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Taking a fresh look at risk management

Alan Botterill sets out his vision for the Profession's risk management project.

Alan Botterill retired earlier this year from his role as EMEA managing director of Towers Perrins's employee benefits and human resources business in which he has wide experience of global risk management.  This article explains the importance of risk management for individual actuaries and the Profession as a whole.

What is the aim of the project?

The ultimate aim is to have a strategy for the Profession to help members who want to develop their careers in risk management, particularly outside the traditional areas of insurance and pensions. This will involve informing members about how major organisations see risk management in the future – the activities, the skills required and the potential roles. It will also involve training and education for those interested in risk management and the promotion of actuaries as being well suited for leading roles in risk management, across a range of business sectors.

A key component will be to obtain objective feedback from organisations who manage significant risks on what they see as their future risk management needs, what they think about actuaries, their skills, and how they compare with other professions in potentially meeting their needs.

Why is risk management so important in the current economic climate?

The financial and economic turmoil of the last few years has highlighted the need for businesses in all sectors, not just financial services, to understand, manage and exploit all the risks they face. Ultimately it is about competitive advantage, not just surviving the shocks and more routine ups and downs or complying with ever growing regulatory requirements such as Solvency II for insurers. The business world is now truly global, resulting in more economic interdependency, greater complexity, potential risk but also opportunity.

What does this project say about the Profession’s commitment to promoting actuaries as experts in risk management?

The project confirms the Profession’s commitment but seeks to bring a sharper focus by looking to better understand the risk management needs of major organisations and to promote the skills that actuaries can bring to meet these needs. The project will help focus education and CPD support for members to better equip them to promote themselves and to compete for risk management opportunities, increasingly outside actuaries’ traditional areas of expertise.

Is there a sense that the Profession needs to take the initiative before other professions fill the risk management space?

Risk management is not a new thing – it may not have been precisely labelled but business leaders have been managing risks ever since their organisations started.  The whole space is very large and not well defined – in principle, it includes all aspects of running a business. Many aspects of risk management ultimately have a financial focus, looking at the financial implications of variability in business outcomes and managing uncertainty – but it is dangerous to think only about financial measures and quantification. The issue is not so much about one profession filling the risk management space as finding parts of the space where actuaries can add significant value to businesses and develop a leading position through ongoing innovation and pro-activity. In this way, the Profession will find opportunities for growing its contribution to business and economic success and expand career horizons for members.

Why do you think actuaries can play leading roles in risk management?

Actuaries can provide a compelling combination of skills and expertise that are critical to effective leadership in risk management – in particular, expertise in risk analysis and modelling, ability to synthesise  complex multiple risks into a coherent whole, business and investment knowledge to balance short and long term issues plus the ability to transfer principles and skills to new, emerging issues. Provided they can communicate effectively the complex, multi-faceted issues in practical, relevant business terms and contribute directly to successful governance and decision making, actuaries can be recognised as a unique resource and can play a leading role.

However, the research will inform us of the risk management skills that businesses are looking for and how they see actuaries. This will help us identify the gaps we need to close to achieve a leading status.

Do you think that the CERA qualification is more suited to the needs of business than other qualifications such as CFA or accounting?

The CERA qualification is an excellent development for the Profession and its global nature is very positive. The qualification demonstrates capability in a powerful combination of high level skills that are very relevant to the world of commercial risk management, including quantification of risk and uncertainty. However, no single qualification is ideally suited for business risk management generally, or a guarantee of a leading role. The key is to bring the skills needed by business to effectively manage its risks, and ideally for actuaries to be recognised for some extra value that others cannot provide.

Acquiring the CERA qualification will be a very positive demonstration of commitment and learning but members should recognise that practical experience in wider, less familiar and less quantitative issues such as operational risk or governance will be needed to be fully effective. Also, given that no single profession is likely to dominate risk management, as actuaries grow their influence they will need to work effectively with other professions.

What’s happening with the project?

The research is underway but it will take some time to complete the interviews. I would expect to provide a full update early in 2011.

If you would have a query or would like to know more about the project, please contact alan.botterill@actuaries.org.uk