The CAS as an Instrument for Peace and Prosperity
Stephen P. D'Arcy

The Casualty Actuarial Society can be an instrument for peace and prosperity; that's world peace and prosperity. Although this may seem to be a bold statement, and perhaps irrelevant to actuarial work, it is a realistic view that directly reflects our role in the actuarial profession.

The World Bank has recently identified casualty (or general) insurance as a critical element for the development of emerging economies. This organization places casualty insurance, specifically automobile insurance, before life insurance and pension systems as a priority for a developing country to establish in order to provide the foundation for economic growth. This is only the latest recognition of the importance of casualty insurance to economic development. The roots of insurance can be traced back to Babylonia, over four thousand years ago, when traders developed markets to insure the goods on their caravans against loss on the hazardous trade routes. Without this form of property insurance, traders would have been reluctant, or financially unable, to engage in the trade that led to this nascent western civilization. Recognized as the oldest branch of insurance, marine insurance was developed in ancient Greece and enabled trade to occur and civilization to flourish. Again, forms of casualty insurance were the essential ingredients to economic development. The lack of life insurance on the captain, or a pension system for the sailors, did not stop ships from sailing. But without insurance on the ships and cargo, trade stopped.

Without casualty insurance, economic development of all types comes to a standstill. Remember the halt in new construction following the attack on the World Trade Center, and the importance of developing a market for coverage of the newly recognized terrorism risk in order to get projects moving? Would a merchant open a store without coverage for the goods for sale? Would a bank loan money to a business to buy a building if the borrower could not purchase insurance on that property? Casualty insurance is essential to economic markets.

However, it is not enough simply to recognize the need for a casualty insurance market. Someone has to create this market. The world is a complex place with a variety of risks, some of which can be insured and some of which cannot. Insurance policies that clearly define the coverage must be written, underwriting standards that avoid adverse selection and encourage risk management must be established, rates that reflect the relative risk must be developed, and a regulatory system that oversees the process to assure that promises will be kept must be instituted. Actuaries, the risk mathematicians, need to be involved in this process, pricing policies, setting reserves, reviewing the financial condition of insurers, assisting in the regulatory process, in order for this system to work effectively. Although there are a large number of actuaries capable of performing this work throughout the world, there is no greater concentration of this talent than in the CAS. The CAS is in the best position to assist countries to develop the actuarial talents they need to establish a market in casualty insurance. There are more casualty (general) actuaries in the CAS than in any other actuarial organization, and the CAS is the only actuarial organization that focuses on casualty insurance, as all the other actuarial organizations also need to (or want to) address life, health, and pension issues as well. Thus, in my mind, the CAS can be and should be an instrument for world prosperity by taking the steps to help emerging nations establish viable casualty insurance markets. If we or some other knowledgeable organization does not help, these countries will be forced to learn on their own, and learning by experience can be expensive in financial markets, where failure can set back development for years. With the world's economies so closely connected, their failures will be felt internationally. It is in our own best interest to help effective insurance markets develop, and it is the right thing for emerging countries to do themselves.

The lack of life insurance on the captain, or a pension system for the sailors, did not stop ships from sailing. But without insurance on the ships and cargo, trade stopped.

So much for prosperity, but what about peace? Don't academics ever do first things first? Well, sometimes we do, but not always, which might be why we are academics. I could have reversed the order of the objects in the title, but "prosperity and peace" doesn't sound quite right. Anyway, on to our contribution to world peace.

One of the many (many!) meetings I had the opportunity to attend this year was the Presidents' Forum, which was held in Rome in June. This was the first time that the presidents of all the actuarial organizations in the world were invited to attend a common meeting. About 30 organizations were represented, and, as we went around the room to identify ourselves, every other organization described themselves as the actuarial organization of a particular country or continent-South Africa, Lebanon, India, New Zealand. Even the SOA defined themselves as "primarily from North America" (the name of their journal is even the North American Actuarial Journal). Each of these organizations represents the actuarial profession in their country and includes life, pension, and, in most cases, casualty actuaries. Thus, when each organization spoke about an issue, they focused on how it would affect the profession in their country. Statements such as, "The problems described in the Morris Report could never occur in our country," "There are only 30 actuaries in our country," and "Liability is not a significant concern in our country," permeated the meeting. When issues were raised, each representative automatically considered how it would affect the actuarial profession in his or her country. This sounded like a United Nations of actuaries and, as we have unfortunately seen, this structure is not necessarily conducive to world peace.

The CAS is not a national organization. Our Statement of Purpose does not restrict us to a specific geographical region. Although most of our members live and work in the United States and Canada, a growing number of our members are from countries outside North America. We can provide valuable services to all casualty (or general) actuaries wherever they work, and welcome any qualified casualty actuary (as defined in our recent constitutional amendment on mutual recognition) to become a member of the CAS. As our state system of regulation amply demonstrates, diversity can be a benefit, as experimentation can lead us to develop more effective actuarial methods. Important actuarial research is being done throughout the world, and we are endeavoring to learn from the best practices that have been established in other countries.

Unlike all other actuarial organizations, which are constrained to national or continental boundaries and forced to talk across those boundaries, the CAS is not so constrained. We could be an organization of the world, with all members, regardless of where they live or work, having an equal voice in the organization, voting to determine policy and able to serve as leaders in the organization. [We already have board members from Canada (Dave Oakden) and Great Britain (Allan Kaufman) in addition to the United States, and an incoming vice president from Canada (Jim Christie).] Imagine the possibilities as our international membership expands! A casualty actuary living in China, or Chad, or Saudi Arabia who takes CAS exams to become a Fellow could learn first-hand about a democratic system of governance based on his or her membership in the CAS. This would truly lead the CAS to becoming an instrument for peace. (It also shows how important our system of governance is.)

Wait a minute, some readers are saying. We already have some international actuarial organizations. What about the International Actuarial Association? Couldn't that be an instrument for peace and prosperity? Well, the IAA is an association of organizations. The CAS is a member of the IAA, as are other actuarial organizations, and appoints representatives to IAA Council (which in turn elects officers and executive committee) and the many IAA committees. However, appointees represent the organizations that appointed them, and not themselves. This type of organization is not as conducive to thinking globally as one organization in which all members are equal participants. Also, the IAA is, as all national actuarial organizations are, dominated by life and pension actuaries. Casualty (or general) actuaries are a small minority and their interests and issues are frequently overlooked by leadership or given a lower priority than the ones that affect a greater proportion of its members. One such leader, when asked to identify nontraditional actuaries, responded, "We have many actuaries who are not working in life and pensions." I ask, does this mean that all casualty actuaries are nontraditional? How can that be, when casualty insurance preceded life insurance by centuries? More likely, this statement simply overlooks casualty actuaries.

...the CAS can be and should be an instrument for world prosperity by taking the steps to help emerging nations establish viable casualty insurance markets.

Okay, but what about ASTIN? They are international in scope and focus solely on casualty (or as they term it, non-life) insurance. I have been privileged to attend the last two ASTIN meetings and have thoroughly enjoyed both meetings. However, ASTIN focuses on research, and does an excellent job at that. Many people attending the ASTIN meetings are academics who teach and research all areas of actuarial science, not just casualty. This is an excellent forum for exchanging new ideas in our field, but ASTIN is not set up to advise countries about setting up systems of regulation (although many ASTIN member do just that), or helping developing actuarial organizations create exams on casualty insurance. The recent announcement that the ASTIN Bulletin, which already includes papers from the Actuarial Approach for Financial Risks (AFIR), will also begin to publish papers from the new health and pension sections indicates that casualty will no longer be the focus of this journal.

The CAS is a unique actuarial organization in several respects. We are the only organization that focuses on casualty insurance and we are the only organization that is not limited in scope geographically. Some people claim that we need to fit in, to become more like other actuarial organizations, to blend into the actuarial crowd so to speak. Some advocate that we should merge with other actuarial organizations beyond casualty insurance. Others opine that we should restrict our focus to North America. In my view, either of these changes would be a mistake. Instead of being self-conscious about our differences, we should embrace our distinctions and use them to our advantage. We should dedicate ourselves to helping advance the casualty insurance profession throughout the world, working with any other organization that is similarly inclined, be it an actuarial organization or other risk professional association, but working alone if need be. We should make it possible for anyone skilled enough in the mathematics of risk to pass our exams, or equivalent exams, regardless of where they live and work, and to become a full member of the CAS. We should do this since it will enhance the CAS; in the process, it will also advance peace and prosperity.

Dreamer? Perhaps, but a worthy dream don't you think?