Indian actuarial consulting scenario in the global backdrop By Liyaquat Khan; FIAI; FIA

Transcription

1 Indian actuarial consulting scenario in the global backdrop By Liyaquat Khan; FIAI; FIA Abstract The actuarial consulting in India is evolving fast and expanding in all areas of actuarial application with global impact. The catalyst for this development has been the insurance industry which was opened to private sector participation in the year 2000, concurrent with the coming in to being of the Insurance Regulator: the Insurance Regulatory and Development Authority in year A truly global back drop to the insurance industry is provided by the joint venture partners in insurance; life, non-life and health from all over the world.. Broadly same is true for actuarial consulting. Side by side, the actuarial profession has leapfrogged: some about 400 active students and fellows in year 2000 to about 9,000 students and fellows now, while attracting qualified actuaries from actuarially developed countries, to work in India. This paper, inter-alia examines; The enabling backdrop for global aspect of actuarial consulting in India, Its current structure, reach and depth, Future scope within the global context and economic environment along with SWOT analysis of the Indian Actuarial Consulting, Stimulus for growth of the actuarial consulting including the role that IACA/APACA can play. Contact: Actuary_Khan@sify.com Enabling backdrop for global aspect of actuarial consulting in India: Introduction: The global nature of the current economy and consequent inter-dependence of nations has enveloped India probably much more than any other nation. The sheer geographic size of the country and the population that it holds within has impacted the structure of the many organizations across all industries, whether services, financial or manufacturing and surely the insurance industry is not an exception. The insurance landscape which largely defines and determines the actuarial consulting has taken a new shape very much distinct and different from what it was just before year 2000, the year in which the insurance industry was opened 1

2 to private sector participation. Consequently the actuarial consulting space took new shape moving away from India-specific, narrow and limited in scope, to opportunities in bringing international best practices to India. This has also developed into retirement benefits consulting due to changes in reporting costs/liabilities on Company financial statements. It is, however, important to understand the global nature of Indian Insurance market, in order for us to examine and understand the Indian actuarial consulting scenario in the global backdrop. This paper, therefore, examines the insurance landscape from the perspective of i) the Indian insurance regulatory framework, ii) global nature of the insurance industry, iii) non-life industry snapshot, iv) life industry snapshot v) actuarial consulting market development and vi) actuarial consulting SWOT analysis CURRENT WORLD ECONOMIC SITUATION AND ITS IMPACT ON INDIAN ACTUARIAL CONSULTING: The year , was one of the worst and most volatile year for equity markets. Bond markets, which historically have been a source of positive returns when stocks go down, also experienced enormous volatility, with great dispersion of results across sectors. The crisis had spread due to a systematic failure of banks, investments banks and regulatory system in some major economies of the globe. India was impacted too: Stock price and interest rates (Source: NSE website; says it all. 2

3 The market turbulence over year has adversely impacted the economy, making the companies realize the need for risk management and actuarial advice. Today even the strongest of the companies need actuarial consulting to navigate through the uncharted waters of economic turmoil and uncertain future. The ongoing financial crisis has impacted private pension arrangements due to which both defined benefit and defined contribution plans have been hit hard. Impact for India As a result, employee pensions and retirement benefits are one of the top priorities for the employers from the perspective of cost management. This has led to demand for Actuarial consultants to review the existing pension plans. Many employers are turning to Actuarial consultants for introducing flexible benefit arrangements, which allow a better targeting of benefit spend. Flexible benefits allow the employees to choose their own preferences rather than the employer having to apply benefits arrangements on a one-size-fits-all basis In risk management, there has never been such a greater need for prudent financial risk management. Need for Actuarial consulting has arisen due to increased market pressures and regulatory scrutiny. The current crisis has shown that risks are not always correctly assessed by institutions proposing an investment. Regardless of the length and breadth of the downturn, it seems clear that effective risk management is the need of the hour. Overall, current world economic situation extends opportunities for Actuarial consultants to broaden their areas of expertise beyond pension and insurance consulting to enterprise risk management and associated modeling. 3 - The Insurance industry: The Regulatory framework The actuarial advice within insurance sector is regulated by the Institute of Actuaries of India (IAI) in coordination with the Insurance Regulatory and Development Authority (IRDA) and by the IAI for the Employee Benefits. Alike IRDA, the IAI too is established by an Act of Parliament (in year 2006), taking over the then Actuarial Society of India. IRDA has specified specific regulatory advice that has to be provided by an actuary: The Appointed Actuary must be an employee for a life insurer and an employee or a consultant for a general insurer. The Actuarial profession has put in place number of Actuarial Practice standards (called Guidance Notes) including the one requiring peer review of the reports of the life Appointed Actuary, by a member of the IAI. The Appointed Actuary space in non-life has 3

4 been mainly occupied by Consultants and the majority of Peer Reviewers in life are consultants as well. The insurance industry: year 2000 till date The insurance sector was opened in year 2000 to private sector participation along with the existing state owned insurers. Foreign insurers were allowed to hold ownership of up to 26% in a joint venture with Indian company/ies. The Insurance Regulatory and Development Authority (IRDA) came into existence under an Act of Parliament in 1999, with the objective of regulating and developing the insurance market. At the same time, the State owned general insurer, GIC was converted into a national reinsurer and its four subsidiaries were de-linked in year The following graphs depict the growth in the number of insurers in the Indian market since year 2000: As on 31 March 2009, there was one state-owned life insurer and four general insurers. Beyond 2009 and till date some six new insurers have come in to being including few stand-alone Health insurers. The global aspect of the insurance industry: Out of twenty two new life insurers only two are without any foreign joint venture partner and only one out of total of thirteen new general insurers is without any foreign joint venture partner. This gives Indian insurance landscape a truly global flavour. 4

5 New life insurers with the countries of origin of foreign partners: New general insurers with the countries of origin of foreign partners: 5

6 Non-life industry snapshot: Evolution of non-life industry post y1999 The non-life written premium has grown nearly three fold from INR 114 billion to INR 304 billion between the period FY to FY at a compound average growth rate of 15% per annum. During this period, private general insurers grew at a CAGR of 60%, whereas public sector players witnessed a modest growth at 7%. The market share of private sector insurers has increased from 4% in FY to over 40% in FY : Comparative market shares of private and public sector companies at and Market Share Non-life Insurance Companies ) Market Share Non-life Insurance Companies ( ) Pvt 4.08% Pvt 40.80% PSU 59.20% PSU 95.92% Source: Handbook on Insurance Statistics published by IRDA De-tariffication A large part of non-life industry products and premiums rates have been governed by Tariff Advisory Committee (TAC) since its formation as a statutory body in Till 1994 Fire, Marine, Motor, Engineering, Workmen Compensation, Personal Accident lines of business were under tariff regime of TAC, after which Marine cargo, Marine Hull and Personal Accident lines were detariffed at different points of time between 1994 and It still left the major lines of Fire, Motor, Engineering and Workers Compensation under tariff regime. The existence of regulated pricing and product development and a free insurance sector could not have gone hand in hand for long. Hence all tariffs except Motor Third party were removed w.e.f. 1 st January 2007 This paved the way for an increased actuarial role in pricing of non-life products. However, full de-tariffication in terms of ability to offer innovative products by non- life insurers remained elusive for two years till the end of calendar year This freedom was allowed by the regulator w.e.f. 1 st January

7 The impact of De-tariffing on the premium rates in the non-life market was severe and most rates fell heavily. The biggest fall in the rates was seen in the fire line of business where the rates fell on an average by 50%-60%. The motor and engineering rates also fell substantially. This was bound to affect the profitability of the non-life players adversely. Except for few companies, the profitability of most companies has gone down significantly after De-tariffing. However, it is noteworthy that in spite of the profitability of the companies having suffered, the Return on Premium as well as Return on Equity of most companies was very healthy, at least till FY The IRDA Annual Report is not yet available publicly for a comment on these parameters for the FY Current landscape of the non-life industry These are interesting times for the Non Life industry in India which is learning to cope with the pains and vicissitudes of a free insurance market. From an era when actuaries were non-existent in the non-life industry just 10 years ago, they are assuming a critical role in ensuring optimum pricing, innovative products, prudent liability valuations and adequate solvency margins. IRDA, on its part, is playing a constructing role in helping the industry cope with these changes but also ensuring that the financial health of the market players remains above a critical level at all times. Financial Condition Report is one of the many tools through which IRDA plans to achieve this goal. The shareholders are now expecting efficient utilization of the capital given the loss of capital during the economic crisis. This presents challenge for actuarial consulting industry to assist clients in capital management with twin issues of excess prudence due to more risk aversion after the economic crisis and the general insurance companies expectation to achieve high growth in India. Life industry snapshot: Evolution of life insurance industry post 1999 As at the end of FY 2009, there were 22 life insurers operating in India including one state-owned. Total premium income has grown at CAGR of over 25% during FY Till FY 2014, life insurance premiums are expected to grow at a CAGR of 18% and penetration is expected to increase to 5%, from 4% in FY

8 Besides, since 1 April 2009, one more life insurer has commenced operations, taking the total number of life insurers to 23. Few more companies are expected to join by FY New business sales saw a CAGR of 32% between FY , but slowed down slightly in FY 2009 due to global financial crisis: Rs Bn New Business Premiums (APE) FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 As at the end of FY 2009, private players controlled around 59% of the market share (in terms of new business premiums), whereas state-owned LIC of India had a market share of 41% Factors affecting life insurance industry Demographic changes; Life expectancy is increasing owing to advances in medical sciences. Disposable income is expected to grow at CAGR of 5.3% till 2025 and urban 8

9 population is expected to increase to 37%. It is expected that these factors will contribute to create an increased awareness about life insurance products. Asides, the rich class is expected to grow at CAGR of over 20%. Overall, the demographic changes seem to be highly favourable for the life insurance industry. Economic changes; Economic outlook on the Indian market is positive and the growth is expected to be sustainable. There is a structural shift away from strong agriculture focus. Government is trying to create awareness towards retirement planning. Economic outlook and government initiatives are favourable. Socio-cultural changes; Retirement planning is gaining significance owing to government initiatives and rising medical and living costs. Historical joint family structure has been giving way to nuclear family structures in urban areas, resulting in asset ownership by young couples. However, a large proportion of the population is still very traditional and relies on family for retirement and long-term health and care needs. Regulatory changes; A number of regulatory changes are expected to take place (and have changed) surrounding fair value accounting, solvency, valuations and disclosures. New guidelines for unit-linked products were introduced in late 2009, which ensure a minimum return to the policyholder (at a given investment return), thus limiting insurers charges. The cost of compliance is expected to increase, and perhaps, more capital will be required in future. However, change in FDI to 49% from 26%, is expected to provide relief to insurers. A Bill is pending Parliament in that regard. This change will provide a significant opportunity for actuaries as foreign partners request updated valuations of insurers. To that end, the global financial environment will impact the level of activity depending on capital availability. Current issues before the life insurers Declining new business sales; Following the recent global financial crisis, business sales dropped significantly during FY , resulting in installed capacities and rising expense ratios, especially for private life insurers. Unit-linked products used to contribute from 60% to 95% of new business for most private sector life insurers and these products have become less attractive to policyholders after the losses suffered due to crash of capital markets. Consequently, sales have failed to pick up for those companies which relied (and still are) too 9

10 heavily on unit-linked products. Insurers responded to the situation by implementing internal cost containment measures, improving productivity and rationalisation of branch and distribution network. Lower persistency; Persistency levels have been low in the Indian industry, particularly on unitlinked policies. Capital requirements; Promoters of many private insurers are now reluctant in deploying more capital. However, the proposed hike in FDI limit to 49%, from 26% currently, should be able to provide relief by bringing in capital from foreign partners. Competition; Some areas of the industry, particularly group business, are experiencing severe competition among private insurers, bringing down the overall profitability. Regulatory framework; The introduction of new unit-linked guidelines in late 2009 by IRDA restricts insurers charges on unit-linked products. Furthermore, surrender penalties are not allowed beyond fifth policy year. These guidelines have forced insurers to re-design their marketing and distribution strategies and improve productivity, particularly since unit-linked products form a major proportion of product portfolio of most private insurers. Capital markets; Indian capital markets are less developed compared to other mature markets and there is a lack of suitable hedging instruments. Furthermore, existing regulation doesn t encourage the use of derivatives. This presents significant challenge for product innovation. As regulators become more open to such investment strategies, opportunities will present themselves to actuaries. Taxation; There is a possibility that the existing EEE taxation structure of life insurance products might undergo a change to EET, which might affect life insurance sales, as and when this happens. Capital management: Shareholders now expect adequate return on the capital and evaluate the options they have for maximizing the return. The risk management of insurance 10

11 companies is now increasingly seen as strategic especially in capacity planning (excessive capacity when sales forecast goes awry). This is against the backdrop of the losses incurred by shareholders during the economic crisis Current landscape of life insurance industry Competition; As at the end of FY , the number of private life insurers was 22 and this number is expected to increase. Since the entry of private insurers, the industry has seen significant innovation in products, processes and distribution. Most private insurers have a diversified product portfolio, but unitlinked products constitute around 80% to overall sales. Competition is intense, particularly so in group business. Products; Major portion of new business sales of private insurers is composed of unitlinked policies. However, there has been a decline in their popularity since the recent market crashes and there is growing need of having traditional and guaranteed products. Health products are also gaining popularity. Insurers are also focusing on micro-insurance products due to its large untapped potential. Distribution; Though the industry has seen tremendous innovation in distribution since the advent of private players, agency channel still contributes around 84% of new business premiums. For private insurers, contribution from individual agents is around 60% in FY % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1.3% 98.4% LIC 1.5% 8.8% 11.0% 18.9% 59.8% Priva te Individual Agency Corporate Agency Brokers Banks Direct 11

12 Share of bancassurance (broadly meaning distributing products thr Bank networks) is increasing rapidly as private insurers are keen on utilising strong relationships that banks have with their customers. Future shape of the insurance industry; It is likely that the large growth in the domestic insurance industry would provide stimulus to the consulting industry too. The consulting industry is likely to grow at the rate of 40% over next 10 years. This high growth is likely to attract more players into the market and this may give rise to competition providing substantial pressure on the fees. Though the fees are likely to go down, the total market is likely to grow substantially. Out of the 40% most growth is likely to be seen in the BPO segment which is quite a value proposition for insurers based in developed and costly economies. A large English speaking actuarial student population bodes well for the same. Economic consulting and actuaries is an area that has great potential. The econometric models could not predict the economic crisis because they probably did not consider the impact of financial services industry and its linkage with wider parts of the economy. Actuarial consultants can advise the governments / regulators/companies on the state of the economy and the outlook for the future with possible impact on different industries. Actuarial consulting in risk management areas could be the key growth driver as it would attract clients from wider industry rather than just insurance companies. 4 Actuarial consulting - market development: The actuarial consulting prior to the opening of Insurance sector in year 2000, was nearly non-existent in the country except the actuarial reports on Defined Benefit schemes for expensing in the financial statements and in some cases funding. The insurance market was totally within Public sector and except within the only life insurer, there were no actuaries. The scenario changed after the opening of the insurance industry to private sector participation essentially driven by the regulatory provision of the Appointed Actuary. The opening up of the sector attracted insurance entities from across the globe who already had actuarial involvement and as it turned out except three all other new entities are joint ventures. There was thus need for consulting in matters related to identification of and negotiation with suitable partners, assessment of the market, regulatory filings, and business planning. Though there was a need for such consulting on actuarial side, most global actuarial consulting firms were not present on ground to provide local knowledge. However, the consulting practice began since the 12

13 then Watson Wyatt (now Towers Watson) set up their offices in the country, early 1999, supported from Singapore and the UK.. Since then the consulting market has grown rapidly primarily due to rapid growth of the life insurance industry itself. The revenue from a size of less than 100,000 USD, it now stands more than 1.5 mn USD i.e. a growth of 15 times over last 9 years. This figure does not account for outsourcing services on actuarial side which is large and which was also non-existent at that time. By the time life insurance industry started to grow, India had already made its name in the Information Technology sector and was cruising well on allied services. By 2005, it became a outsourcing hub for various services starting from call-centers, medical processing to knowledge outsourcing services like accounting services. The growth of life insurance industry also led to quite a demand supply gap in the actuarial resource market which led to increased remuneration for qualified actuaries. This attracted a lot of students to take up the actuarial profession and now a large number of students are member of IAI, over 8,500/-. This increased student population has led to cost-effective resource availability at the non-qualified level leading to the start of outsourcing of actuarial work too. Currently, the life insurance actuarial consulting is provided by Watson Wyatt (now Towers Watson), Milliman and Ernst & Young who all have local presence. The merger of Watson Wyatt and Towers Perrin would have a major impact on the market in India too. There is also an entry of one of the top four audit firm Ernst & Young in this sphere. The other audit firms are also thinking on similar lines however, they are currently watching the experience of Ernst & Young before taking a call. Quite a few companies have opened their captive outsourcing units in India for supporting their actuarial functions abroad. Some of the big names include Axa, Prudential, Watson Wyatt, Aon, Deloitte, Mercer, Aviva, Milliman, EMB and others, though at smaller scale. Though, the main advantage of outsourcing of actuarial function is to reduce the cost of the operation from the parent company perspective however, for consulting companies this is also beneficial in effective utilization of resources till they are able to develop local business as well as efficient knowledge sharing. Sensing the opportunity in this area quite a few Indian BPO players also jumped into this space. Genpact is the biggest of them which started as a captive BPO of GE and then became a major BPO player. Notable among them are Patni, Excel, WNS and Genpact, besides TCS, Infosys, Wipro and Mackenzie on the consulting side. The global crisis may mean that more international firms look at the captive model or outsourcing of certain actuarial functions. 13

14 Product Space; Till the downturn, demand for consulting services was driven mostly by the regulatory forces, insurance or accounting standards. The peer review and appointed actuary services are driven by regulation. Similarly, the assignments related to valuation, other than the statutory one, are driven by a need to provide a third party certification for any buying/selling or merger. The global economic down downturn forced the companies, mainly driven by the overseas joint venture partner, to look into their business model and get it reevaluated from an outside consultant. This was also driven by the reduced appetite for risk and the need for a third party certification for the parent organization. The downturn also opened up appetite for risk related assignments like review of risks and controls, audit of actuarial processes, review of product models, review of enterprise risk managements and alike. The downturn has also forced companies to innovate on the product design. The most common type of assignments seen in life insurance consulting work are valuation of the company, market study, regulatory filing, issues related to sales channel and alike. The demand for services like product development, product pricing are rare. The demand for services like cost of guarantee computations, Solvency II implementation, MCEV implementation, have still not caught up. Slowly, the market has started realizing that the premium charged by a consulting company add value, especially where the local knowledge is not sufficient for example IFRS reporting, US GAAP reporting, there are consulting players who are lapping up the business generated through the accounting regulation changes. A few of the companies are also providing actuarial software like VIPitech by Towers Watson, Igloo by EMB, Moses by Tillinghast, MG-Alpha by Milliman. Given lack of local expertise in such softwares there would be a need for consulting on implementation especially at the initial stage which is usually met by the same provider as a consulting service. There is also an advantage that is reaped by the company providing the consulting to a client who is using the same software as the consulting company would be able to use the same product models rather than building them from scratch. Besides, the company would also have parallel excel model templates already ready for their code and hence the cost of customizing the same to the client specifications is lower. The KPO service providers usually target as taking over all the processes performed by an actuarial department as opposed to an actuarial consultant. The actuarial consultant would stop at making recommendations or providing advice; however, the KPO would carry out all the work for the client and would not just stop at recommendation. Usually, the segmentation happens so that the KPO does routine and process work whereas the consultants are expected to take on more challenging non-routine work and formulating the 14

15 advice. Another difference is in the charge out rate which are quite low for a KPO compared to a consultant especially a MNC consultancy. This thin line is getting blurred now where the KPO service providers are trying to move up the value chain and the consultancy companies are trying to capture their share in the KPO cake. Future Potential Likely regulatory changes would fuel the demand for consulting services. Regulatory changes are happening on three fronts; i) There are changes happening within the Insurance Act which would be significant to alter the shape of the life insurance industry in the country. It is likely that there would be an approval for the limit of foreign ownership to increase to 49% from current 26%. This is expected to give rise to valuation and to show independence, the valuations are likely to go to the consultants. It is also likely that the market sees some more new entrants giving rise to further consulting work. Most insurers are nearing their 10 year term and would have to come out with IPO. This may also call for valuation work. ii) Second levels of regulatory changes are happening around accounting of insurance companies. There is already a talk for IFRS accounting norms to be applicable for the Industry from Many of the companies have already started preparing for IFRS accounting and many consultants are getting assignments on diagnostics and implementation support in that direction. iii) Third level of regulatory change would be when IRDA decides to move towards Solvency II. Though, it is a long term story, there would be assignments on preparatory nature just like what happened in Europe. It is likely that consultancy services would be required when stochastic reserving for guarantees is made mandatory by regulation. As the companies grow, they would need lot of qualified actuaries and Indian market is currently not producing that many qualified actuaries, despite the student population being large. So, there would be a gap in terms of appropriate resource levels and this may prompt an increase in consulting or outsourcing assignments. The high number of student actuaries at lower salary levels would be an attractive point for outsourcing industry and that industry is likely to pick up with successes of existing outsourcing contracts. Already quite a few companies have realized that the outsourcing is the way to go forward. 15

16 Client concerns on Consulting; The consulting space in India currently is occupied by MNC consultants. The fees they charge is quite high compared to the salary levels prevailing in India. The fees are set at the level that is charged in developed markets like Hong Kong, Singapore and the UK. In contrast to sole actuarial consulting companies or management consulting companies, the fees charged by the big four Accounting firms is lower since conventionally they have been operating in a low-fee market. Many of the consulting companies would not focus on developing the market since they are content with serving a few high fee-paying clients. Therefore, at times, though the client is looking for an expert advice, he decides to invent it himself rather than approaching a consultant. There is a need for cheaper consulting services considering the fee cost sensitivity of the Indian market and also the low cost factor. However, this is not likely to happen unless there is strong competition or some Indian consulting companies start challenging the big MNCs. There is a strong need for the consulting fraternity to get together on key client concerns like confidentiality of the client data especially with regard to the high turnover in the actuarial field, fear of data/intellectual property being reused for another project, high costs, out of pocket expenses and alike. The consulting industry also faces quite a few challenges since the consulting industry prefers to charge by hourly rate where as the client prefers the fixed rate. The consulting industry usually finds it difficult to increase the fees once a fee range is given. It is also a common concern that the scope migration takes place while the project is in progress. Part of the reason lies with the lead consultant who in his haste to close the deal and clinch the sale does not deliberate too much on the scope. 5 SWOT analysis of the Indian Actuarial Consulting: Since opening of the insurance industry to private sector participation in y2000, the actuarial consulting scenario in India has undergone substantive change. Starting with Watson Wyatt initially, India now has presence of Mercer Human Resource Consulting, Milliman, Hewitt Associates, EMB, Ernst & Young, MacKinsey besides small Indian firms and individual consultants mainly conducting DB scheme valuations under Accounting Standard. Though many of the multi-national Consulting firms started India unit as offshored actuarial support, by now they have picked up Indian work and have been responsible for initiating consulting awareness. 16

17 The issuance of Accounting Standard 15 (rev 2005) by the ICAI effective y 2006 has the effect of expanding Pension consulting. Given this background India has potential of immense growth in actuarial consulting capacity provided initiatives are taken to facilitate the same. This section of the paper deals with SWOT analysis of the actuarial consulting in India: Strengths 1) Large actuarial talent Pool as at : number of members of IAI: 8,695 Number of student members of UK Actuarial Profession: 1,000 + Number of student members of SoA in US: 100+ (educated guess) Number of student members of CAS in US: 100+ (educated guess) 2) Global standard and English medium education: Mutuality arrangement with the UK Actuarial Profession (UKAP) and IAAust Examination pattern and syllabus/study closely aligned with UKAP 3) Fast growth and global mix: 03/2000 members: 720 (only about 400 active students) members: 8,695 Actuarial fraternity from India, UK, US and IAAust actuarial profession 4) Insurance Regulatory support: Appointed Actuary system for all insurers, life, non-life and health. Regulatory monitoring of actuarial out put 5) Salary differentials: At student levels the CTC is from 30% to say about 65% of that in UK or HK. At qualified levels the CTCs are on par or even higher that in UK/HK 6) Pan-India mobile actuarial resources: Ready to move any where most of the large cities are cosmopolitan Weaknesses 1. Limited number of insurers, though large and spread allover India: Twenty life and as many non-life including two Health within the classification of non-life. The large insurers - all Public sector are not used to engaging actuarial consultants. 17

18 2) High charge-out rates by few multinational Consulting firms has inhibited consulting growth: Few multinational consulting firms focus on high fee capacity clients Lack of efforts to increase consulting capacity 3) No legacy of wider actuarial consulting: Virtually no investment, M&A or very little non-life consulting 4) Lack of awareness of value of actuarial consulting input: No consulting culture 5) No consulting capacity creation efforts: No efforts so far by the actuarial profession or any other instrument to ignite actuarial consulting culture. 6) Hesitation by the profession to enforce code of conduct and quality control in Pensions consulting: Currently the largest area of consulting is pensions Defined Benefits under Accounting Standard 15 (rev.2005) and enforcement of conduct and standards is poor creating negative image in the market 7) No Regulatory institution for Retirement industry: The retirement provisions/industry does not have Regulator, hence regulatory role of actuary does not exist. Consequently the funding being optional, the actuarial input is almost nil. Opportunities 1) Benefits Practice: Actuarial reports under accounting standards: Indian, US, UK and International Funding advice on DB schemes Advice to multinational start-ups on establishing and operating their benefit schemes including group insurance schemes in India Mergers & Acquisitions - Defined Benefit Plans cost issues Due diligence on employee benefit arrangements Advice on benefits provider (Healthcare, life cover, group gratuity and pension) General consulting on gratuity, pension and PF DB : DC conversion and related issues Benefits plan review, design, and implementation Trust documentation Trust Fund Administration 2) Insurance: New start ups Business Plans, market potential studies (its normally taken up by Accounting firms, presently) 18

19 Pricing particularly in non-life and Health Review of reserving in non-life Peer Review of Appointed Actuary s valuation reports Appointed Actuary role in non-life (allowed on consulting basis) In life EV and market value for IPO, those life insurers completing 10 years have to go for IPO 3) Offshored actuarial support to Consulting in other jurisdictions: Pension liability valuations Support to insurance consulting Consulting such as non-life pricing for other jurisdictions which are not actuarially developed. Competition from Finance and accounting professional Finance, accounting and Economics professionals in the field of Risk Management, Financial Risk Management, Investment and ERM Hesitancy by Public sector insurer and other institutions to engage with actuarial professional. Global Financial meltdown and consequential risk of offshored actuarial work being withdrawn The Proposed increase of JV participation beyond 26% not materialising. 4) The nature of Indian actuarial Consulting Its global as it is dominated by multi-national Consulting firms Its global as most of the insurer clients are multi-national except three private sector and the public sector companies, all are JVs. Its expanding as the awareness about value of consulting increases and thus such awareness will have global flavour. Threats Competition from Finance and accounting professional Finance, accounting and Economics professionals in the field of Risk Management, Financial Risk Management, Investment and ERM Hesitancy by Public sector insurer and other institutions to engage with actuarial professional. Global Financial meltdown and consequential risk of offshored actuarial work being withdrawn The Proposed increase of JV participation beyond 26% not materialising. The Proposed increase of JV participation beyond 26% not materialising. 19

20 6 Stimulus for growth of the actuarial consulting including the role that IACA/APACA can play: A recent development, an initiative of IACA (International Association of Consulting Actuaries), an IAA section, though not specifically aimed at India, is likely to impact the consulting capacity creation and thus growth of the consulting market in India as well. IACA announced in Oct on the sides of 15 th eaac in Seoul, creation of Asia Pacific Association of Consulting Actuaries (APACA) with objectives to enhance actuarial consulting capacity in the Asia Pacific and South Asia region and facilitate growth of the consulting market, within these jurisdictions. The article 2 of IACA rules, inter-alia provides; i) Facilitate the exchange of views and information on an international basis among consulting actuaries on matters affecting their professional responsibilities and business interests. ii) Encourage and assist in the development of consulting actuarial associations in locations where there is an identifiable need for actuarial skills. In pursuance of the above IACA Objective, the APACA has been created to; Achieve the second objective of the IACA rules for the jurisdictions in Asia Pacific and South Asia generally referred to as Asia Pacific. Enhance actuarial consulting capacity in the Asia Pacific region and facilitate growth of the consulting market. Create a networking framework among the consulting actuaries in the region Have territorial jurisdiction over jurisdiction of EAAC member associations and other non-eaac member countries in Asia Pacific and South Asia. Organize IACA sessions in each bi-annual EAAC conference in a much larger scale than now. More frequent meetings on an as needed basis. Joint Seminar or Webinar with local and major countries actuarial association. Lobbying with Governments and other bodies where appropriate. Meet with local politicians (both Government and Opposition), government officials and other bodies to share its views on legislative developments which affect the actuarial consulting. Create and maintain membership Data Base with a view to facilitate networking activities and extending other services to APACA members. Residual functions: To take all other actions that are considered necessary for enhancement of status of consulting actuaries in the region covered by APACA. 20

21 About the author Liyaquat Khan, an Executive Committee member of the International Association of Consulting Actuaries (IACA), is Chairperson of its Member Services and Development Committee (MSDC) and holds the position of Executive Director within Asia Pacific Association of Consulting Actuaries (APACA), an arm of IACA. He has been President of the Actuarial Society of India (now called Institute of Actuaries of India) for four years over year 2000 to year 2005 and concurrently was a member of Insurance Advisory Committee of the Indian Insurance Regulator: IRDA Liyaquat s career spanning over more than forty years has seen him as CEO of two life insurers and occupying senior positions in actuarial, insurance, pensions and management in United Kingdom, India, Mauritius and Sultanate of Oman. Currently Liyaquat is in Consulting. 21