Sonjai Kumar, is working as a Head-Insurance and Financial Risk at Aviva Life Insurance. During our conversation, he shared his views on the role played by actuaries in Risk Management. Below is an excerpt of the same.

Q. You have started your Private sector career in 2000, and in the fourteen years since then, a lot has been changed in the insurance industry. Can you tell us the difference between market conditions in India then and now?

The basic difference is that at that time all the people in Insurance industry in India were inexperienced except the very few people who worked in the Actuarial Department of LIC. Everybody else was in learning mode including the regulator. The good thing was that during those days the Appointed Actuaries or Chief Actuaries were expat and
were very experienced in most of the companies under whom the current generation of actuaries’ got trained. Some people worked really very hard during those days and also progressed well with their exam towards qualification and now they are the Appointed Actuaries. During those days, there was a shortage of actuarial resources in the insurance industry. So job opportunities were aplenty and most of the intakes in the actuarial department used to be fresh graduates in Maths/Stats/Commerce and other related fields and then they used to write to pass actuarial exams. But now supply of actuarial students has increased compared to demand; the demand is low due to various reasons like improved product regulation by the regulator, economy not expanding, 49% equity not happening, etc. But yes, the supply has increased many folds. That is the fundamental difference between now and then in actuarial community.
Another difference I can see is that most of the expats who came to India have returned back and now the actuarial department is mostly handled by the Indians themselves.

Q. Can you explain the difference between working in a consulting firm & a direct insurance company?

In consulting, you learn a lot because the kind of work you do depends on the requirement of your client. You often do not do the same kind of work in consulting. If a client wants to enter into the market and ask you to write the
market report, you will be busy in writing the reports. Once that is over, there may be a valuation job or a pricing job from another client. So, in a short period of time your exposure increases as you work in different
branches of insurance/actuarial. Whereas in a direct insurance company (Life, General or Health), if you are working in pricing or valuation then you will be working in the same field for 2 – 5 years. There may be rotations in your job profile like you may be working for first 3 years in pricing and then next 2-3 years in valuation and so on.
Consulting is a high pressure job because you have to meet the timelines set by the client. It may also happen somewhere in a direct insurance company but not necessarily at a similar order as a consulting job. This is why
people get paid better in consulting than in a direct insurance company. A fresher must prefer a consulting job over an insurance company job because he/she will get a lot of exposure in quick time working on different projects.

Q. What role do you play as Head-Insurance and financial risk?

The role of Insurance and Financial risk in risk management department is to provide oversight risk management to insurance and financial risk. These oversights include the work of independent review and challenge of many works that comes from the Actuarial/Investment department with embed the insurance and financial risk. Such works primarily include product pricing, Assumption setting, ALCO, Experience analysis review and others.

Q. How is risk management different in Life, General and Health Insurance?

First of all the risks in General Insurance and Health Insurance will be different from Life Insurance because their products are different, tenure are different and operational events are different. There will not be interest
rate risk in General and Health Insurance as this risk occur in long term business with maturity amount. Also, there will be no mortality risk but morbidity risk or incidence risk in those branches. Also, the fraud risk will be very high in General and Health Insurance in comparison to Life Insurance.
General principles of managing the risk will be same but you may have different methods and techniques for mitigation of risk.

Q. What will be the long term impact of recent increase in FDI cap from 26% to 49% in the Insurance sector?

To be honest I am very optimistic about the insurance business and I always believe that number of insurance companies currently in India is minuscule. In 1956, there were 256 companies in this country before the nationalization happened and LIC was created by consolidating all those 256 life insurance companies. So, given the size of the country, given the potential and realizing the need of insurance in some areas of Insurance like health insurance and pensions-there is a huge scope of increase in the number of insurance companies in India. Annuity business in future will be the key and my guess is that in next decade, Govt will bring some relief for annuity business as this country has not seen or faced the problem related of old age pension yet. My guess is in 20 years down the line there will be 500 or more companies in this country. We need couple of 100 health companies to cater the need of 120 Cr of population; in this field we have just planted a few trees. There will be requirement of
Annuity for around 40 Cr of population and annuity is a very different kind breed and requires special skills sets to price and market such product. As we have seen in life insurance that individual companies are not having Pan
India presence due to capital constraints and so you require more companies to cater this country’s demand.