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The competition for risk managers' dollars has never been greater between risk management consultants and accounting firms, leaving the risk manager more choices than ever before for actuarial services.
Risk managers depend on consulting actuaries for a range of complex tasks involving estimating the cost of risk, identifying key risks and setting premiums, reserves, retentions and capitation rates.
The battle to win these actuarial contracts is being fought on several fronts and among a growing number of players.
Risk management consulting firms are competing among themselves, and also with the Big Six national accounting firms and many smaller accounting firms, for actuarial assignments.
In addition, they all are competing against insurance brokers, with which risk manager clients may already have longstanding relationships.
Over the past five to 10 years, the risk management industry has witnessed a "dramatic expansion" in the scope of actuarial services available from the nation's largest accounting firms, said Harvey N. Michaels, national director of business insurance consulting at Deloitte & Touche L.L.P. in Houston.
"We have a ton of actuaries in our firm," he said.
Accounting firms have reached out to risk managers in response to a rise in corporations' use of outside consulting for actuarial projects. This has paralleled a steep increase in the dimensions that the typical risk manager's work has come to entail.
"The risk manager has had to work much harder to analyze more information," he said.
"Smart firms have recognized this and have seen the need to provide their risk managers with a consultant on call," Mr. Michaels said.
The accounting firms are in a natural position to compete with the risk management consultant, and to win that contest, said Mark Charron, national leader for risk management consulting at Deloitte & Touche in Hartford, Conn.
"All of the Big Sixes have a strong actuarial representation," he said. "Some are larger and growing faster than others."
All, however, have the advantage over other risk management consultants of being able to offer a "natural link" to tax and audit services, he said.
In performing audits for corporate clients, actuaries at Big Six accounting firms in the past few years have found themselves dealing with thorny risk management issues that traditional financial auditing approaches can't resolve, said Ward Ching, Western region practice director/leader for Watson Wyatt Worldwide in San Francisco.
"The auditors are having a lot of trouble looking at hazard risks because they don't understand insurance," he said. In addition, the auditors are coming to understand their own professional liability should they overlook future risk implications of a client's financial situation, he said.
The proliferation of self-insured organizations and alternative risk financing arrangements has fueled the growth of complex problems requiring actuarial solutions.
In addition, Mr. Charron said, more companies have sought the "big name" of large accounting firms as a sign of prestige, rather than hire smaller risk management consulting firms, some of which probably will subcontract out the work, he said. Deloitte & Touche, in contrast, has about 70 actuaries doing risk management consulting work.
In addition to challenging the largest risk management consulting firms, the actuaries in the accounting firms have come to represent "very severe competition for the small, independent consultant," said David L. Tibbals, president of Atlanta-based D.L. Tibbals Risk Management Consulting Inc.
"It presents a problem for the small consultant like me and others in terms of establishing a niche in the marketplace," said Mr. Tibbals, who farms out clients' actuarial tasks to large consulting firms such as Wakefield, Mass.-based Milliman & Robertson Inc.
A fair number of risk managers and brokers indeed have gravitated to accounting firms for actuarial services, according to Richard S. Betterley, president of Sterling, Mass.-based Betterley Risk Consultants. The types of tasks that risk management consultants and accounting firms do best often are very distinct, he said.
"I think primarily it's a very different service," Mr. Betterley said. "Actually, I don't do what they do, and they don't do what I do."
A client of Mr. Betterley who wants a feasibility study for an alternative risk financing method, for instance, may need an actuary with skills the risk management consultant admits he probably lacks. Teaming together with an actuarial accounting firm is logical, in his view.
"I think we need to buddy up-do the work together," he said. "Hopefully, we won't end up with two pies, just one pie with two wedges in it."
Much risk management consulting work involves no actuarial work at all, of course. Still, large risk management consulting firms see it increasingly in their own best interest to develop the actuarial side of their business.
New York-based Tillinghast-Towers Perrin now is seeing about 40% of its risk management practice devoted to actuarial work and 60% devoted to 9pure9 risk management consulting, as opposed to an estimated 20% actuarial work and 80% risk management consulting work in the late 1980's, said John Yonkunas, principal.
'I do believe the auditing companies are winning assignments without competing," he said. The accounting firms' risk management work is often priced competitively low and entices the client by making actuarial work part of a larger package of number-crunching.
Typically, Mr. Yonkunas said, the Big Six accounting firms are in a key position to offer actuarial services when they review a company's financial books and records, a time that is often convenient for the risk manager.
"Our focus is on developing strategy to manage risk. The core piece of that is the risk assessment phase," Mr. Yonkunas said. "The focus is not what are the numbers, but what's driving the numbers and how bad (losses) can get."
He contrasted this with much of the work done by accounting firms, which he said often is non-strategic and intended to fulfill mere regulatory compliance.
Still, the similarities between actuarial services offered by risk management consulting firms and accounting firms often outweigh any differences, said Richard Sherman, an Ashland, Ore.-based risk management consultant and actuary. Joint ventures are common between the two types of companies, he said.
"I think there is a definite area of overlap," said Mr. Sherman, who outlined several types of projects for which any well-equipped risk management consulting firm or accounting firm with actuarial expertise could compete:
Analyses of funding levels for retirement programs.
Feasibility studies on self-insurance alternatives, with cost comparisons.
Analyses of variability for self-insured clients.
Estimates of proper reserves for self-insured losses.
Proper funding levels for future years.
Allocation of claim costs among corporate divisions.
"Twenty years ago, very few of these services were provided by actuaries," Mr. Sherman added. "They were provided by brokers."
Arvid R. Tillmar, CEO of Milwaukee-based T.E. Brennan Co., a midsize risk management consulting firm, agreed that risk management consulting firms with no actuarial talent on staff already are at a distinct disadvantage and may have to decline certain projects.
"The firms that don't have this capability are walking away from it or forming alliances (with actuaries)," he said.