Actuary shortage haunts insurers

The Insurance Regulatory and Development Authority (Irda) is concerned over the shortage of actuaries in India, especially in the non-life insurance space.

“We don’t have the actuarial capabilities in non-life as we have in life insurance. There is also a shortage of data and of skill sets to correctly evaluate data before the rate is fixed,” Irda chairman J Hari Narayan said at a recent event in Mumbai.

An actuary is a financial expert who applies mathematical and statistical methods to assess financial and other risks relating to various contingent events and then arrives at the rate or premium that a person should pay to get a particular insurance cover. For this, the actuary studies data such as the age profile of the insured, the geographical location, the income group etc.

The shortage of actuaries has meant premiums are incorrectly fixed, resulting in heavy underwriting losses, Hari Narayan said. “India had high tariffs when they were fixed by the Tariff Advisory Committee. The tariffs came down because of competition (once tariffs were deregulated from January 1, 2007),” he said. The Irda chairman added that tariffs may now start moving up again.

“This (fixing of appropriate rates) has taken two three years in other countries. We are at the completion of the second year. Even if it takes a couple of more years for us, it is not really a matter of concern… but we should watch out for that.”

Irda recently came out with a directive asking general insurance companies to hire actuaries and place a higher role for them. “The appointed actuary has to certify that each product is financially viable,” the insurance regulator said.

However, despite Irda’s best efforts, the problem is not likely to be resolved in a hurry.
The reason is the severe shortage of experienced actuaries.

The Institute of Actuaries of India (IAI) identifies four levels of actuaries — fellows, affiliates, associates and students. Fellows form the highest rung and need to pass the entire course and have at least three years’ experience in an insurance company.

Affiliates are fellows from actuarial schools in other parts of the world who have come to India. Associates are those who have cleared up to a big chunk of the course and students are those who are in the process of clearing various examinations.

Of the 8,474 members of IAI, about 8,340 are students, mostly belonging to the age group of 21-30. The number of fellows is just 203. This number had gone up slightly to 215-217 in 2007-08, but now the tally is back to 2002 levels.

Of these fellows, 52 are residents of other countries who are on deputation in India because of a tie-up that insurance companies have with foreign insurers. And of the 151 Indian-resident fellows, 75 are in the age group of 66-90 years.

Asked why the number of fellows has remained more-or less constant, IAI president G N Agarwal said, “Some fellows go out of the country with a mutual understanding that the institute has with the other global institutes. Some may discontinue the membership after they turn 75-78-year-old due to the age factor. Otherwise it (the number of fellows available) shouldn’t come down.”

Agarwal, who is also the chief actuary for Future Generali Life Insurance, is confident of meeting the shortfall. “There are many people who can be employed. We have sufficient number of people. Earlier non-life companies were not hiring, but we have members for them as well.”

At present, every life insurance company employs about 8-10 students, 1-2 associates and 2-3 fellows, he pointed out. “A large company like LIC may have 50-60 associates or more and about 1000 students all over India,” Agarwal said. There are 21 life and 22 non-life insurers, according to the Irda website.

“General insurance companies earlier needed to have 1 fellow, who may be a full-time employee or a consultant. But recently Irda has issued a circular asking general insurance companies to hire at least 5-10 actuaries. After detarrifing, the role of actuaries has become important in deciding the prices,” he said.

But insurance industry consultants say actuaries who can understand all the businesses of non-life companies - fire, marine, motor, engineering, health insurance etc — may be few. R Krishnamurthy, managing director at Watson Wyatt Insurance Consulting, said, “General insurance companies are into a heterogeneous business and the actuaries who might understand the risk in every business are rare. There is practical difficultly in finding people who will understand every business, from motor, health, to fire or marine.”

Getting one-to-one dedicated people is difficult and quite expensive for companies, Krishnamurthy added. “Companies too do not want to incur that heavy a cost. Full-time actuaries are the most expensive, may be after the CEO. In some companies, actuaries earn more than the CEOs,” he said.

For the situation on ground to improve it may take a couple of years, consultants point out. “The situation has improved a bit, still there will be shortage. A lot of a people in the pipeline and it might take 2-3 years for people to fill the complete gap with experienced actuaries,” says Y V D V Prasad an independent insurance consultant, who formerly headed product development at ING Vysya Life Insurance Company.