The foreigner versus Indian debate is now taking another turn. This time the debate is raging among members of the Actuarial Society of India. Members have expressed opposition to the Insurance Regulatory Authority's proposal to allow the appointment of foreign actuaries as in prospective private insurance companies. Click here to check out the latest on this subject.
It is learnt that the IRA has sent a note to the ASI, in which it has expressed a doubt about whether the ASI can provide adequate support to the regulatory body in the formulation and implementation of appropriate actuarial regulations and control. It has also asked whether there are enough actuaries with expertise to assume the role of Appointed Actuary with the new insurance companies.
Predictably, the note has irked many ASI members. What, it seems, has really angered some is the thought that foreigners will occupy these key posts in insurance companies.
For the unitiated, actuaries are the professionals who design insurance products, arrive at premium rates after applying statistical tools, taking into account various imponderables that go into understanding risk. Actuaries are also the persons who do actuarial valuation of insurance companies and certify their solvency. Given this, an 'appointed actuary' or chief actuary is a key person in an insurance company. The draft regulations governing appointed actuaries, prepared by the IRA, give a hint of the enormous powers that will be vested with them.
As per the draft regulations, an appointed actuary shall, inter alia, have access to all information/documents in possession and control of an insurer. He will also have the authority to question any employee or call for documents. The appointed actuary can also attend the board meetings of an insurance company and give his views on matters relating to the organisation's solvency and its ability to meet its obligations to its policy holders.
In addition, he will have the power to report to the IRA and the shareholders at the company's AGM about matters on which the management refused listen to him. And capping it all, insurance companies will not be able to remove appointed actuaries from their positions without prior sanction of the IRA!
Given the importance attached to this position and the foreign equity cap of 26 per cent in their Indian joint ventures, it's likely that foreign insurance companies will want to appoint their own representatives as appointed actuaries. They wouldn't mind parting with some other positions to their Indian partners.
In this connection, R.Ramakrishnan, former executive director, Life Insurance Corporation of India and past president of the ASI, recalls LIC's experience with Sun Life, UK. He says, "For some time during 1990, LIC was toying with an idea of forming a subsidiary in London in partnership with Sun Life. During the preliminary talks, Sun Life was very particular about keeping the post of chief actuary to itself and did not mind yielding other top positions to LIC."
Continuing further he argues, "Giving the appointed actuary post to the overseas partner is like handing away the company on a platter. More so, if the new company is to have a foreign audit firm as its auditor."
But are there enough of them?
But are there enough fellows of the ASI to meet the demand? After nationalisation of the insurance industry, LIC became the only refuge for persons with actuarial qualifications. Given the poor career growth prospects, since the corporation could have only one chief actuary, many with actuarial qualifications went abroad, where they could get fatter salaries.
K.P. Narashiman, president, ASI, and former chairman, LIC, doesn't want to join issue on this touchy subject. But he says, "We are studying the issue. As regards ASI's capability of providing sufficient number of qualified actuaries we have to have the demand estimates."
Interestingly, initial estimates show that only about 15 groups will come forward to set up insurance companies. Describing even that as a very optimistic number, Mr Ramakrishnan says, "If it is a question of numbers, sufficient talent is available within the country. Further those actuaries who are abroad now will also return if there are opportunities in India." In addition, there are several members of ASI without hands-on experience who can be trained in a short time to meet the demands of the appointed actuary position, he avers.
According to him, if the IRA has any apprehension about the availability of sufficiently qualified and experienced persons to act as appointed actuaries and the demand does turn out to be in excess of supply, it can consider some options. These, he says, should include relaxing the upper age limit to 70 years for the post of appointed actuary, and permitting insurers to have part-time appointed actuaries.
Mr Ramakrishnan also wants the IRA to follow the British model, where an insurer has to declare to the regulator there that the company is not in a position to find a suitable candidate for the top actuarial post before bringing in an overseas expert.
Meanwhile, the immediate task before the ASI is to revamp its syllabus to include American and Canadian systems of valuation. Simultaneously, training sessions will begin with the seniormost and most experienced actuaries giving practical lessons to others who have completed the course but posses limited experience.
"This would make available 25 actuaries before the end of this calendar year," Mr Ramakrishnan claims.
The latest news
The latest on the issue is that ASI has sent its views to the Insurance Regulatory Authority on the draft regulations and other matters pertaining to the actuarial profession. On the issue of appointment of foreigners as appointed actuaries, the ASI favours only locals for the position, except it has bent a bit, saying that only resident foreign actuaries should be allowed to be appointed to the position, that too for a period not exceeding ten years.
The ASI has also said that the position of an appointed actuary in a general insurance company should be made mandatory only five years after opening up the sector. Surprisingly, the ASI has volunteered to divest its powers of issuing authorisation certificates to appointed actuaries.
On the issue of availability of an adequate number of professionals in India, ASI has projected an addition of 130 fellows and 240 associates by the end of January 2005 to the current numbers of 147 fellows and 87 associates.