to change the "green eyeshades" reputation of actuaries.

The Schaumburg, Ill.-based Society of Actuaries (SOA) and the American Academy of Actuaries (AAA), based in Washington, want to change what they see as the miscast image of actuaries as boring executives immersed in numbers as turgid as they are incomprehensible.

Instead, they want to highlight the dynamic role actuaries play in modeling insurance and non-insurance risks and the mathematical precision and discipline they bring to anticipating and managing future risks.

Their mantra? Look to the future as much as to the past. As a result, they compare their risk management skills favorably to those of other executives, such as accountants, who they say focus solely on risk avoidance and deal only with past and current risks. In the end, they say, actuaries will capture the attention and imagination of senior executives at companies, whatever their primary business may be.

What of their chances of success? Slim to none in the near future--and many actuaries acknowledge that. But they promise to give other risk professionals a run for their money, perhaps improving overall corporate governance and shareholder value in the process. Longer term, they argue, there's nothing to hold them back.

ACTUARIES' LEG UP

There's no question that actuaries are passionate about heading up enterprise risk management efforts and becoming chief risk officers, either inside or outside the insurance industry.

"At the end of the day we actuaries have a leg up," says Francis P. "Frank" Sabatini, a partner in the assurance and advisory business services practice at Ernst & Young LLP in Hartford, Conn.

"And I think it's very realistic that you'll see actuaries going to work for non-insurance companies, working on and heading up enterprise risk management programs. It will be natural for us to gravitate first toward investment banking and then natural for us to be assimilated into other management areas and disciplines."

Actuaries already are playing a role in enterprise risk management, but the discipline is in its early stages, particularly in the United States, says John Kollar, vice president of the Insurance Services Office (ISO) in Jersey City, N.J. But Kollar says that actuaries can make a major contribution.

"If you go to an insurance broker of course they have clients who are not insurers or reinsurers. Let's say one of its clients is a pharmaceutical company. What's the likelihood that it can deliver a drug that will generate profits?" Kollar said. "You're dealing with a lot of uncertainty there and you have to make decisions. People have been doing it for years but actuaries can bring more discipline and science to that."

MORE TALK THAN ACTION

So far, however, there has been more talk than action when it comes to actuaries moving into enterprise risk management.

"Actuaries' desire to be involved in ERM has not translated into action," says Prakash Shimpi, an actuary who's president of consulting firm Fraime LLC in Florham Park, N.J., and until recently a senior risk management executive at Swiss Re New Markets in New York. "I hear actuaries talk about getting involved, but they seem to focus only on insurers. And the major actuarial consulting firms have few if any dedicated resources."

Unless the profession and the leading practitioners make a stronger push, the involvement in ERM may be limited to the insurance industry and not extend to non-financial corporations, which is where the broader opportunity lies, says Shimpi.

To make it happen, actuaries will have to be willing to sell themselves in new areas.

"It does take some willingness to sell yourself outside the comfort zone. I have to say I find a lot of actuaries who work within their area rather than extending those principles to other areas," says Doug Brooks, vice president and CRO at Sun