What
is the difference between Actuary and underwriter in takaful business? Is
underwriter also part of actuary’s role?
All Takaful operators are required to appoint an
Appointed Actuary (AA) to be approved by Bank Negara Malaysia based on
recommendation by the Board of the companies.
The detail of the requirements pertaining the appointment is provided in
the Guidelines on Appointed Actuary: Appointment and Duties. Among key duties of AA are as follows:
(a) Certify that the valuation of all certificate
liabilities are in accordance to the generally acceptable actuarial principles
and practices.
(b) Prepare the Financial Condition Report (FCR)
pertaining the operator’s financial conditions and their implications. This report will include surplus or deficit
status as well as any material adverse impact on the financial condition of the
operator.
(c) Provide recommendation to the Board with respect to
the surplus or investment income distribution among the participants and
shareholders, if any. Should there be
deficit in the Takaful fund, he will also provide the options to rectify the
deficit to the Board.
However, the AA shall not assume the accountability
for product pricing. In other words, he
shall not involve in the process of new product development including
pricing. Nevertheless, he needs to
investigate and provide opinion with regards to all matters impacting the
product pricing including scenarios which may lead to insufficient income to
meet the payment of anticipated benefits and expenses as well as overall
methodology used in determining the pricing.
In this respect, the role of AA is to conform on the basis used during
pricing activities. Besides AA, there
are also Actuaries who involve in pricing, investment, risk management as well
as marketing.
Meanwhile, underwriter will manage the underwriting
process effectively in order to avoid any anti-selection and ensure the
viability of
takaful funds in the long run. Anti-selection refers to the tendency of
individuals to participate into takaful cover where their exposure to risks is
much higher than the normal or average risk.
The underwriter shall ensure that the underwriting process is in line
with the assumptions used in pricing of the product. Potential participant is
required to provide material facts or relevant information pertinent to the
risk to be covered to enable the underwriter to do the assessment
thoroughly. These information is
commonly requested in the proposal form and further additional information may
be sought to, if needed.
Thus, Actuary looks upon the technical matters of
managing the entire takaful business while underwriter focus on activities in
screening the application to participate in the takaful business. However, the pricing Actuary will establish
all the necessary criteria needed by the underwriter to conduct his
underwriting activities effectively.
This is provided in the actuarial certificate during the development of
new takaful product. Those criteria are
also incorporated in the underwriting guidelines as part of the Standard
Operating Procedures (SOP).
