By Bob Beuerlein
Editor’s note: This is the third part of the “Professionalism in Action” series.
The first part, “Are You Modeling Professionalism?” appeared in the March/April 2017 issue. The second part, “Talking the Talk: Professionalism and Actuary-to-Actuary Communications,” appeared in the May/June issue.
We recently observed the 10th anniversary of the introduction of the iPhone. What was once thought of as just another shiny new electronic gadget has become a part of our daily lives. Things that were considered to be impossible or unimaginable as recently as 50 years ago are now taken for granted. The world that we live in continues to change and evolve at an ever-increasing rate.
Evolutionary changes have shaped actuarial practice since the Academy’s founding in 1965. As the economy has become more sophisticated, new areas of actuarial work such as risk management and financial reporting have grown out of some of the more traditional practice areas of life, casualty, pension, and health. Each practice area has been subject to regulatory changes, and each has developed specialty areas. Indeed, over the years, specialization, as well as legal and regulatory shifts, has given rise to innovation and increasing complexity in actuarial practice. In addition, companies that employ actuaries may stretch into new territory, such as complex reinsurance transactions or new lines of business, requiring their actuaries to move into those areas with them. You do not have to look beyond the past few years to understand the influences that developments such as Big Data, principle-based reserving, long-term care, and the rise (and proposed fall) of the Affordable Care Act have had on actuarial practice.
Further change is inevitable. In five or 10 years, changes in technology, the marketplace, and regulation may spur changes that make actuarial practice very different from what it is today. Some actuaries may disagree, but I challenge them to think back to the work they were doing in 2000 compared to what they do now.
From a professionalism perspective, change challenges not just actuaries. It also challenges the businesses that have come to rely on the services of actuaries, regulators who strive to protect the public by relying on actuaries to validate key financial metrics of the companies they regulate, and the members of the American public who have come to rely on the insurance and financial security plans that actuaries make possible.
The professionalism challenge for actuaries is this: In a world of constant and often dramatic change, how can actuaries keep the public’s trust? And moreover, why should the public continue to trust actuaries to regulate themselves?
The answer lies in the fact that, through the Academy, the U.S. actuarial profession has created standards that recognize and respond to the dynamic qualities of actuarial practice. The sophistication of the standards themselves and the way they are implemented have evolved along with the changes in business, technology, the regulatory environment, and actuarial science.
As we confront new and emerging practices, constant development and renewal of our technical skills is critical to maintaining public trust. But, as a profession, we must recognize that the trust the public has in the actuarial profession is not based solely on our technical skills. We may be great technicians, but so are many computer hackers and other untrustworthy characters. Rather, it is our ability to master the technical aspects of change within a professionalism framework that commits us to act with honesty, integrity, and competence—and that may subject us to discipline if we fail to do so—that gives the public confidence in our ability as professionals.
Look Before You Leap: Guideposts for New and Emerging Practice
For some of us, the natural tendency may be to leap right into a new and emerging area of practice. Such enthusiasm must be tempered by our obligation to act as professionals, however. First, we must remember that the rules of conduct, practice, and qualification still apply, even in a new area of practice. The Code of Professional Conduct always applies to the services we provide as actuaries. A practice area may be shiny and new and full of exciting opportunities, but for our actuarial services to be professional, they must comply with the Code.
I believe that the Code gives actuaries three practical guideposts to help deal with new and emerging practices. In particular, the Code requires actuaries to do the following:
Act with integrity and comply with the law.
Practice with skill and care and in accordance with established standards.
Let’s take a closer look at each of these guideposts.
Act with integrity and comply with the law.
A new practice area is not the Wild West; we are still subject to all of the precepts of the Code. Actuaries may have questions about whether they meet the qualification standards or whether an actuarial standard of practice (ASOP) applies. But those are fairly narrow questions. Actuaries should have no doubt that the entire Code applies in all situations. Even in a new or emerging practice area, actuaries may not act in a manner that may reflect adversely on the actuarial profession; engage in acts of dishonesty, fraud, deceit, or misrepresentation; have unresolved conflicts of interest; or engage in any of the other acts that are proscribed by the Code.
Compliance with the law is part of the bedrock of the Code. The Code requires actuaries to “be familiar with, and keep current with, not only the Code, but also applicable Law … for the jurisdictions in which the Actuary renders Actuarial Services.” It goes without saying that actuaries delivering services within a new legal or regulatory framework (such as the Affordable Care Act) should become familiar with the new law and related rules as they become available.
In addition, Annotation 1-2 prohibits actuaries from providing actuarial services “if the Actuary has reason to believe that such services may be used to violate or evade the Law.” When dealing with new and emerging practices, such as the use of Big Data in a wide variety of insurance industry practices, for example, actuaries must seek to understand whether a new practice or technique has the potential, or is being used, to undermine compliance with applicable consumer protection or nondiscrimination laws or regulations. Under the Code, actuaries may not use new technology or practices to undermine the law.
With respect to the obligation to be competent, the Code sets a very high bar. Even in new and emerging practice areas, Precept 2 requires actuaries to perform actuarial services “only when … qualified to do so on the basis of basic and continuing education and experience.” Not only must actuaries “observe applicable qualification standards,” but even “the absence of applicable qualification standards for a particular type of assignment … does not relieve the Actuary of the responsibility to perform such Actuarial Services only when qualified to do so in accordance with this Precept.”
So, how do actuaries get over that high bar and into a new or emerging area of practice? A good place to start is the Qualification Standards for Actuaries Issuing Statements of Actuarial Opinion in the United States (USQS) and the interpretive guidance issued by the Academy’s Committee on Qualifications (COQ) in the form of answers to frequently asked questions (FAQs). Section 4 of the USQS is devoted to changes in practice and application and provides guidance on the basic education, experience, and continuing education requirements associated with changing practice areas, dealing with new applications of actuarial science, and working in emerging or nontraditional areas of actuarial practice. The FAQs are also a great source of information in this regard. Within the past two years, for example, the COQ has published FAQs dealing with the minimum qualifications required to issue statements of actuarial opinion related to principle-based reserves and long-term care, as well as an FAQ on changing practice areas.
Actuaries can also contact the COQ or the Actuarial Board of Counseling and Discipline (ABCD) directly with qualifications questions. Actuaries should have no fear about asking such questions. The responses from these bodies will help actuaries determine whether they meet the requirements, and if not, help them understand what they must do to comply. In many cases, actuaries may be surprised to discover that their existing education and experience combined with focused continuing education can satisfy the qualification requirements in a new area. As an Academy discussion paper notes, “Actuarial concepts and techniques are often transferable or relevant in more than one practice area, and the possibility that there may be overlap can mean that experience in an established practice area can contribute to satisfaction of the experience requirement in a new or developing area.”
Practice with skill and care and in accordance with established standards.
To protect the public from unsound actuarial practice, the Code requires actuaries follow standards of practice. Under Precept 3, actuaries must ensure that actuarial services “performed by or under the direction of the Actuary satisfy applicable standards of practice” and, under Annotation 3-1, actuaries must “keep current regarding changes in these standards.” But how can actuaries comply with this obligation if no applicable standard of practice exists with respect to a new or emerging practice area?
Let’s start by rereading Precept 3. Even if no ASOPs apply directly to the new or emerging practice area, several ASOPs apply to all actuarial work. For example, ASOP No. 1, Introductory Standard of Practice, provides valuable information about what to do when no directly applicable ASOP exists: Actuaries may consider guidance in related ASOPs and should comply with ASOPs that “deal more broadly with particular aspects of many types of actuarial services,” such as ASOP No. 1; ASOP No. 23, Data Quality; and ASOP No. 41, Actuarial Communications. These cross-practice standards provide important insights into what actuaries should consider, document, and disclose in selecting methods and assumptions, conducting analyses, and reaching conclusions. Based on the provisions of ASOP No. 41, an Academy discussion paper advises, for example, “When providing an actuarial report or other communication with respect to work not covered by an ASOP, the actuary may find it helpful to state, at least, that no applicable ASOP exists that addresses the substance of the work performed. By making such a statement, it becomes clear that the actuary’s work did not deviate from the requirements of an ASOP.”
Professional judgment plays an important role in assignments where no ASOP applies directly. Annotation 3-2 of the Code states that “where no applicable standard exists, an Actuary shall utilize professional judgment, taking into account generally accepted actuarial principles and practices.” And recognizing that “Actuaries in professional practice may also have to handle new or non-routine situations not anticipated by the ASOPs,” ASOP No. 1 states, “In all situations, the actuary should exercise professional judgment in rendering actuarial services.” Under the ASOPs, “professional judgment” is neither a throwaway line nor a get-out-of-jail-free card. It is the product of “highly specialized training” and “the broader knowledge and understanding that come from experience”—in short, expertise—that actuaries must bring to bear on new practice problems.
ASOP No. 1 also provides valuable guidance on sources of actuarial literature that may help to keep “the actuary abreast of developments as actuarial science evolves,” even though they “do not establish binding requirements upon the actuary.” Such resources may include practice notes, journal articles, textbooks, and seminars, among other sources of information.
In many cases, the Actuarial Standards Board (ASB) promulgates new and revised standards of practice to provide guidance on what constitutes appropriate practice in new and emerging areas. But these standards are typically not prescriptiveand require actuaries to use professional judgment to convert the written words of the standard into appropriate practice. “While new actuarial standards of practice may be promulgated to deal with a wide variety of situations, the multiplicity of circumstances encountered in real life and the pace of technological advancement make it necessary for standards of practice to leave wide discretion for the exercise of individual judgment by the practicing actuary.”
Take Advantage of the Profession’s Resources
To instill and maintain the public’s trust in the actuarial profession, actuaries cannot wander rudderless into new or emerging areas of practice. Under Precept 1, each of us has an obligation to “act … in a manner to fulfill the profession’s responsibility to the public and to uphold the reputation of the actuarial profession.” Not doing so risks the public’s confidence in the profession, and our prized status as a self-regulating profession. This is why actuaries must keep up to date and ensure they are qualified to practice in a new or emerging area.
If you are unsure about how to fulfill your obligations under the Code, you should take advantage of the many resources available to help you do so. Consult the actuarial literature. Listen to the archived professionalism webinars available to Academy members without charge. Talk to your colleagues. Ask the COQ a question. Request guidance from the ABCD. Make the most of your continuing education opportunities. Look in the mirror. Whatever it takes, do what you need to do to push boldly into a new area while upholding the tenets of actuarial professionalism set forth in the Code.
Some years from now, readers of this article may find that the fields we have identified as new and emerging practices are actually quite commonplace and well understood. At the same time, these readers will be facing the same professionalism challenges that we have discussed with newer emerging practices that we may not be able to even imagine today. Just as the iPhone will be thought of as primitive and outdated in the future, so will we similarly think of some of our currently new and shiny actuarial techniques. But the thread that will always weave through our actuarial work, whether now or in the future, is the professionalism that we embrace in fulfilling our responsibility to the public and upholding the reputation of our profession.