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Venkatachari
Jagannathan
29 June 2002 |
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Chennai:
Hectic lobbying
is on by foreign actuarial companies, supported by their
governments and some domestic private life insurers, to promote
the cause of corporate actuaries actuaries to practice under
the corporate structure.
 It
is believed that the Institute of Actuaries of India Bill was not
placed in the last session of the Indian Parliament due to this
lobbys influence. The Bill is modelled along the statutes
governing professions like chartered and cost accountancy and
company secretaries. The law permits actuarial practice only by
individuals and partnership firms. This is a structure favoured by
the ministry of finance.
As currently there is no legal prohibition against the corporate
structure to render actuarial services, one finds a couple of
private limited companies like Watson Wyatt Insurance Consultancy
and Watson Wyatt India offering actuarial services, apart from
consulting on insurance and human resource areas. Even Life
Insurance Corporation of India is said to render actuarial
services to its corporate clients.
When other professions expressly prohibit corporate entities with
limited liability to practice, the debate among actuaries is
interesting. The actuarial profession will be a trendsetter if the
corporate structure is allowed. Members of the Actuarial Society
of India (ASI) are divided on this issue.
 Says
ASI president Nalin R Kapadia: "We have circulated a revised
professional code wherein the issue of corporate actuaries is also
included. Now it is for the professionals to decide."
Havoc in the offing?
Since the Institute of Actuaries of India Bill does not opt
for corporate actuaries, companies like Watson Wyatt are really
concerned. In April 2002, the foreign company took over the
well-known Kolkata-based Indian actuarial firm MC Chakravarti and
Company and merged it with Watson Wyatt India. As part of the
deal, the doyen of the Indian actuarial profession, M C
Chakravarti, was made company chairman.
Says Chakravarti: "In other parts of the world corporates are
allowed to render actuarial services. The pending Bill here, if
passed as it is, will cause havoc in the profession." He says
the business areas that are unfolding for Indian actuaries are
varied and the funds required will also be huge. "Individuals
and partnerships cannot mobilise that kind of money."
Presently, Indian actuaries do the gratuity (mandated by the
Income Tax Act) and leave encashment valuations for corporates,
which allow employees to encash leave to their credit.
"The new areas of actuarial services unfolding in India now
are those which are in vogue in major economies of the world, but
they did not take shape here earlier for a variety of reasons. Not
all of these are on account of opening of the insurance sector to
private entities but surely are due to the globalisation of
economies through the private sector," says former ASI
president Liyaquat Khan.
Actuarial services are required as a backup support for audit of
insurance companies, in investment and asset management firms and
even in brokerage both of capital markets and insurance, he
says.
Khan believes insurance companies can give actuarial advice
through employed actuaries for corporate clients in the areas of
employee benefits. Management and accounting consulting can offer
actuarial advice in case of mergers, acquisitions and
restructuring, which involves issues related to employee benefits
and liabilities.
"If the corporate structure were not allowed the immediate
adversarial impact would also be on LIC, which has a substantive
portfolio of group businesses and does provide actuarial
certificates to its clients in one way or the other. This would
then become illegal. New life insurers would also be handicapped
right from beginning," says Khan.
The management and accounting consultancies such as KPMG, Ernst
and Young, PricewaterhouseCoopers for example, which have
actuarial divisions in other countries, will not be able to
establish such practices in India, he says.
Sourcing capital is best organised under a corporate structure,
says Khan. "The employees of such a corporate body are better
of, besides such an entity can expand so as to provide actuarial
services to clients outside India, thus having a catalytic effect
on the expanding Indian actuarial profession.
Global presence
Corporate actuaries exist in countries like the UK, the US and
other countries. Watson Wyatt, Tillinghast Towers Perrin, William
M Mercer and Milliman are some of them.
The UK Institutes membership directory lists actuarial outfits
and also classifies by type: a) partnership of actuaries or sole
practitioner; b) part-time sole practitioner; c) corporate body
wholly owned by actuaries; and d) corporate body or other
organisation with directors or employers who are
actuaries. They also act as appointed actuaries the top
actuarial position in an insurance company," says K S
Gopalakrishnan, an actuary.
Opposing the corporate structure ASI president Kapadia says:
"The corporatisation of actuarial services will benefit only
the foreign companies and not domestic firms. There are around 50
practicing firms and already foreign companies have approached
many for takeover. Ours is a small profession trying to establish
roots. Allowing foreign corporate actuaries will affect the growth
of the Indian actuaries."
For Kapadia and his ilk in ASI, it is like surya namaskaram
after becoming blind. For, they had argued in favour of foreign
actuaries to be employed as appointed actuaries in Indian life
insurance companies. Today India has private life insurers
employing or consulting Chinese and Pakistani actuaries.
Khan begs to disagree: "The current practice of Indian
actuaries either individually or as partnership firms will
not be adversely affected because they can get organised around a
corporate entity."
In concurrence, Gopalakrishnan says: "The nature of the
actuarial work is different as it involves looking into the future
and hence is more complex. One needs to buy sophisticated software
to look into the future and arrive at a scientific conclusion.
Allowing corporatised actuarial consultancy firms will
professionalise the current consultancy work, provide
opportunities for students to gain experience in retirement
benefit areas and develop the profession as well as the retirement
benefit schemes in India."
Watson Wyatt, after taking over Chakravarti and Company, has
recruited more actuaries and has sent them to the UK for training.
Such opportunities were not there earlier, he reasons.
Issues involved
But will not the corporate set-up limit the liability of actuaries
who certify corporate statements? The main reason for not allowing
corporate structure in other professions legal, audit and
company secretaryship is to keep the liability of the
professionals unlimited so that they are doubly careful while
certifying their client statements or books of accounts.
Khan counters: "Across all the major jurisdictions in the
world actuaries provide actuarial advice in response to
requirements of law, regulations and accounting
standards. Such actuarial advice is regulated by the
profession by its professional code of conduct and practice
standards in relation to such an actuary as a member of that
profession."
The actuarial profession regulates the member, and not the members
firm or employer. As a result the accountability for professional
advice squarely falls on the individual actuaries and not on the
organisation with which he is associated either as a proprietor,
partner, employee or director.
"When that is the case will ASI, currently a small body,
govern the professionals impartially," asks former ASI
president R Ramakrishnan, a member of the Malhotra Committee on
Insurance Reforms. Professional bodies, whether it is the
Institute of Chartered Accountants of India, the Medical Council
of India or the Bar Council, are not known to take stern action
against its delinquent members.
Further, if one goes by the twists and turns seen at ASIs
executive committee in the recent past, Ramakrishnan presents a
valid point. In 2001, Khan was voted out of the ASI presidents
post by a coterie. Subsequently, quite a few young actuaries
resigned from the executive committee, resulting in gerontocracy
at the helm.
Says Ramakrishnan: "Delinquent actuaries will always try to
hide under the veil of the corporate set-up. And piercing that
veil to fix the liability will be difficult."
So, will unlimited corporate actuarial companies as in the UK
not limiting the liability of its members and shareholders to the
capital and assets of the company be a viable option?
"It is not a question of an unlimited company being a
corporate actuary. Firms of any legal structure can, and should,
take actuarial consultancy services, but signing off
responsibility should be that of the individual actuary working
with such a legal entity," says Khan.
"But why do you always want to experiment with a profession
that is still in its infancy? We have very mature professions like
law and accountancy with thousands of members and practicing
professionals. It is better to do the tinkering there,"
Ramakrishnan retorts. "Should we make way for WorldComs,
Enrons and Andersons in the Indian insurance sector?"
And the debate continues.
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