Life InsuranceNov 20 2014

Firing Line: Melanie McLaren

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The enjoyment of bringing “what can be a dry set of rules and regulations to life for people” has been a feature of Melanie McLaren’s career, who believes all her roles to date led to her current position as executive director of codes and standards at the Financial Reporting Council.

As a chartered accountant by profession – having come to the then-Coopers & Lybrand (eventually PricewaterhouseCoopers), with a degree in Arabic Studies and German – Ms McLaren cut her teeth in audit as an insurance partner at PwC before going on to be chief risk officer at Friends Life. She said she had seen a lot of insurance-related risk.

She added: “Some people say I am poacher-turned-gamekeeper, but all of the roles have been leading to this one, and have all involved doing the right thing.”

As part of her current role, Ms McLaren has overall responsibility for the FRC’s actuarial team, and is working closely with a range of organisations as part of the Joint Forum for Actuarial Regulation (JFAR) in a project that can best be described as a risk assessment of the risk calculators.

The FRC’s mission in relation to actuarial policy is to promote high-quality actuarial practice and the integrity, competence and transparency of the actuarial profession, which will benefit everyone who relies on actuarial advice. To this end, JFAR – which consists of the Institute and Faculty of Actuaries, the Financial Conduct Authority, the Prudential Regulation Authority and the Pensions Regulator – has published its Risk Perspective Document which is designed to stimulate discussion about how actuarial decisions affect all sectors of society.

IFAs are being encouraged to get involved in the discussion and to outline where they feel actuarial decision-making is working well, and where it could be improved.

Ms McLaren said: “Like many professions, when you look at the respect and trust in business and professionals, [financial services] has taken a bit of a hit in the financial crisis, and in the UK context the actuarial profession took a hit before that because of the Equitable Life scenario. There have been a lot of shocks to the system.

“But after Equitable Life in the UK, there were several reviews, and the main review looked at the role of the actuarial profession. People want insight, transparency, and they want to know what judgments have been made.

“What the FRC tries to do in all of the markets is build justifiable confidence, whether they are accountants, auditors, actuaries or company directors.”

The Equitable Life scandal put the often hidden actuarial profession centre stage, and it was after the publication of the Morris Review of the Actuarial Profession in 2005 that the FRC took on responsibility for the independent oversight of actuaries and the setting of technical actuarial standards.

Ms McLaren said: “If you are a member of the IFoA, even if you are not qualified, you are bound by those standards. You still have to follow and practice those ethical standards. One of the things we have been trying to look at is that you do sometimes find actuaries carrying out work that may not seem very actuarial, and you do find non-actuaries carrying out work you would find actuaries doing.

“We have been carrying out a review of our technical standards, and we will shortly be issuing a consultation paper saying that if you are a member of the IFoA, then you need to follow these standards. If you wanted a valuation of something that was not done by an actuary, they would still have to follow these standards.”

Although it may seem unlikely that you would want anyone other than an actuary to provide a valuation in an area, there are circumstances, according to Ms McLaren, in which this makes sense – for instance, if someone has very specialist knowledge. One of the concerns often raised by the actuarial profession is that putting too many standards and regulatory requirements on actuaries will simply shift more work to non-actuaries.

Ms McLaren said a “fine balance” was needed, but added: “The IFoA sees it as a profession, and that has to mean something. There needs to be a hallmark of quality.”

The number of areas that actuarial assistance is required has grown dramatically. Far from just being used to assess the risk and premiums that customers should be charged by insurers, they are now being asked to consider everything from transfers out of defined benefit pension schemes through to climate change modelling, technological shifts and cyber risks. The extent of actuarial involvement in such a wide range of sectors leads to the risk that certain areas are going to be underserved, which could lead to poor actuarial work which “can result in decisions being made that are detrimental to the public interest”, according to the Risk Perspective discussion paper.

The FRC is currently working to create an actuarial risk map, and the discussion paper highlights various ‘hotspots’ that have already been singled out as possible areas for concern. While these bring specific areas to light for comment from the wider industry, the JFAR is clear that it would like to hear about any additional risks that might concern industry specialists, including IFAs, and whether the risks identified are considered particularly important, and why.

“We do not yet know how much work there is to do. This paper is a ‘think piece’ and some of the risks we have identified will not be a surprise to people, but others are emerging horizons – climate change being one of them. There will be some risks where we just have to accept there is not much that can be done to mitigate them.

“It is early days, and this is the first output from JFAR, and we look forward to the feedback with anticipation.”

The deadline for responses is February 20, 2015.

Alison Steed is a freelance journalist

Melanie McLaren career path

2012 to present Executive director Codes & Standards, the Financial Reporting Council

August 2011-June 2012 Chief risk officer, Friends Life Group

2010 - 2011 Business risk director, Friends Provident

2010 May - September Interim chief risk director, Friends Provident

1999-2009 Partner in Financial Services Assurance Practice, PricewaterhouseCoopers

1990 Qualified as a chartered accountant