Actuaries must “have the courage” to speak up when they see signs of non-financial risk, an area where the Australian Prudential Regulation Authority (APRA) has increased its focus.

Deputy Chairman John Lonsdale says failure to identify and mitigate non-financial risk has been a trigger for many of the financial services industry’s recent problems.

“The need to manage non-financial risks is not new – cyber-attacks have been a threat for decades – but the range of risks and the speed with which they can undermine the prudential soundness of a business have perhaps never been greater,” he was to tell the Actuaries Summit in Sydney today.

“We understand that actuaries are focused on numbers, but numbers can tell a story beyond simply profit or loss.”

Alarm bells should ring, for example, if an insurer pays out less than 20 cents per dollar of premium raised in claims.

“We don’t expect actuaries to always know what the precise story behind the numbers is, but we do believe they need the nous to recognise there may be a problem, and the courage to push boards and senior executives to examine and address it,” Mr Lonsdale said.

“Actuaries must learn to find the story behind the raw numbers – and then have the courage to speak up – if they are truly to fulfil their role of assisting with the sound and prudent management of an insurer, and ensuring the protection of policyholder interests is adequately considered.”

The new cross-industry CPS 320 prudential standard, which will take effect from July 1, will ensure the voice of the appointed actuary is appropriately prominent, Mr Lonsdale says.

“APRA is introducing this standard to strengthen the influence of the appointed actuary in general, life and private health insurers, especially on the most material matters.

“My message today is that this influence cannot be confined to traditional financial risks, given the substantial damage to prudential soundness that can arise from the poor management of non-financial risks.