The actuarial profession might be considered among the drier in the insurance industry, but it is one of several roles in the sector being invigorated by a tough set of rules being imposed on Europe’s insurance companies.
The Solvency II regulations do not come into force until January 1 2013, but insurance companies have been making detailed preparations and running complex modelling processes for several years. This has produced a surge in demand for qualified people who understand what the new rules require, and actuaries in particular.
“It is a bit like building a jet airliner,” says Peter Vipond, director of financial regulation and taxation at the Association of British Insurers, of the complicated and costly process that will lead to a significant increase in the amount and sophistication of information that must be produced by insurance companies, and a realignment of the level of capital they hold relative to the risks they take on.
“You have a very complex process of financial engineering going on. And that means people with specific skills are very much in demand,” he says.
Jim Bichard, partner in the insurance regulatory practice at PwC, the consultancy, agrees that Solvency II has created a “skills crunch”.
He says: “Everyone is racing towards the deadline in the UK and across Europe. You have a large number of companies looking to get approval from the regulator. There is a very concentrated timetable, a lot to get done, and it is very technical. Actuaries are crucial to a lot of the projects, and there are only a finite number of qualified actuaries in the UK.”
To pass the exams to become an associate or fellow of the Institute and Faculty of Actuaries takes between three and six years, according to The Actuarial Profession, the body that represents the industry. All but a few candidates also hold down a full-time job while doing this.
This Solvency II skills crunch is having a marked effect on salaries. While an actuary working with a City insurance company can earn more than £100,000 a year, the demand for key staff means the most sought-after professionals can command double that. According to The Actuarial Profession, the average salary for a chief actuary in the UK was £184,000 in 2009-10.
“Competition has never been better, and this is driving wage inflation across the profession,” says Jeff Deacon, chief executive of The Emerald Group, which specialises in actuarial recruitment.
Although actuaries are sought after, the range of skills required by insurance companies to meet the strict Solvency II requirements is wide, and includes risk and capital managers, accountants, project managers, as well as information technology specialists.
While retention bonuses are being paid by some insurance companies to encourage employees to stay on until their Solvency II projects have been completed, demand is such that many professionals are opting to go freelance to benefit from the pinch-point in demand for their skills.
Ali Foroshani, a senior consultant specialising in insurance at Joslin Rowe Associates, the recruitment group, says some individuals working on a project-by-project basis or short-term contracts are being paid up to £1,500 a day to work on Solvency II-related projects.
Mr Bichard says of people with key skills related to Solvency II: “They are in a two-year period when they can really command almost whatever price they want.”
However, the situation remains fluid, according to David Romeo, a consultant at recruitment group Robert Walters. He notes that the skills in demand at any time will continue to fluctuate as insurance companies move through the various stages of the Solvency II implementation process.
“As it moves through different phases, different skills-sets are needed, and we see that the roles we are recruiting are changing. At the moment, lots of roles are requiring an accounting background, dealing with issues around disclosure, whereas 18 months ago it was about project managers and risk,” he says.
According to Mr Bichard, the people most in demand at the moment are those able to interpret actuarial techniques and who can “work alongside the actuaries to create that extra bit of bandwidth.”
“Two years ago, it was deep technical skills [that were in demand], but now it is much broader. The ones who are really in demand are those that can span across a broad range of skills,” he says.
The good news for people with such skills is that demand for their services is unlikely to wane before the implementation date. “I can only see this getting more extreme and more amplified over the next 18 months to two years,” Mr Bichard says.
Mr Vipond says issues are bound to surface during the later stages of implementation, which will drag the process, and the skills crunch, through the rest of 2013 and even into 2014.
He also says that, far from the insurance industry being able to return to the “status quo” once implementation is complete, Solvency II will create a “new normal”, with many more people employed to make sure companies are able to satisfy the demands of the regulations.
“It is not like the Olympics, where the staff disappear after it is over, ” Mr Vipond says. “This will require actuaries and a cadre of IT, risk management and capital people that have not been common in traditional insurance companies.
“Before, you could run an insurance company without much of a risk team and without much of a modern capital framework. But it is going to be harder and harder to do this.”