PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

750 PRESIDENTIAL ADDRESScontrol, contract, or reinsurance. These techniques range fromengineering to legal to financial to actuarial, requiring the actuaryof the fourth kind to be conversant in each area.Step four is to select the best method for handling the risk,which in most cases will involve a combination of different techniques.ERM aims to establish a consistent approach to dealingwith risk. This means that the organization wants to make consistentchoices about all of the risks it faces, how much risk itwill accept, and what return it would require for accepting aparticular level of risk.Step five is to monitor the risk management approach selected.ERM is an ongoing process that must be monitored, adjusted,and revised as new information and new techniques becomeavailable. Thus, as soon as one round of an ERM processis completed, the next round begins. It is an iterative processthat entails identifying additional significant risks, quantifyingthose risks, and improving the quantification of previously identifiedrisks based on additional information and improved mathematicaltechniques. It also entails reevaluating the different approachesto handle risk, implementing an improved strategy, andthen, once more, monitoring the results. It sounds like rate filingsor loss reserve analysis–do it and then do it again. This is fullemployment for actuaries, perhaps?Actuaries need to become the ERM specialists of the insuranceindustry. For one reason, no one else understands the mathematicsunderlying this industry as well as actuaries do, so noone else can do as good a job. For another reason, if actuaries failto grow into insurers’ ERM positions, someone else will. Afterthey master that position, they will feel qualified, and perhapseven be qualified, to assume the roles actuaries now fill in thehazard risk area. Move up or move out. That is only fair. Academicshave long lived with the publish or perish dictum. Nowthe actuarial profession has its equivalent challenge: master ERMor face extinction. It doesn’t have quite the right flow, but theconsequences are just as dire.