R Ramakrishnan, consulting actuary, talks to V Jagannathan on the changing face of the acturial practice.

Chennai: While discussing the areas of opportunity for private practice for actuaries, the usual thing is to compare the pre-liberalisation (before 2000) and post-liberalisation periods. "Very few remember that there was a third period, pre-nationalisation (pre-1956). Only two Mumbai-based actuarial partnership firms - Pandit & Co and Thanawalla & Co - have functioned during all the three periods," says consulting actuary R Ramakrishnan.

The former executive director of the Life Insurance Corporation of India (LIC) and past president of the Actuarial Society of India (ASI) was also a member of the Malhotra Committee on Insurance Reforms and chaired the RBI Advisory Group on Insurance. At present, he advises a few Indian and foreign insurance companies.

Ramakrishnan says that before nationalisation of the life insurance sector, there were 240 companies. Many were small and could not afford to employ full-time actuaries, but hired individuals or actuarial consultancy firms for services ranging from product development to valuation. "Their activities extended to Africa, Sri Lanka and South East Asia." He remembers.

Excerpts from an interview:

Could you tell us about private actuarial practice after nationalisation?
When life insurance was nationalised in 1956, there were many disputes between the government and the companies taken over, regarding the compensation payable. The actuaries engaged in private practice and advised the companies. But LIC did not engage any actuarial firm or private actuaries.

When it seemed that private practice would gradually fade out, valuation of retirement benefits came up. With the enactment of the Gratuity Act, determination of liability in respect of gratuity payable when an employee exits, became lucrative work. Since the LIC did not enter the group gratuity business till 1971, actuarial consultancy firms and private actuaries had a full monopoly over this activity. When the LIC finally entered the group gratuity business in a big way, the dwindling number of actuaries in the country enabled practicing actuaries to earn a sizeable income.

The scope for private practice increased when accounting standards laid down that the provision for leave encashment should be calculated based on actuarial methods. Though the scope for private practice continued to increase, the steady decline in the number of qualified actuaries resulted in the decline of actuaries in private practice.

What about the situation after liberalisation?
The opening up of the insurance sector has brought in new companies that employ actuarial students and qualified actuaries in significant numbers, at a considerably higher level of remuneration. This has started attracting the younger generation to the profession and, within the next few years, there will be a significant increase in the number of qualified actuaries. The scope for private practice has increased considerably.

What is the scope for private practice now?
Before getting its balance sheet certified by an auditor, every company has to get its liability of gratuity and leave encashment certified by a qualified actuary. This will give you an idea of the market size for private practice. Coming years may witness intense competition between life insurers for market share in the group gratuity business segment. This, in turn, may tempt some companies to underestimate the liability in order to quote a lower premium. Increasing dependence of auditors on certification by independent actuaries will be a natural corollary. The pension market is yet to take shape in our country. Once this market starts developing, the country will witness a manifold increase in the scope for private actuarial practice.

What is the impact of foreign actuarial firms?
There has been no increase (in fact, there appears to be only a decrease) in the number of Indian actuarial firms after liberalisation. The entry of foreign firms at this stage may bring awareness about the scope for private practice and may encourage the younger generation to enter this area. Many developed countries have started outsourcing actuarial functions. With increasing availability of actuarial talent in the country, a few foreign actuarial firms have already set up offices in India and started attracting outsourced functions. It may not be long before Indian consultancy firms, too, enter this area.

How are Indian actuaries geared towards meeting the detariffed regime in the non-life sector?
When the actuarial presence in the general insurance industry is negligible, there is no question of the Indian actuarial profession being prepared for the detariffed market. The actuarial profession is yet to make any credible contribution to match the efforts of the regulator. There is very good scope here for private practice. One can hope that the younger generation of actuaries will take up the challenge of developing this area. But detariffing at this stage is not advisable, as it would only lead to unhealthy competition and damage the industry as well as its customers. Non-life insurers have to build a credible database first.

Any parting shots?
If the profession has to come into its own, it has to - like the accounting profession - develop its own examination system and study materials. If it continues to be dependent on a foreign examination system and study materials on one excuse or another, it will find itself left standing by the roadside.

Let us hope that the Actuaries Bill will be passed as early as possible and implemented in letter and spirit. The resultant entry of representatives of the government and the regulator into the governing body of the profession may bring the ASI back on track.