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Knowledge Based Actuarial Outsourcing to South Africa


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Macro-economic factors such as growth of the insurance sector in emerging economies, increased regulatory requirements and complexity of insurance products is creating huge demand for actuaries, especially in emerging markets.

Whist demand continues unabated, supply doesn't seem to be keeping up. Whilst the number of aspirant student actuaries continue to rise, the required numbers are not getting through qualifications quickly enough.

This paper explores the viability of South Africa as a destination for high end actuarial knowledge based outsourcing.

South Africa has a highly qualified actuarial workforce with a vibrant first world financial services industry. In 2011, South Africa had 751 qualified actuaries, with more than 90% obtaining a UK qualification. Apart from regulatory developments which will increase actuarial demand, South Africa's insurance market is saturated with the highest penetration of insurance products per GDP in the world. Unlike India, South AFrican insurance markets are not growing as rapidly and hence demand for actuaries is stable.

If potential risks of outsourcing are appropriately managed, and if Cape Town is the chosen destination either for outsourcing or setting up a captive actuarial outsource function, then it certainly is worth exploring this country.

The South African Government also offers some attractive cash incentives for establishing operations in the country.

To find out more, get in touch:
Tel: +44 (0) 203 102 6750

Published in: Business, Economy & Finance
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Knowledge Based Actuarial Outsourcing to South Africa

  1. 1. Actuarial Outsourcing Exploring South Africa as a Viable Destination Jay Tikam Vedanvi Business & Risk Consulting
  2. 2. 2 Global Actuarial Landscape Global demand for actuaries •  Macro-economic factors - growth of insurance sector in emerging markets •  Changes in the insurance sector •  Increased amount of regulation post financial crisis •  Increased complexity of regulation – eg Solvency II •  More complex products •  Expanding role of actuary into risk management, banking, asset management, corporate finance, consulting •  In 2005, worldwide demand for actuaries estimated at around 73,800 against supply of 42,824 - a shortfall of 30,9761 Globally, demand for actuaries will always remain. In UK & Europe, significant medium term demand driven by regulatory change 1.  “Actuarial Supply & Demand” by Julian D Gribble, Presentation for International Actuarial Association, International Congress, Paris, 27 May – 2 June 2006
  3. 3. 3 Global Actuarial Landscape Global supply of actuaries •  Relatively few actuaries in world1 •  In 2005, estimated 42,824 fully qualified actuaries in full member associations – compared with (during the same period): •  9.5 million doctors •  5.5 million accountants •  6.5 million engineers •  67,000 CFAs (Chartered Financial Analysts) Globally, demand for actuaries will always remain. In UK & Europe, significant medium term demand driven by regulatory change 1.  “Actuarial Supply & Demand” by Julian D Gribble, Presentation for International Actuarial Association, International Congress, Paris, 27 May – 2 June 2006
  4. 4. 4 Global Actuarial Landscape UK & European demand for actuaries •  Solvency II is major driver •  Financial crisis and market volatility •  Risk management •  Demand for qualified, rather than student actuaries Globally, demand for actuaries will always remain. In UK & Europe, significant medium term demand driven by regulatory change
  5. 5. 5 Options Options Re-Alignment Compete Import Outsource / Offshore Details •  Re-deploy actuaries doing non actuarial work •  Recruit non-actuaries with similar mathematical skills •  Attractive remuneration packages •  “Poaching” •  Recruit Actuarial skills from outside EU •  Create actuarial outsource hub in UK •  Send work packages to offshore in house actuarial process centers •  Outsource actuarial processes offshore Advantage •  Most cost effective solution •  Grow pool of skilled people able to do actuarial work •  “Intelligent” recruiting could attract brightest and best •  Grow pool of skills •  Overall could drive down price of actuaries as foreigners are willing to earn less •  Lower cost option of getting work done •  Expand pool of skills •  Free up local actuaries for more complex work Disadvantages •  Career management – actuaries opting out may not want to get back in again •  Costs are high •  Will drive actuarial salaries even higher •  Overall not an attractive solution for industry as a whole •  Immigration hurdles •  Unwillingness of senior level resource to relocate •  Managing process, especially for high end actuarial processes •  Local Actuaries could see at a threat – making it less successful
  6. 6. 6 Outsourcing/Offshoring •  Solvency II & market volatility driving demand for qualified /more experienced actuaries •  India most popular destination - around 26 outsourced/offshore centers – mainly lower end •  Where is best place to outsource high end actuarial work? Country Possible Outsourcing Destination? United States 16,672 (38.95%) Yes – however not common practice and insurance sector differs to UK UK as Comparator 6,029 (14.09%) Canada 2,429 (5.68%) Yes – plausible option however time zones may be an issue Australia 1,237 (2.89%) Yes – plausible option however time zones definitely an issue Japan 1,058 (2.47%) Yes - plausible however time zone may be a issue South Africa 690 (1.61%) Yes – plausible option and time zones work out well Hong Kong 297 (0.69%) Yes, however internal demand is likely to surge as Asian insurance sector grows Singapore 113 (0.26%) Yes – however internal demand is likely to surge in Asia as insurance sector grows India 148 (0.35%) Yes – however plausible at lower end of the scale China 56 (0.13%) No – low numbers of Actuaries and internal demand is significant Poland Source: No of Fellows (2005 estimates) (% of Total) 11 (0.03%) No – low levels of qualified actuaries “Actuarial Supply & Demand” by Julian D Gribble, Presentation for International Actuarial Association, International Congress, Paris, 27 May – 2 June 2006
  7. 7. 7 Why South Africa? Global Competitive Index 2011/2012 – Top 20 Overall ranked 4th out of 142 for Financial Market Development Rank (out of 142) Rank (out of 142) Institutions Financial Market Development Availability of financial services 3 Strength of auditing and reporting standards 1 Financing through local equity markets 4 Efficacy of corporate boards 2 Soundness of banks 2 Protection of minority shareholders’ interests 3 Regulation of securities exchange 1 10 Legal rights index, 0-10 (best) 8 Strength of investor protection, 0–10 (best)* Quality of management schools 13 Reliance on professional management 18 Higher Education & Training Quality of management schools 13
  8. 8. 8 Why South Africa? •  Insurance sector & insurance regulatory framework on par with Europe •  Time zone favourable and English is widely spoken – Cape Town has a notable German population •  Culturally, South Africa more aligned with European culture •  South Africa implementing Solvency II in 2014 – emerging skills •  South African insurers use similar IT software eg Prophet, Moses & Igloo to measure insurance risks. Algorithmics also well established within South Africa, principally in banks •  South Africa is (anecdotally) the only place in the world where supply and demand are balanced (not taking Solvency II into account) 1.  2.  1. South African Actuarial Society 2. “Demand for Actuarial Resources in South Africa” by W Terblanche, South African Actuarial Journal SAAJ9 (2009).
  9. 9. 9 Why South Africa? Demographics •  751 Fellow actuaries (698 are Fellows of the Faculty and Institute of Actuaries in UK) & 1,241 students in 2011 with growth rate of around 200 student entrants every year1 •  Higher Fellow and Student annual growth rate compared with UK and Australia Country Fellows Students Period South Africa 7.0% 11.5% 1995-2007 UK 4% 7% 1995-2004 Australia 5.7% 6.6% 1992-2005 1. South African Actuarial Society
  10. 10. 10 Why South Africa? Insurance penetration •  Insurance market is saturated with little room for organic growth. Therefore demand for actuaries will remain constant (not taking Solvency II into account) while supply increases •  Insurance penetration is the insurance premium income as % of GDP. South Africa has the highest insurance penetration – i.e. insurance premium contributions are highest relative to GDP when compared against other countries Insurance Penetration vs GDP per capita2 2. “Demand for Actuarial Resources in South Africa” by W Terblanche, South African Actuarial Journal SAAJ9 (2009)
  11. 11. 11 Potential Risks & Mitigation Potential Risks Mitigation Availability of skilled resource to meet demand Cape Town (for lifestyle reasons) has healthy supply of senior level actuaries and many senior actuaries returning to South Africa. South African insurance markets saturated with little organic growth Lack of willingness by actuarial functions to offshore high end actuarial work to South Africa Pilot projects to prove the concept. Outsource rather than offshore for quicker exit if initiative does not work Conflicts of interest and data privacy issues in a shared service environment Each insurer can have dedicated team that is separated physically from other client teams. Physical and IT security in place coupled with employee confidentiality contracts Complexity of actuarial processes makes offshoring or outsourcing difficult as South African actuaries will not have knowledge of the organisation Second South African actuaries to Europe for 6 months (visa permitting) to acquire business knowledge and form relationships or send European actuary to South Africa to educate South African actuaries about the company, its products and processes
  12. 12. 12 Case Studies 1.  UK based multinational composite insurer (ranked among the top 10 in the world) has recently established an Actuarial Centre of Excellence to provide its world wide businesses with high end actuarial support. This Centre works in conjunction with its low end actuarial offshoring Centers in India and Poland 2.  A South African insurer listed on the London Stock Exchange offshores all its Solvency II development work to its offices in Cape Town 3.  Many specialised management consultancies are sourcing South African actuaries (via secondmends) to meet Europe wide demand 4.  South Africa is the one of the largest supplier of actuarial support to the Saudi Arabian and other Middle Eastern market
  13. 13. 13 Conclusions •  Supply of Actuaries is always going to be limited given the specialised nature of the Actuarial profession •  Regulatory development and market volatility are driving actuarial demand in the developed world •  Rapid growth of the insurance sector is driving actuarial demand in the emerging markets •  South Africa currently appears to be the only market suitable for high end Actuarial outsourcing / offshoring •  This window of opportunity is small, given South Africa’s implementation of Solvency II
  14. 14. Contact Jay Tikam Tel: +44 (0) 203 102 6750 Mob: +44 (0) 778 551 8471 Email: Web: