By April Choi
“THESE RATES ARE UNCOMPETITIVE—WE NEED 30% LOWER RATES!”
“These reserves don’t make sense, how can they shoot up like that? You need to sharpen your pencil.” Do these sound familiar to you? As practicing actuaries, we inevitably encounter situations when we must deal with unreasonable requests from our companies’ management or clients. But what happens when we are pressured to compromise our professional integrity?
Some situations are obvious and hopefully require no debate, such as not cheating on actuarial exams, not exploiting insider knowledge, not falsifying financial statement information, and not committing tax fraud. But what about requests to be “very aggressive” with your pricing assumptions, or to set lower reserves to meet a company’s profit objectives but at a level that makes you lose sleep at night, or to testify in favor of your client’s objectives even when your professional opinion diverges? Should you stay silent when you spot some irregularities but fear repercussions for raising concerns? It is often a challenge when you find yourself walking on a tightrope trying to finesse a balance between meeting business goals and fulfilling your professional standards.
How do we navigate these ethical crossroads while staying true to our principles? Our guiding light is the Code of Professional Conduct—it encapsulates the principles that can guide our actions. Let’s delve into some strategies for addressing these dilemmas.
First, Know the Code, Precepts 1-14. Th e Code is our North Star. For example, Precept 1 (Professional Integrity) comes into play in many situations—“An actuary shall act honestly, with integrity and competence, and in a manner to fulfill the profession’s responsibility to the public and to uphold the reputation of the profession.” And in determining either premium rates or reserve levels, or in providing testimony, Precept 3 (Standards of Practice) would also be applicable. Th e actuary should follow the applicable ASOPs.
Second, Seek Guidance. When in doubt, do not hesitate to seek advice from colleagues, mentors, or professional organizations and openly discuss the dilemma. They can off er fresh perspectives. It is helpful to discuss the situation with others who may have had similar experiences. The Actuarial Board for Counseling and Discipline (ABCD) is also here to help you work through the situation. One of our primary functions is to provide confi dential guidance to members of the five U.S.-based actuarial organizations when they encounter professionalism issues.
Third, Analyze the Situation Objectively. Step back and assess the facts without emotional bias. Consider the potential impact of your decision on stakeholders, including policyholders, clients, and the public. For example, a consulting actuary may need to decline an assignment if he or she is unsuccessful in convincing the client that breaching professional standards is equally detrimental to the reputation of both the client and the actuary.
Often when we deal with matters involving Precept 7 (Conflict of Interest) or the Qualification Standards, we can use the “Look in the Mirror test” and ask ourselves whether we are being compliant, transparent, and doing the right thing—and then decide if we are sufficiently independent or qualified to do the work.
Fourth, Think of the Long-Term Consequences. Think beyond today—what might be the long-term effects of your actions? Consider how your decision will impact the trustworthiness and reputation of you and the profession as a whole. For example, when an actuary performs an actuarial project that he or she is not qualified to perform, material adverse results may not emerge until several years later, and the actuary could face
serious disciplinary action.
Fifth, Disclose and Be Transparent. Clearly communicate assumptions, limitations, risks, and uncertainties of your work to your principals and other stakeholders. For example, if you are asked to use certain assumptions that you do not agree, and you are not in a position to decline the assignment, full disclosure and documentation are extremely important. Follow ASOP No. 41, Actuarial Communications, and disclose why you view the assumptions to be unreasonable and state your concerns in your report.
Sixth, Uphold Professional Integrity. Integrity is non-negotiable. Uphold the highest standards of honesty, integrity, and objectivity. Avoid compromising your professional judgment due to external pressures.
How do we navigate these ethical crossroads while staying true to our How do we navigate these ethical crossroads while staying true to our principles? Our guiding light is the Code of Professional Conduct.
We can also draw inspirations from the following documents:
- Explaining Professionalism to Principals—The American Academy of Actuaries’ discussion paper provides practical insights. Communication is more effective if the principal understands why it is in their best interest for the actuary’s work to be in compliance with professional standards. For example, if the actuary were to lose his or her credentials, it could damage the principal’s reputation as well. The paper discusses “approaches to convey the underlying professional guidelines embedded in any actuarial work product to the principal,” and it provides case studies to illustrate these approaches.
- “Lessons Learned”—Contingencies article by John P. Tierney, July/August 2017. It provides four common-sense guidelines to good actuarial practice gleaned from a career spanning more than 40 years. One, called “Stick to Your Principles,” was illustrated by a consultant who stuck to his principles and would not budge when the client pressured him to lower reserves. The consultant had the backing of his firm and the profession’s standards.
- “Paul’s Puzzle: A Fable for Actuaries”—Contingencies article by Julia Philips, March/April 2008. This fable blends inadequate reserves, internal pressures, and professionalism with numerous possible outcomes.
- “Let’s Be Perfectly Clear”—Contingencies article by James Gutterman, September/October 2012. A discussion of ASOP No. 41, Actuarial Communications, with a focus on responsibility, reliance, disclosure and defending deviation.
- “Look in the Mirror”—Contingencies article by Carol Sears, September/October 2006. Precept 2 and the importance of carefully considering whether you are qualified using two case study examples.
In addition, the ABCD presents valuable case studies of how actuaries could resolve difficult professionalism situations in its annual “Tales From the Dark Side” webinars. These and other professionalism webinars are available on the Academy’s website. Remember, we fulfill our responsibility to the public, to our clients and employers, and to the actuarial profession by adhering to our high professional and ethical standards.
And as full disclosure, CoPilot helped me with drafting a preliminary version of this article.
APRIL CHOI, MAAA, FSA, is a member of the Actuarial Board for Counseling and Discipline.
