Chapter 15: Actuarial Science

Introduction

Actuarial Science essentially deals with the calculation of insurance risks and premiums. It involves the application of mathematical, statistical and economic analyses to a wide range of decision making processes in insurance, investment, financial planning and management. The actuary, who is qualified in actuarial science, plays an essential role in insurance business. The profession requires intensive training in mathematics and statistics, accounting company should charge to cover a particular risk.

He calculates, for example, death rates for given ages and occupations, or liability for accident to certain types of drivers. The information reduces the element of risk for insurance companies, because events as a whole, unlike individual events, are predictable. Thus the actuary determines premium rates, studies mortality trends, constructs mortality tables, lays down underwriting standards, etc.

Actuarial profession is relatively less known in India. According to the report of the Committee on Reforms in the Insurance Sector (1994), at the time of nationalisation, there were only 67 actuaries in the service of the Life Insurance Corporation, but their number eventually came down to eleven. The Committee emphasised the need for adequate number of actuaries in the insurance industry.

The actuarial profession was formally established in 1848 with the formation of the Institute of Actuaries (London). At one point of time it was the only Institute in actuaries appointed by the Life Insurance Corporation qualified from this Institute. Now there are the Faculty of Actuaries (Scotland) and the Society of actuaries (USA). Its Indian counterpart, Actuarial Society of India, although established in 1944, started conducting examinations for a corresponding Indian qualification only from 1989.

Educational Opportunities

Mumbai and Goa universities offer Actuarial Science as one of the subjects at the B.Sc. degree level under the UGC scheme of vocationalisation of first degree courses. Several universities have also introduced Actuarial Science as one of the combinations. Bharatidasan University and Bishop Heber College (Tiruchirappalil), affiliated to it offer one-year postgraduate diploma in the subject. M.Sc. in Actuarial Science is available only in Madras University.

The Actuarial Society of India (Jeevan Udyog, 3rd Floor, 278 DN Road, Fort, Mumbai-400001) conducts three-stage examinations leading to the Fellow Membership of the Society recognised as the professionals qualification by the insurance industry. A candidate having passed the 10 + 2 examination and possessing a high degree of proficiency in mathematics as well as in other subjects is eligible for admission to the Entrance Examination. He should, however, have attained the age of 16 years. The Entrance Examination consists of two subjects, Mathematics and English (General Essay and Precise), both of three-hour duration. The Society advices that any standard text-book prescribed for B.SC. level studies covering Integral Calculus, Theory of Equations and Higher Algebra should be used to prepare for the examination. Examinations are held twice a year (May and November)

First class graduates and second class postgraduate with mathematics or statistics are considered for exemption in the mathematics paper provided that the total marks secured in mathematics or statistics taken together in all the years of the degree course are not less than 60% in the case of graduates and not less than 50% in the case of postgraduate degree holders. Another recondition is that the maximum marks allotted for mathematics or statistics are not less than 50% of total marks for all the papers excluding language. After passing the Entrance examination, unless he has been granted exemption, the candidate will be required to apply as a student member.

On admission as a student member he can appear for the examinations leading to professionals qualification as an actuary. The examinations cover nine subjects falling under two broad groups viz., (i) Mathematical, Statistical, Financial and other Actuarial Techniques and (ii) the application of these techniques. The subjects are: 1. Probability and Statistics (two papers), 2. Mathematics of Finance (two papers), 3. life Contingencies (two papers), 4. Economics and Accounts (one paper), 5. Applied Statistics (one paper), 6. Mortality (one paper), 7. Institutional Investment (two papers). 8. Life Assurance (two papers), 9. Retirement Benefits (two papers). Successful completion of subjects 1 to 6 would lead to admission to Associate Membership.

Fellow Membership is awarded only on successful completion of the remaining two subjects. A Fellow in now recognised as an Actuary under Rule 3 of the Insurance Rules (1939). For the first group of subjects, examinations are held twice a year in May and November, while for the second group it is held only once a year in November. The examination centres normally are Bhopal, Calcutta, Chennai, Delhi, Hyderabad and Kanpur. Although, no time limit is specified for the completion of the course, proficiency in quantitative techniques and single minded devotion would certainly enable a candidate to qualify as a professional actuary within a reasonable period of time.

The Amity Group of educational institutions (Ritnand Balved Education Foundation, E 27 Defence Colony, New Delhi-110024) has recently set up the Amity School of Insurance and actuarial Science. The School has introduced three programmes: (i) Masters in Insurance Management (two years), (ii) Postgraduate Diploma in insurance Management (one year) and (iii) Certificate Life and Non-Life Insurance management for agent and intermediaries as per guidelines of IRDA.

While on the subject of actuarial science, it may be worthwhile to mention about an option for making a career in general insurance. Surveyors and loss assessors play a crucial role in processing of settlement of claims arising under general insurance policies. They are independent individuals of firms possessing qualifications laid down in Section 64 UM of the Insurance Act (1938) read with 56A of Insurance Rules. The Controller of Insurance is empowered to issue license to surveyors and loss assessors for a period of five years, renewable every five years.

According to the report of the Committee on Reforms in the Insurance Sector (1994), there are over 38,000 licensed surveyors and loss assessors of whom only 7,000 are reportedly active. The Institute of Insurance Surveyors and Adjusters conducts examinations leading to fellowship, associateship, and licenciate- ship of the Institute. These qualifications are recognised in Insurance Rules as technical qualification, among others, for licensing surveyors. Consequent upon the establishment of the Insurance Regulatory and Development Authority, the task of preparing a code of conduct applicable to surveyors and loss assessors had been entrusted it. (See also Update)

Career Opportunities

With the liberalization of the Indian economy and the enactment of the Insurance Regulatory and Development Authority (IRDA) Act, 1999 privatising insurance business and permitting the entry of foreign insurance companies in India, the job prospects are quite bright. The Insurance Regulatory and Development Authority (Jeevan Bharati, Cannaught Place, New Delhi-110001) has since been constituted under this Act. Apart from taking up employment in insurance companies, the actuaries can get opportunities in any other sector where finance, investment, statistics-based forecasting is involved. Like their counterparts in chartered accountancy, cost accountancy and company secretaryship professions, they can undertake practice to advise on matters like pension, gratuity and retirement benefit schemes.

Update

Career Opportunities: The Insurance Regulatory and Development Authority (IRDA) has permitted two private companies each to enter the life insurance and general insurance business, paving the way for the enlargement of the insurance sector and creating more job opportunities. Apart from IT, marketing, and investment specialists, the insurance sector needs actuaries, underwriters, surveyors and assessors and insurance agents.

The (IRDA) has already issued detailed guidelines appointment of actuaries by insurance companies. IRDA has made it mandatory for all insurance companies to appoint an actuary who should be an Indian citizen and a Fellow Member of the Actuarial Society of India. No insurance company can function without an appointed actuary. An actuary of one company con not function as actuary of another company. IRDA would also formulate regulations for surveyors and had proposed two legislations for setting up of institutions of actuaries and surveyors.

The IRDA has also accorded accreditation to 13 institutions including the College of Insurance and Finance Planning (Secunderabad 500003) and Warangal Insurance Institute (Warangal, AP) for imparting training to insurance agents in accordance with norms prescribed by it. It has also approved the agents' training module of Bimaonline.com Bimaonline.com's training division, Bima Online Institute of Insurance would offer training for both life and non-life agents.

As regards underwriters, who assess the risk in the insurance business, there are few good courses. The courses offered by the Insurance Institute of India (Mumbai 400011) and the Institute of Risk Management are not highly rated by insurance experts. The Birla Institute of Management Technology (New Delhi 110017) has introduced both full-time (one-year) and part-time (18 months) PG Diploma in Insurance & Risk Management (PEDIRM). The course is open to BSc degree holder or CA/CWA/CFA/CS.

Actuarial Apprentices: life Insurance Corporation of India (LIC) has started recruiting Actuarial Apprentices in a big way. Qualification requirement is graduation or post-graduation with Mathematics or Statistics as main subject with minimum of 60% of marks in the aggregate or graduation or post-graduation on Commerce with Statistics or Actuarial Science as a major Subject with minimum 60 percent of marks. Selection is based on a written test consisting of two papers: Part I-(a) Essay, and (b) English Precise, Comprehension and Grammar, and Part II- Mathematics or Statistics or Actuarial Science. Candidates who have passed one of the following examinations can be exempted from appearing for the written test: (a) Entrance test of Actuarial Society of India, (b) one or more of the examinations of the Actuarial Society of India or Institute of Actuaries (London), and (c) P G Diploma in Actuarial Science with more than 50% marks in the aggregate.