Roles of Actuaries and Actuarial Association

In Developing Actuarial Professionalism in

Addressing Good Governance in Indonesia
(A Student’s Point of View)

I. Introduction
The Destination Statement of National Committee for Good Governance for
year 2009 is to place Indonesia in the top-quartile of International Good
Governance rating1. Many people doubt that this goal can be achieved due to the
bankruptcy of many companies, banking miss-management, high numbers of
corruption practices and various corporate scandals that have occurred and placed
Indonesia way behind top place in good governance rating. Even in Asia,
Indonesia, as the most corrupted country, will need many efforts to clean its
reputation.
The proverb said it is better late then never. In other words, if we never try to
do something in order to address the good governance in Indonesia, than the
Destination Statement would never be fulfilled. The corruption investigation and
high functionary arrestment on corruption presumption that happen nowadays has
showed us that government supports the implementation of fairness, transparency,
supervision mechanism and responsibility towards all stakeholders as directed by
good governance. The rest depends on every role of institutions and or
professional associations to implement those values.
The connection between superior returns and good governance cannot be
demonstrated mathematically. But common sense should lead us to agree that if
the interest of the management, the interest of the board members is well aligned
with the interest of the shareholders, the probability that they will all benefit is
increased and even better, the potential negative impact of conflicts of interest is
greatly diminished. A study done by Lipper and Governance Metrics International
of 725 large cap domestic equity funds demonstrates that portfolios weighted with

1
KOMPAS Newspaper, May 2005, “A long way to Good Governance”

1
 corporations with above average corporate governance score reported better
performance over 3 and 5 year periods2.
Actuary as a profession that works in financial institutions market, mostly in
non-bank financial institutions market, has a major role in addressing either good
corporate governance or good pension fund governance. International Actuarial
Association (IAA) describes an actuary as multi-skilled strategic thinker who has
trained in the theory and application of mathematics, statistics, economies,
probability, and finance. He/she has been called financial architect and social
mathematician because his/her unique combinations of analytical and business
skills are used to address a growing variety of financial and social challenges
worldwide3. Based on descriptions above, an actuary should be able to conduct
risk management, asset and liability management, asset valuation, and other
function with full integration. Nevertheless, the fact tells us that CFA, MBA,
CHFC, CPA, and other professions are more popular in market compared to
actuaries.
The depreciation of Rupiahs to US Dollars in 1998 has caused a major crisis
in banking sectors and many life insurance companies, especially whose policies
are quoted in US Dollars, have become collapse. Many economists still believe
that Indonesia is still in crisis now. The uncertainty of investment climate has
limited insurance companies or Pension Funds in developing a long-term
investment projection. Thus, an actuary’s skills to perform a projection and
dynamic strategic planning are needed by the industries.
The government has developed appointed actuary concept in order to address
good governance in insurance companies and pension fund. Moreover, actuaries
along with actuarial association are expected to develop actuarial profession either
by quantity or quality to get the recognition or accountability in playing the major
role.

2
Governance and Actuary, Claude Lamoureux, Toronto Actuaries’ Club, March 24th ,2004
3
Nagasawa, Takayuki. The activities of actuaries in Japanese Trust Banks for Good Governance. 12th East Asian Actuarial
Conference, Philippines, 2003

2
II. Good Governance
1. Goals and Definition
Governance is a regulation, code of conduct, principle, and practices that
will bring an institution towards its mission, vision, and long-term goal
(written or not). Good Governance intends to provide higher customer
satisfaction, to increase the moral and commitment of the employees, to
increase the value of the company and to provide contributions in solving
public issues. In other words, good governance is not only for the sake of the
shareholder but also the stakeholder.

2. Good Governance Main Indicators

The main indicators of good governance are transparency, accountability,
and power sharing. Transparency is interrelated to information that could be
accessed properly by those who need it. Good information should represent
the true conditions through accurate data that must be available at the right
time. The second indicator, accountability, is the clarity of functions or roles
of every party. That means there is a solid definition of every function and a
chain of command especially in management’s side. The management must be
independent and fair in the decision making process according to the current
regulation and the company’s principles. The last indicator is power sharing
whereas each party has the role that is directed by a fair regulation so no one
is going to be harmed.

3. Ideal Condition and Actuary Roles

Good governance means that there is a fulfillment of needs for all
stakeholders which will be shown by the maximum achievement of the
company’s value either in short term or in long term.
The ideal condition can be seen by a mutual relationship of every
stakeholder of the company that is shown in figure 1.

3
 Figure 1. The ideal Condition of Good Governance

In the mechanism shown in figure 1, an actuary expectedly has a role

to become a manager who tries to develop all indicators explained before. An
actuary must be independent and fully integrated in reporting actuarial
valuation that has been made. It is an actuarial role, whether statutory or
otherwise, to inform the board on the implications to the financial affairs of
the company of future financial risks and obligations4. In other words,
actuary’s role is not simply to record or calculate Company’s liability and
solvency, but also to do projection on future risks and analyze the action and
control system that could be taken to diminish those risks. That is why, an
actuary will not be expected to discuss about the past performance only but
also to identify and articulate financial implications to directors, management,
and regulators so there will be a guardianship for the long-term sustainability
of the entity and its obligations to all stakeholders in the enterprise.
While reviewing the financial condition of a company, an appointed
actuary cannot be influenced or be intimidated by the Board to favor their
side. For example, in reserve and solvency valuation, Risk Base Capital
(RBC) valuation or insurance policy pricing process, an actuary must have a
full authority to present the result and opinion on analysis that has been done.
However, it does not mean that an actuary is responsible on bad financial
condition of the company.

4
Actuaries and Accountability, Eduard Simon Siauw, 6th Actuarial Congress of Society of Actuaries of Indonesia, 21st July 2005.

4
 In spite of actuary’s narrow technical roles, actuaries hold a major
function to keep the stability of a company’s financial condition that will lead
to the country’s stability, for example, actuary’s roles in pension fund
industry, which is largest investment in Indonesia with a total of 68.41 trillion
Rupiahs5 projected up to the end of 2005.
For employers sponsoring a pension fund, actuary’s function is not
only to calculate employer contributions or the present value of benefit
obligation but also to design a pension plan that meets the company’s profiles
and fulfills current government regulation and pension fund regulation. An
actuary can also take part as a financial analyst or a financial consultant in
performing a valuation that is suitable to Indonesian macroeconomic and
microeconomic situation. An actuary also has a role to supervise the
administration system so that every member can receive their entitlements
according to the regulations or agreement. Another role of an actuary is to
conduct asset and liability management, to give opinion on investment
portfolios and funding system of a pension fund and to perform cash flow
projection on future potential risks. For the pension fund members, an actuary
can be a mediator between the employer and the employee (pension fund
member) in communicating the current pension fund’s policy and current
related regulations. For the government, an actuary can be actively involved
such as in designing post-employment benefits regulation or social security
program. Moreover, an actuary can be a public speaker who explains the
importance of continuing earnings to public and to give guidance in choosing
the right vehicles that offered in market. Roles of an actuary in pension fund
industry are shown in figure 2.

5
BISNIS INDONESIA Newspaper, May 2005, “Pension Fund Investment is Rp 40 billion”

5
 Figure 2. Roles of an Actuary in Pension Fund Industry

III. Profession and Professionalism of an Actuary

1. Definition of Profession and Professionalism
Profession is a vocation that requires competences, skills and advanced
knowledge that can be acquired by a formal and non-formal education and by
working experiences. Furthermore, Professionalism can be defined by
following requirements. First, a profession must be associated with a skills
and intellectual techniques. Second, a profession must have a code of conduct
or ethics with a formalized mode of enforcement upon its membership. The
last one, as the most important requirement, there must be a commitment by
every member of the professional community toward the greater community
interest. In summary, there are three ideas involved in a profession; they are
continuous learning, organization, and a spirit of public service6.

2. Criteria of Actuarial Profession

Based on the previous definitions, an actuary can be categorized as a
profession. The knowledge is a combination of mathematical, statistical,
demographic, economic, financial, analytical, and modeling skills7. This

6
CONTIGENCIES, March/April 2005
7
Guerard, Yves. IAA Wider Fields, 11th Asian Actuarial Conference, Hong-Kong, 2001

6
 knowledge is obtained trough continuous learning by formal education and by
non-formal education such as workshop, seminars, and courses that are
conducted by actuarial association and by interaction with other professions.
Their competencies will be assessed by examinations and review process held
by the actuarial association in which an actuary is a member. An actuary
perform his/her duties based on actuarial standard of practices and a code of
conduct that have been enforced. Moreover, actuary’s contributions as a
professional with technical competencies will serve the public interest.

3. The Challenge of the Future

An actuary faces challenges in increasing their professionalism as follows:
- How to meet market demand on actuarial profession that has been
accelerated by the growth of national economies and the global access to
services through technological progress;
- How to play a bigger role in the actuary’s traditional roles (insurance and
pension fund);
- How to compete with other profession in a non-traditional business (bank,
money market, etc.);
- How to develop tools and methodologies to keep pace with a changing
socio-economic environment;
- How to compete in a world that demands higher quality and strong
professional standards;
- How to broaden the recognition of actuarial profession in all countries
around the world. .

4. Key Requirements
To answer the challenges above, actuaries along with actuarial association
must fulfill the following requirements:
- Good Governance
Actuaries should have addressed self-governance before they implement
good governance in industries where they give contributions.

7
- Good Education system and Appropriate Entrance Requirements
A good educational and examination system will enable actuaries to serve
broader needs in evolving markets. Therefore, the syllabus, membership
examinations, and certification must be reviewed periodically. The
actuarial association must be able to support all members by providing
them with education facilities and systems that can enforce all members to
improve their professionalism.
- Professional conduct of members
The actuarial association needs to develop and maintain a strong code of
conduct through a discipline system to all members. Therefore, every
member will act professionally in every situation they face.
- Research and Standard Process
Actuaries must be responsive to technological development, economic and
financial issues, and change in related regulations so they can be a leading
profession in the broader area. Hence, actuaries along with the association
need to conduct continuous researches, especially in developing
enforceable actuarial professional standard, so they will have tools,
methodologies, and point of view that are suitable to the current condition
and be able to work according to the current regulations.
- Continuing Professional Development
Actuaries must improve their professionalism in order to meet market
demand and to compete with other professions through continuous
learning. The need of these improvements must come up from themselves
with the support of the association.

- Good Communications
A good communication need to be built among actuaries, between
actuaries and their employer or client, and between actuaries and the
public. Thus, actuaries should have a good communication skill so they
will be able to discuss, articulate and present their job to others.

8
 The next section will describe how the Society of Actuaries of
Indonesia (PAI) takes steps in developing actuarial professionalism in
Indonesia.

IV. Society of Actuaries of Indonesia (PAI)

1. Overview
Society of Actuaries of Indonesia (PAI) was established in Jakarta on 19
October 1964. Despite its existence as actuarial profession organization for
almost 41 years, actuarial profession is not well known among the public,
even in insurance business where actuaries play their major roles. Currently,
PAI has 309 members (125 fellows/FSAI and 185 associates/ASAI). With the
annual growth rate of 16.7% for the last 17 years, actuarial profession is
considered rare and exclusive compared to more than 200 million people in
Indonesia. The growth of PAI membership since 1987 to 2004 is shown in
figure 3:
Figure 3. The Growth of PAI Membership (1987-2004)

200

180

160

140

120

100

80

60

40

20

0
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

year

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
FSAI 21 21 22 24 25 29 33 36 41 53 59 71 84 96 106 114 118 124
ASAI 8 8 8 9 11 14 16 16 18 28 40 74 112 133 149 180 183 185

Source: PAI

About 80% of PAI members came from insurance industry with the
expertise on life insurance and pension fund. Most of them are located in

9
Jakarta as the capital city of Indonesia. The distribution of PAI members
(ASAIs and FSAIs) can be shown in next figures:

Figure 4. ASAI Distribution

Pension Fund
Reinsurance
Government Universities
Bank Others
Public
Accountant

Consultant
Life Insurance

General
Insurance

Source: PAI

Figure 5. FSAI Distribution

Reinsurance

Pension Fund
Government

Bank Others

Consultant

Life Insurance

General
Insurance

Source: PAI

Despite their small number of members, PAI has been consistently

developing actuarial profession in Indonesia either in quantity or quality. PAI
has been an observer member of International Actuarial Association (IAA)
and has constantly tried to become a full member. PAI has been periodically

10
 conducting workshops, seminars, and conferences in Indonesia and always
send their delegations to international actuarial events8.

2. Organizational Structure
PAI is recognized as a non-profit, non-political, and non-governmental
organization. The boards of PAI are elected trough a convention and have
been placed to positions as shown in figure 6:

Source: PAI

Figure 6. PAI organization chart (2002-2004)

Those in above positions are professionals in their own field of work

and have gained trust among the entire members to work toward vision and
mission that have been established. PAI vision for period 2002-2004 is to be a
professional organization that will be recognized internationally. In order to
achieve the vision, PAI will be working under its mission that is to be a
professional organization by developing quality, skills, and profession
development of all members through continuous educational system and by
gradually developing the entrance requirements through examinations that
will be acknowledged internationally, and eventually to gain recognition from
International Actuarial Association9.

8
Actuaries Bulletin., 2nd edition, January 2000
9
Letter to PAI members (Number 006/S/PAI/VI/2002)

11
3. Entrance Mechanism
According to PAI Statutes, someone can be a member of PAI if he/she
has passed a series of examinations held by PAI. Those examinations are
conducted in Jakarta twice in a year. An applicant who has passed the first
five examinations can be a member of PAI with title Assistant of Society of
Actuary of Indonesia (ASAI). Following are first five examinations for ASAI
candidates:
AAI-1: Probability and statistics
AAI-2: Mathematics of Finance
AAI-3: Actuarial Mathematics
AAI-4: Mortality Table Construction
AAI-5: Economics
The result recapitulation of examination held in June 2000 to 2004 is shown in
table below:
Table 1. Result Recapitulation for ASAIs Examinations (June 2000-2004)
Year Remarks AAI-1 AAI-2 AAI-3 AAI-4 AAI-5 Total
2000 88 96 101 67 57 409
No. of Applicants
31 27 30 21 21 130
No. of Success
35.2% 28.1% 29.7% 31.3% 36.8% 32.2%
Passing Rate %
2001 81 70 90 73 82 396
No. of Applicants
32 32 44 37 31 176
No. of Success
39.5% 45.7% 48.9% 50.7% 37.8% 44.5%
Passing Rate %
2002 67 55 66 82 89 359
No. of Applicants
48 9 25 41 29 152
No. of Success
71.6% 16.4% 37.9% 50.0% 32.6% 41.7%
Passing Rate %
2003 30 49 35 96 77 287
No. of Applicants
2 0 4 38 0 44
No. of Success
6.7% 0.0% 11.4% 39.6% 0.0% 11.5%
Passing Rate %
2004 27 42 28 10 37 144
No. of Applicants
0 0 3 7 0 10
No. of Success
0.0% 0.0% 10.7% 70.0% 0.0% 16.1%
Passing Rate %
293 312 320 328 342 1595
Total No. of Applicants
113 68 106 144 81 512
Total No. of Success
30.6% 18.0% 27.7% 48.3% 21.4% 29.2%
Passing Rate %
Source: PAI

12
Graphically, it is shown in the following figure:

110
Success Failed
100
90
80
70
Applicants
60
50
40
30
20
10
0
AAI-1
AAI-2
AAI-3
AAI-4
AAI-5
AAI-1
AAI-2
AAI-3
AAI-4
AAI-5
AAI-1
AAI-2
AAI-3
AAI-4
AAI-5
AAI-1
AAI-2
AAI-3
AAI-4
AAI-5
AAI-1
AAI-2
AAI-3
AAI-4
AAI-5
2000 2001 2002 2003 2004
Source: PAI
Figure 7. The result of ASAIs Examinations (June 2000 -2004)

ASAIs can take the second series of examinations to become a Fellow

of Society of Actuary of Indonesia (FSAI) and will obtain registration
numbers inform the Minister of Finance Department as recognition from PAI
of FSAI’s authority as a public actuary. Following are the second series of
examinations for FSAI candidate:
AI-1: Life insurance Mathematics
AI-2: Pension
AI-3: Risk Selection
AI-4: Life Insurance Liability Valuation
AI-5: Life Insurance and Pension Fund Investment and Related Regulations
After passing above examinations, they must attend seminars and
workshop that are conducted by PAI for actuary candidates. Then PAI will
consider if the actuary candidate is deserved to get the recognition.

13
 The result recapitulation of PAI examinations held in June 2000 to
2004 is shown in the table below.
Table 2. Result Recapitulation for FSAIs Examinations (June 2000-2004)
Year Remarks AI-1 AI-2 AI-3 AI-4 AI-5 Total

2000
No. of Applicants 17 29 23 19 25 113

No. of Success 4 11 8 9 11 43

Passing Rate % 23.5% 37.9% 34.8% 47.4% 44.0% 37.5%

2001
No. of Applicants 27 26 25 12 20 110

No. of Success 4 17 13 2 4 40

Passing Rate % 14.8% 65.4% 52.0% 16.7% 20.0% 33.8%

2002
No. of Applicants 28 19 20 19 24 110

No. of Success 4 2 7 2 1 16

Passing Rate % 14.3% 10.5% 35.0% 10.5% 4.2% 14.9%

2003
No. of Applicants 22 13 21 19 23 98

No. of Success 0 9 10 0 5 24

Passing Rate % 0.0% 69.2% 47.6% 0.0% 21.7% 27.7%

2004
No. of Applicants 24 5 13 23 19 84

No. of Success 4 2 7 7 6 26

Passing Rate % 16.7% 40.0% 53.8% 30.4% 31.6% 34.5%

Total No. of Applicants 118 92 102 92 111 515

Total No. of Success 16 41 45 20 27 149

Passing Rate % 13.9% 44.6% 44.6% 21.0% 24.3% 29.7%

Source: PAI

Graphically, it is shown in the following figure:

Success Failed
30
28
26
24
22
20
Applicants

18
16
14
12
10
8
6
4
2
0
AI-1
AI-2
AI-3
AI-4
AI-5
AI-1
AI-2
AI-3
AI-4
AI-5
AI-1
AI-2
AI-3
AI-4
AI-5
AI-1
AI-2
AI-3
AI-4
AI-5
AI-1
AI-2
AI-3
AI-4
AI-5

2000 2001 2002 2003 2004

Source: PAI
Figure 8. The result of FSAIs Examinations (June 2002-2004)

14
 Examination materials developed by PAI are focused in area of Life
insurance and Pension Fund. Before 2002, PAI developed the materials
independently. After that, PAI has been working together with academics of
Indonesian universities in developing more qualified examination materials.
That might be the reason why there was a decrease on passing rate due to the
increase of the examinations quality. By cooperating with the university
academics, PAI hopes to gradually align its syllabus with IAA’s, which in turn
will qualify PAI as a full member of IAA. Entrance examinations conducted
by IAA are listed below:
IAA entrance examinations:
1. Financial Mathematics
2. Probability and Mathematical Statistics
3. Economics
4. Accounting
5. Modeling
6. Statistical Methods
7. Actuarial Mathematics
8. Investment and Asset Management
9. Principles of Actuarial Management
10. Professionalism

Being oriented towards IAA syllabus, PAI has tried to widen and
enhance its syllabus by making gradual adjustments to the current PAI
examination materials.
PAI realized that increasing the quality of the examinations would
cause decrease on number of applicants that leads to the deceleration of PAI
membership growth. Consequently, PAI tried to come up with other ways to
increase their number of members. One of them was finding a new entrance
mechanism besides by examinations.
Other countries have adopted several forms of entrance mechanism.
They are shown by list of qualifications or requirements of actuaries in
selected countries in the table below:

15
Table 3. Qualification/Requirements of Actuaries in Selected Countries

Country Qualification/Requirements
Argentina Examinations, University Courses
Brazil University degree program
Finland Examinations by industry bodies, government examinations
Germany Examinations, University Courses
Hungary University degree plus 18 months of practice
India Examinations by industry bodies
Japan Examinations by industry bodies
Mexico University degree program
Singapore Examinations by industry bodies, University degree programs
Sweden University degree program
University degree plus at least three years of qualified
professional experience, in line with international guidelines of
Switzerland ASTIN (IAA)
United Kingdom Examinations, University Courses
United States Examinations by industry bodies
Malaysia Examinations, full recognition on other actuarial organization
South Africa Full recognition on other actuarial organization
Spain University degree program
Dutch University degree program
Canada Examinations, full recognition on other actuarial organization
Australia Examinations, full recognition on other actuarial organization
Britain Examinations, University Courses
Source: International Actuarial Association (IAA)

Besides having cooperation with universities in developing

examination materials; PAI has discussed a proposal of “sit-in student”
program with some universities’ leaders. By this program, those who want to
study actuarial sciences but are not registered as university students will be
allowed to sit in the lectures. If they pass the examinations with satisfactory
score, this will be recognized by PAI having passed a related PAI
examination.

16
V. The Present and Future Condition of Actuarial Profession
1. SWOT Analysis on actuarial profession in Indonesia

STRENGTHS WEAKNESS

Small numbers Small numbers

There are many qualified educational
Unpopular
institutions
Special skill in mathematics and statistic Lack of communication skills
Discipline and responsible Has a narrow point of view
Has a National Association recognized by
Concentrated in traditional business
government
Critical of details Work only in technical area
Capable in solving technical and complex
No special institution for an actuary
problems
Good in modeling Back-office employee

Has many potential students Less paid compared to other professions

OPPORTUNITIES THREATHS

Play a bigger role in traditional business The entry of foreign actuaries

Another profession started to learn actuarial
Play a bigger role in non-traditional business technical skills

The emerging of a long term investment Traditional business model are started to out of
instruments favor
Crisis and catastrophe has increased market Crisis and catastrophe has caused bankruptcy of
demand on actuarial profession companies

Internal Capabilities (Strengths and Weakness)

- The relatively small numbers in actuarial profession in Indonesia can be
seen as the profession’s strength and weakness. It is considered strong
because the competition among actuaries is not as competitive as other
professions. Besides, it will be easier to self-regulate the small number of
actuaries. It is considered weak because with the current number of
actuaries they cannot meet the market demand and being unpopular;
- Even tough there is no special institution for actuarial education; there are
a number of qualified institutions that are able to provide early actuarial
education. Currently, four institutions have actuarial education program as
a concentration. Those educational institutions are listed below:

17
Table 4. Institutions that provide actuarial education
Number of
No Institutions Degree/Title Location student
(2003)
1 BPPK Certificated Jakarta 150
2 FISIP UI Certificated Depok 40
3 MM-UI* Master of Management Jakarta 10
4 ITB Master of Science Bandung 10
5 UI Bachelor of Science Depok 50
6 ITB Bachelor of Science Bandung 100
7 IPB Bachelor of Science Bogor 30
*No classes for year 2002, 2004, and 2005

According to authors’ point of view, actuarial education program in MM-

UI is not good in theory while ITB program is concentrated on theoretical
aspect only. On the other hand, BPPK and FISIP-UI are considered not
deep neither in actuarial science nor its application. Besides the four
institutions, 38 private institutions have mathematical and statistical
courses that are being the basic knowledge of actuarial profession. The list
of those universities is shown in table below:
Table 5. Available seats in Private Institutions that have
mathematical and statistical courses (year 2003)

No Location Number of universities Available Seats

1 Sumatera 9 455
2 Kalimantan 2 55
3 Jawa* 17 986
4 Bali 2 75
5 Sulawesi 6 230
6 Irian 2 25
Total 38 1,826
*There are three universities that have actuarial concentration

Beside private universities that are listed in the table above, there are
many other educational institutions, which have potentials to develop
actuarial education. Nevertheless, the number of the teachers or lecturers
is not proportional to the number of potential students. Unfortunately,
most of Indonesian actuaries are workers with tight schedule, so they
have no time to be academics in universities.

18
- Indonesian actuaries have a conservative way of thinking in applying
theory or models and in using the available tools. Usually they are “back-
office-employee” who has less communication skills compared to other
professions. On the other hand, they usually work with high discipline
and responsibility. As an actuary usually is, Indonesian actuary has
technical skills that are formed as a unique combination of mathematical
and statistical knowledge. They are critical of details and very good in
modeling. Unfortunately, even though they are scarce in labor market,
they receive less salary than some other professions.
- Indonesian actuaries play a major role in traditional business (life
insurance and pension fund). They work with their quantitative technical
skill mostly in calculating liability and solvency.

External Possibilities (Opportunities and Threats)

- Ever since the monetary crisis, competencies in risk management are
much needed in markets. Because of the unpopularity of Indonesian
actuaries, the huge opportunities for actuarial profession are taken over by
other professions, which are more popular in Indonesia. In fact, other
professions started to develop actuarial technical skills, especially in risk
management area. The booming of new investment instruments such as
mutual fund (Reksadana) and government bond (SUN) which need
actuarial technical skills to calculate the value are some of the reasons for
other professions to study actuarial aspects.
- The abandonment of a traditional business model opens a new variety of
non-traditional businesses that can be explored by Indonesian actuaries.
- Monetary crisis and catastrophes such tsunami and other natural disasters
that have happened recently increase market demand on insurance. Beside
that, the significant growth of Indonesian Gross Domestic Product (GDP)
indicates that insurance demand will be increasing in the future.
Unfortunately, the number of insurance companies and the number of
actuarial profession are not enough to fulfill market demand on insurance.

19
The following table showed us the Indonesian economic development since
year 1999 to 2003
Table 6. Indonesian Economic and Insurance Development Data

ECONOMICS AND INSURANCE

1999 2000 2001 2002 2003
DEVELOPMENT DATA

1 National Income Aggregate

Gross Domestic Product
At Current Market Price (Rp Billion) 1.099.800 1.264.900 1.449.400 1.610.016 2.086.758
Annual Change (%) 16,14 16,28 15,52 11,08 29,61
At 1993 Market Price (Rp Billion)* 379.558 397.934 411.7 426.741 1.572.159
Annual Change (%) 0,85 4,84 3,32 3,65 2,684
2 Inflation rate (annual change of CPI) 4,18 9,35 12,55 10,02 5,06
3 Exchange Rate (Per US$1) 7.1 9.595 10.4 8.94 8.578
4 Population (Million) 200,3 203,5 208,9 211,10 215
5 Employment (in 000)**
Labor Force 94.847 95.651 98.812 100.8 100.3
Number of Employed (Formal Sector) 88.817 89.838 90.807 91.647 90.785
Number of Employed by Insurance
101 110 108 NA NA
Industry
6 Market Structure
Number of Registered Insurers: 178 178 175 173 173
Life Insurers 62 62 61 60 60
General Insurers 107 107 104 104 104
Professional Reinsures 4 4 4 4 4
Social Insurer & Jamsostek 2 2 2 2 2
Civil Servant & Armed Forces 3 3 3 3 3
Insurance and Reinsurance Brokers 83 78 91 118 141
Loss Adjuster 23 23 23 25 25
Actuarial Consultants 18 18 18 19 20
7 Insurance Development:
Per Capita Expenditure (Rp)*** 69.099 81.914 112.246 65.645 67.3
Total Industry Asset (Million) 38.160.700 41.611.660 64.825.992 77.589.087 94.094
As % of GDP
- Life Sum Insured 16,3 19,3 18,90 7,22 9,30
- Life Premium 0,49 0,57 0,01 1,04 0,98
- Non-life and Reinsurance Gross
0,57 0,56 0,01 0,86 0,69
Premium
- Life Asset 1,50 1,45 0,02 1,63 0,00
- Non-Life and Reinsurance Asset 1,01 0,98 0,01 0,98 0,82
Source: DAI Directory year 2003
* The constant price is based on 1993 price
** Source: Central Statistic Bureau (BPS)
*** Total Gross Premium/ Number of Population

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- Penetration of Life and Non-Life Insurance among countries in the
world is shown in the following figure:

Figure 9. Penetration
Penetration of LifeInsurance
of Life and Non-Life and Non-Life Insurance

14

12

10

0
South Africa
United Kingdom
Switzerland
Korea, Republic of
Japan
OECD *)
Israel
Malaysia
Chile
Czech Republic
Poland
Moroco
Hungary

Argentina

Thailand

Greece

Brazil

India

Mexico

China

Indonesia

Philippines

Turkey

Nigeria

Egypt
Country

Non-Life Life

*) Organization for Economic Cooperation and Development

We can see in the figure above that the penetration of insurance in

Indonesia is far behind many other countries. Still, there are many
foreign investors who saw a huge opportunity to run insurance
businesses in Indonesia.
- Thus, the emerging of many foreign insurance companies was
followed by the entry of foreign actuaries. Currently, there are more
than twenty foreign actuaries in Indonesia. About five of them have
proposed to get recommendation from PAI therefore they will be fully
acknowledged by government when acting as an appointed actuary in
their company. Indonesian preferences for “imported” goods make
foreign actuaries more favorable than local actuaries. However, on the
optimistic side, the entry of foreign actuaries will motivate Indonesian
actuaries to develop their professionalism. Foreign actuaries hopefully
will share their knowledge to Indonesian actuaries so they could widen

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 their knowledge, develop methodologies and tools they have and
improve their point of views.

2. PAI roles in Developing Actuarial Profession in Indonesia

Based on current conditions, many things can be done by PAI in order
to develop actuarial profession in Indonesia in quality and quantity as follows:
1. Add resource of fund: maintain member contributions by maintaining
membership database, conduct examinations in other cities to get addition
exam’s fee payment, get sponsorship, conduct actuarial seminars,
workshops, or trainings for all members and public, develop bulletin,
actuarial books, or study manual to sell, etc.
2. Increase the quantity: review examinations and entrance system; promote
actuarial profession throughout universities by conducting actuarial
seminars, etc.
3. Get recognition/accountability: develop mailing list and website for
public, send writing paper to public newspaper and other publication
media, become a public speaker in current issues, be involved in
regulation development, reward those who contribute to actuarial
profession development, set-up good governance framework, etc.
4. Develop professionalism: develop continuing professional development
process scheme, code of conduct, disciplinary system, and professional
standard, and then socialize them to all members, build public library,
write actuarial books, supervise all members’ professionalism by credit
point system, conduct seminars, workshop, training, conference,
discussion forum, especially for members, facilitate internship possibility
and chance to study more about actuarial science and its applications.

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VI. Support from Government on Actuarial Profession Development
In addressing good governance especially in Insurance companies and pension
fund, Indonesian government has established Minister of Finance Decree No.
426/KMK/2003 about business permit and legitimacy of Insurance and Reinsurance
Companies. Based on the regulation, an actuary has a legitimated role as an
appointed actuary in insurance companies and pension fund (excluding reinsurance
companies).
Based on article 16 of the decree, a Life insurance company must appoint an
actuary as the company’s actuary and the appointed actuary must be having
following qualifications:
- A member of PAI or any overseas actuarial associations that has been
registered as a full member of IAA and has a recommendation to work from
PAI;
- Having a work experiences in life insurance at least for three years;
And based on article 18, a life insurance company must appoint an actuarial
consulting firm that does not have any affiliations with the company to calculate the
company’s liability for at least once in three years.
The existence of the ministry regulation should be a trigger to actuarial
profession development and good governance in Indonesia. In fact, even every life
insurance companies has an appointed actuary only recently, it has not proven yet
that the bigger role of actuaries has resulted the better financial condition of
insurance companies in Indonesia.
Article 16 was created some issues about foreign appointed actuaries. To
diminish the issues, PAI came up with a mechanism of giving recommendation to
the foreign actuaries. In order to get the recommendation, they should:
- Develop a research paper and present it to PAI members; and
- Conduct a sharing knowledge to PAI members.
The recommendation will be valid for a certain period of time. Therefore, PAI
could conduct surveillances to these foreign actuaries.
According to the author’s opinion, to ensure that a recommendation is only
given to competent actuaries, a foreign actuary must also take the entrance

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 examination just as other Indonesian actuaries and should be given the rights to
become PAI members with no possibility to be positioned in PAI management
board. By this way, Indonesian actuaries shall be forced to develop their
professionalism without the fear of loosing authorities in this country.
According to the articles 29 verse (1), insurance and reinsurance companies
must allocate fund at least 5% of their employee, director, and commissioner costs
for their employee’s education and training costs in insurance knowledge. The
regulation opens opportunities to the actuaries and students to improve their skills.
But once again, it depends on each individual, whether he or she has the willingness
to study or to step ahead.

VII. Code of Conduct and Disciplinary Procedure

Article 17 verse (2) in the Ministry of Finance Decree No. 426/KMK/2003
specifically regulates that a company’s actuary should be working according to
current standard of practices and professional code of conduct. PAI has developed
code of conduct or ethics and disciplinary procedure for all members. The ethical
code is meant to maintain professionalism in providing services to the public and in
interaction among actuaries, as shown in figure 10.

Figure 10 PAI Ethical Codes

Based on articles 22 verse (1), insurance or reinsurance companies

must fire the company’s actuary that has made violation against insurance
regulations. Furthermore, as written in article 26, the registration of appointed
actuary can be cancelled if the actuary’s membership has revoked by PAI in
case of violation on regulation or discipline procedure, or if he/she failed to
pass fit and proper assessment because of integrity factors.

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 PAI has a disciplinary procedure to support both regulations explained
before by investigating all complaints about the work or attitude of actuaries
in Indonesia. The disciplinary system is shown in figure 11:

Figure 11. PAI Discipline Procedure

The ethical code and discipline procedure is a “rule of games” that

must be kept by the entire PAI members. If every member obeys the rule,
then the association will be in the right track towards its vision and mission.

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 PAI is a community where all members must apply their skills within the
boundary of ethical code. Furthermore, PAI as an actuarial association must
be fair in implementing the agreement. Everyone who breaks the rule will be
punished according to his/her fault.

VIII. Conclusion

i. Good Governance intends to provide higher customer satisfaction, to increase

the moral and commitment of the employees, to increase the value of
company and to provide contributions in solving public issues. In other words,
good governance is not only for the sake of the shareholder but also the
stakeholder.
ii. The government has developed appointed actuary concept in order to address
good governance in insurance companies and pension fund. Moreover,
actuaries along with actuarial association must be developing actuarial
profession either by quantity or quality to get the recognition or accountability
in playing the major role.
iii. There are three ideas involved in a profession; they are continuous learning,
organization, and a spirit of public service.
iv. Actuary as a profession that works in financial institutions market has a major
role in addressing either good corporate governance or good pension fund
governance
v. The actuarial professionalism keys:
1. Good Governance;
2. Good Education system and Appropriate Entrance Requirements;
3. Professional conduct of members;
4. Research and Standard Process;
5. Continuing Professional Development;
6. Good Communications.
vi. The ethical code and discipline procedure is a ‘rule of games’ that must be
kept by the entire PAI members. If every member obeys the rule, then the
association will be in the right track towards its vision an mission

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