Roles of Actuaries and Actuarial Association

In Developing Actuarial Professionalism in

Addressing Good Governance in Indonesia
(A Student’s point of view)

Ponno Jonatan

13th East Asian Actuarial Conference September 12-15, 2005,

The Westin Resort Bali, Indonesia
 Roles of Actuaries and Actuarial Association In Developing Actuarial
Professionalism in Addressing Good Governance in Indonesia
(A Student’s point of view)

Contents
2. Introduction 2. Society of Actuaries of Indonesia
3. Good Governance 
Overview
 Definition  Membership Growth

Goals  Members Distribution
 Main Indicators  Organizational Structure

Ideal Condition  Vision and Mission
 Roles of Actuary 
Entrance Mechanism
4. Profession and Professionalism  PAI’s Effort
 Definition of Profession 
Code of Conduct
 Definition of Professionalism  Disciplinary Procedure
5. Criteria of Actuarial Profession 3. The Present and Future Condition
6. The Challenge of the Future  SWOT Analysis
7. Key Requirements 4. Support From Government
5. PAI Roles
 Introduction
 Destination statement of National Committee for Good
Governance for year 2009 is to place Indonesia in the top-
quartile of International Good Governance rating

 Many people doubt that this goal can be achieved due to the
Bankruptcy of many companies, banking miss management,
high numbers of corruption practices and various corporate
scandals that have occurred and placed Indonesia way
behind top place in good governance rating

 The corruption investigation and high functionary arrestment

on corruption presumption that happens nowadays has
showed us that government supports the implementation of
fairness, transparency, supervision mechanism and
responsibility towards all stakeholders as directed by good
governance
 Introduction

 if the interest of the management, the interest of the

board members is well aligned with the interest of the
shareholders, the probability that they will all benefit is
increased and even better, the potential negative impact
of conflicts of interest is greatly diminished

 A study done by Lipper and Governance Metrics

International of 725 large cap domestic equity funds
demonstrates that portfolios weighted with corporations
with above average corporate governance score
reported better performance over 3 and 5 year periods
 Introduction
 Actuary as a profession that works in financial institutions
market, mostly in non-bank financial institutions market, has a
major role in addressing either good corporate governance or
good pension fund governance.

 The government has developed appointed actuary concept in

order to address good governance in insurance companies
and pension fund

 Actuaries along with actuarial association must be developing

actuarial profession either by quantity or quality to get the
recognition or accountability in playing the major role.
 Good Governance

 Definition
Governance is a regulation, code of conduct,
principle, and practices that will bring the
institution towards mission, vision, and its
long-term goal (written or not)
 Good Governance

Goals
 to provide higher customer satisfaction
 to increase the moral and commitment of the
employees
 to increase the value of company
 to provide contributions in solving public issues
 Good Governance
Main Indicators
 Transparency
• information that could be accessed properly by those who need it.
• Good information should represent the true conditions through accurate
data that must be available in the right time
 Accountability
• the clarity of functions or roles of every party.
• there is a solid definition of every functions and chain of command
especially in management’s side.
• The management must be independent and fair in the decision making
process according to the current regulation and company’s principles
 Power sharing
• Each party has the role that is directed by a fair regulation so no one is
going to be harmed.
 Good Governance
Shareholder

Creditur Management Public

Financial Market

IDEAL CONDITION
 good governance is not only for the sake of the shareholder but also the stakeholder
 Good Governance

Roles of an Actuary in Pension Fund Industry

Government

Regulation/program
Designer

Plan Designer Pension Fund

Company Actuary Mediator
Analyst /Consultant members

Administrator
Researcher
Supervisor
Public Speaker
Analyst /Consultant
Teacher
Risk Manager

Pension Fund
Public
management
Profession and Professionalism

IS ACTUARY A PROFESSION?
Profession and Professionalism

Definition of Profession
 Profession is a vocation that requires competences,
skills and advanced knowledge that can be acquired by a
formal and non-formal education and by working
experiences
 Profession and Professionalism

Definition of Professionalism
Professionalism can be defined by following requirements:
 must be associated with skills and intellectual
techniques.
 must have a code of conduct or ethics with a formalized
mode of enforcement upon its membership.
 there must be a commitment by every member of the
professional community toward the greater community
interest.
 Profession and Professionalism

Summary
 there are three ideas involved in a
profession:
 continuous learning,
 organization, and
 a spirit of public services
 Criteria of Actuarial Profession
Is actuary a profession?
 International Actuarial Association (IAA): actuary
is a multi-skilled strategic thinker who has
trained in the theory and application of
mathematics, statistics, economics, probability,
and finance.
 This knowledge is obtained through continuous
learning by formal education and by non-formal
education such as workshop, seminars, and
courses that are conducted by actuarial
association and by interaction with other
professions.
 Criteria of Actuarial Profession
Is actuary a profession?
 Their competencies will be assessed by
examinations and review process held by the
actuarial association in which an actuary is a
member
 An actuary perform his/her duties based on
actuarial standard of practices and a code of
conduct that have been enforced.
 Actuary’s contributions with technical
competencies will serve the public interest.
 The Challenge of the Future
 How to meet market demand on actuarial
profession
 How to play a bigger role in the actuary’s
traditional roles (insurance and pension fund)
 How to compete with other profession in a non-
traditional business (bank, money market, etc.)
 How to develop tools and methodologies to keep
pace with a changing socio-economic
environment
 How to compete in a world that demands higher
quality and strong professional standards;
 How to broaden the recognition of actuarial
profession in all countries around the world
 Key Requirements
 Good Governance
 Good Education system and
Appropriate Entrance Requirements
 Professional conduct of members
 Research and Standard Process
 Continuing Professional Development
 Good Communications
 Society of Actuaries of Indonesia (PAI)

Overview
 established in Jakarta on 19 October 1964
 309 members:
• 124 fellows/FSAI
• 185 associates/ASAI
 actuarial profession is not well known among
the public, even in insurance business where
actuaries play their major roles
 Society of Actuaries of Indonesia (PAI)
The Growth of PAI Membership (1987-2004)

200

180

160

140

120

100

80

60

40

20

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004
year

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
FSAI 21 21 22 24 25 29 33 36 41 53 59 71 84 96 106 114 118 124
ASAI 8 8 8 9 11 14 16 16 18 28 40 74 112 133 149 180 183 185
Society of Actuaries of Indonesia (PAI)

Fellows Distribution

Reinsurance

P ension Fund
Government

B ank Others

C onsultant

Life Insurance

General
Insurance
Society of Actuaries of Indonesia (PAI)
Associates Distribution

P ension Fund
Reinsurance
Government Universities
Bank Others
P ublic
Accountant

C onsultant
Life Insurance

General
Insurance
 Society of Actuaries of Indonesia (PAI)
Organizational Structure

Actuary Council Chairman

Deputy of Deputy of Deputy of Secretary Ethical Code Actuarial Standard Examiner

Treasurer of Practice
Commission
Insurance Pension Organization General Commission Commission

General Professional
Life Insurance Pension Fund Annuity Organization Public
Insurance Development Secretary
Compartment Compartment Compartment Compartment Compartment Relation
Compartment
 Society of Actuaries of Indonesia (PAI)

Vision and Mission (2002-2004)

 Vision
to be a professional organization that will be recognized
internationally.

 Mission
to be a professional organization by developing quality,
skills, and profession development of all members
through continuous educational system and by gradually
developing the entrance requirements through
examinations that will be acknowledged internationally,
and eventually to gain recognition from International
Actuarial Association
 Society of Actuaries of Indonesia (PAI)

110
Success Failed
100
90
80
70
60
Applicants
50
Entrance Mechanism 40
Assistant of Society of Actuary
30
of Indonesia (ASAI)
AAI-1: Probability and statistics 20
AAI-2: Mathematics of Finance 10
AAI-3: Actuarial Mathematics 0
AAI-4: Mortality Table
AAI-1
AAI-2
AAI-4
AAI-1
AAI-3

AAI-1
AAI-2
AAI-3
AAI-5
AAI-1
AAI-2
AAI-3
AAI-4
AAI-5
AAI-1
AAI-2
AAI-3
AAI-4
AAI-5
AAI-3
AAI-5
AAI-2
AAI-4
AAI-5

AAI-4
Construction
AAI-5: Economics 2000 2001 2002 2003 2004
 Society of Actuaries of Indonesia (PAI)

Success Failed
30
28
26
24
22 Entrance Mechanism
20 Fellow of Society of Actuary of
18 Indonesia (FSAI)
16 AI-1: Life insurance Mathematics
Applicants

14 AI-2: Pension
12
AI-3: Risk Selection
10
AI-4: Life Insurance Liability
8 Valuation
6
AI-5: Life Insurance and Pension
4 Fund Investment and Related
2 Regulations
0
+must attend seminars and
AI-3

AI-5
AI-1

AI-3

AI-3
AI-1
AI-2

AI-4
AI-5
AI-1
AI-2
AI-3
AI-4

AI-2
AI-3
AI-4
AI-5
AI-1
AI-2

AI-4
AI-5
AI-1
AI-2

AI-4
AI-5

2000 2001 2002 2003 2004 workshop that are conducted by

PAI
 Society of Actuaries of Indonesia (PAI)

PAI’s efforts
 Since 2002, PAI has been working together with
academics of Indonesian universities in developing
more qualified examination materials.
 PAI hopes to gradually align its syllabus with IAA’s,
which in turn will qualify PAI as a full member of IAA
Finding New entrance mechanism besides by
examinations
 Proposal of sit-in student program
 Foreign Actuary
 Society of Actuaries of Indonesia (PAI)

Code of Conduct

ETHICAL CONDUCT
TO PUBLIC
(employer, government,
Other professions, society) Ethical Code between
actuaries
The Present and Future Condition of Actuarial Profession

SWOT Analysis on actuarial profession in Indonesia

STRENGTHS WEAKNESS
Small numbers Small numbers

Has a National Association recognized by government Unpopular

Has many potential students No special institution for an actuary

There are many qualified educational institutions Concentrated in traditional business

Critical of details Less paid compared to other professions

Discipline and responsible Work only in technical area

Capable in solving technical and complex problems Lack of communication skills

Good in modeling Back-office employee

Special skill in mathematics and statistic Perceived to has a narrow point of view

OPPORTUNITIES THREATHS
Play a bigger role in traditional business The entry of foreign actuaries
Another profession started to learn actuarial technical
Play a bigger role in non-traditional business skills

Traditional business model are started to out of favor

The emerging of a long term investment instruments
Crisis and catastrophe has increased market demand on Crisis and catastrophe has caused bankruptcy of
actuarial profession Companies
 The Present and Future Condition of Actuarial Profession

Available seats in Private Institutions with mathematical and

statistical courses (year 2003)

2 uni-55 seats

9 uni-455 seats 2 uni-25 seats

6 uni-230 seats

17 uni-986 seats

2 uni-75 seats
 Left Brain - Right Brain
Left brain thinking processes Right brain thinking processes

Logical  Holistic

Analytical  Intuitive

Quantitative  Synthesizing

Fact-based Integrating

Planned  Emotional

Organized  Interpersonal

Detailed  Feeling-based

Sequential  Kinesthetic
 Are you a Right-Brain or Left-Brain Thinker?
By Dr. John Robert Dew
Solve problems through the use of data
Perform statistical analysis of data
Develop solutions using logical analyses of
facts
Have work done by individuals who are
assigned to study a system using an orderly
approach
Define quality as conformance to definable
requirements that can be measured
Establish controls in the early stages of a
system that will ensure quality is controlled
throughout the system’s life cycle
Improve quality by studying specific variation
within a system
Identify root causes of problems by
elaborately categorizing possible causes the
five-whys method and using strict rules for
questioning
Solve problems through the understanding
of relationship
Use cause-and effect diagrams
Develop solutions using creativity and
brainstorming
Have work done by teams that will raise
many questions and work multiple issues
Define quality based on a holistic concept
such as total quality
View quality as a process for continuous
improvement in which controls are only
Temporary
Improve quality by starting with a holistic
strategic quality plan
Identify root causes of problems by using
barrier analysis and process diagrams
The Present and Future Condition of Actuarial Profession

Institutions that provide actuarial education

Number of
No Institutions Degree/Title Location
student
(2003)
1 BPPK Certificated Jakarta 150

2 FISIP UI Certificated Depok 40

Master of
3 MM-UI* Jakarta 10
Management

4 ITB Master of Science Bandung 10

5 UI Bachelor of Science Depok 50

6 ITB Bachelor of Science Bandung 100

7 IPB Bachelor of Science Bogor 30

*No classes for year 2002, 2004, and 2005

 product
of gross
domestic
a percentage
premiums as
14

12

10

0
South Africa
United Kingdom
Switzerland
Korea, Republic of
Japan
OECD *)
Israel
Malaysia
Chile

Czech Republic

Poland

Moroco

Country
Hungary

Non-Life
Argentina

Thailand

Life
Greece

Brazil

India

Mexico

China
Penetration of Life and Non-Life Insurance

Indonesia

Philippines

Turkey

Nigeria

Egypt
The Present and Future Condition of Actuarial Profession
 Support from Government on Actuarial
Profession Development

Minister of Finance Decree No. 426/KMK/2003 about

business permit and legitimacy of Insurance and
Reinsurance Companies
 Article 16
 a Life insurance company must appoint an actuary as the
company’s actuary
 Article 18

a life insurance company must appoint an actuarial consulting
firm that does not have any affiliations with the company to
calculate the company’s liability for at least once in three years
 Articles 29

insurance and reinsurance companies must allocate fund at
least 5% of their employee, director, and commissioner costs for
their employee’s education and training costs in insurance
knowledge
 Support from Government on Actuarial
Profession Development
Minister of Finance Decree No. 426/KMK/2003
 Article 17

a company’s actuary should be working according to current
standard of practices and professional code of conduct
 Articles 22

insurance or reinsurance companies must fire the company’s
actuary that has made violation against insurance regulations
 Article 26

the registration of appointed actuary can be cancelled if the
actuary’s membership has revoked by PAI in case of violation on
regulation or discipline procedure, or if he/she failed to pass fit
and proper assessment because of integrity factor
 PAI roles in Developing Actuarial
Profession in Indonesia
1. Add resource of fund:
 maintain member contributions by maintaining membership
database

conduct examinations in other cities to get addition exam’s fee
payment

get sponsorship
 conduct actuarial seminars/workshops/trainings for all
members and public

develop bulletin, actuarial books, or study manual to sell

etc
2. Increase the quantity:

review examinations and entrance system;
 promote actuarial profession throughout universities by
conducting actuarial seminars

etc.
PAI roles in Developing Actuarial
Profession in Indonesia

1. Get recognition/accountability:
• develop mailing list and website for public
• send writing paper to public/newspaper/other
publication media
• become a public speaker in current issues
• be involved in regulation development
• reward those who contribute to actuarial profession
development
• set-up good governance framework
• Etc.
 PAI roles in Developing Actuarial
Profession in Indonesia
1. Develop professionalism:
• develop continuing professional development process
scheme
• Develop code of conduct, disciplinary system, professional
standard, and then socialize them to all members
• build public library
• write actuarial books
• supervise all members’ professionalism by credit point
system
• conduct seminars/workshop/training/conference/discussion
forum, especially for members
• facilitate internship possibility and chances to study more
about actuarial science and its applications in
• Etc.
 SUMMARY

PROFESSIONALISM RECOGNITION& GOOD

DEVELOPMENT ACCOUNTABILITY GOVERNANCE