An Actuary’s Duty

There’s more to professionalism than behaving ethically Charly J. Pazdor


For many actuaries, acting with professionalism is as simple as behaving ethically. For others, it is following their credentialing organization’s professional code of conduct. Most actuaries also consider the actuary’s duty to the profession and the public.

But professionalism is broader than these ideas. It also includes how our employers and clients perceive how actuaries provide these services to them—beyond the calculations of the present value of future contingent events.

The Actuary, the Profession and the Public

In the late 1980s, I asked Ernest “Jack” Moorhead, FSA, former Society of Actuaries (SOA) president and former American Academy of Actuaries president, why actuaries seem to encourage a certain mystique about the profession. To the best of my recollection, Moorhead, who was also a longtime editor of The Actuary, responded with: “It’s true they often do that. They like being viewed as mathematical wizards. I believe that it suits their purpose to reassure their employers and clients that special people like us actuaries are looking after their interests.”

There was a time when those same employers and clients were generally comfortable relying on actuaries’ reassurances such as, “You can trust me, I’m an actuary.” And the perception, again often reinforced by actuaries themselves, was that actuaries were so conservative that they would always carry an umbrella, even on sunny days.

I believe it’s fair to say that faith in actuaries was well-founded in almost all cases—even without the Code of Professional Conduct, which the U.S. actuarial organizations adopted in January 1992. (The Canadian Institute of Actuaries (CIA) adopted its Rules of Professional Conduct in June 1992.) However, there were a few cases where the failure of actuaries to do good work led to serious problems. A notable example was the equity funding scandal of the early 1970s. The profession’s response to the scandal included the establishment of the Actuarial Board for Counseling and Discipline (ABCD) in the United States.

What Are the APC and the FAC?

The Associateship Professionalism Course (APC) is part of the requirements for the ASA designation as well as the CERA credential. The one-day course covers professionalism, ethics and legal liability. Using the case study method and group work, the course walks candidates through the Code of Professional Conduct and touches on some of the key Actuarial Standards of Practice (ASOPs).

The final requirement to attain an FSA designation is the Fellowship Admissions Course (FAC). The course is three days in length and helps to educate actuaries on the issues and situations they may confront as they progress in their organizations. The course was designed to provide opportunities to explore these issues and enhance the skills needed to be effective in these situations. The course uses a combination of lecture, case study discussion, group work and presentation skill building.

The equity funding scandal was dramatized in the movie The Billion Dollar Bubble, which new fellows of the SOA now watch as part of the first Fellowship Admissions Course (FAC). In the movie, it’s made clear that the fraud being perpetrated was made easier by the use of the computer—that is, the ability to process both real and phony applications more quickly. However, ever-increasing computational power also has made positive impacts, allowing actuaries to do more meaningful analysis of data and more detailed calculations—that is, using fewer approximations and previously required shortcuts based on limitations that existed in the past.

So, over the years, the actuarial standards of practice have expanded to reflect the increased precision and detail that is now possible in actuarial practice. Note I am avoiding using the acronyms ASOP and SOP. I take it for granted that members know that for work in Canada, actuaries must comply with the Standards of Practice (SOP) promulgated by the Actuarial Standards Board (ASB), whereas for work in the United States, members must comply with the Actuarial Standards of Practice (ASOP) promulgated by the American Academy of Actuaries. Work done outside of Canada or the United States must comply with local standards.

In the past, actuaries might have relied on their competence merely by virtue of their intelligence and general actuarial education. But the profession has recognized that major advances in technology, larger volumes of data and more available details have resulted in increased specialization. This in turn means that the test to meet the qualification standards is increasingly challenging. Specifically, to demonstrate an individual has that requisite knowledge and experience in a practice, it is not sufficient to simply rely on being “an actuary” (albeit an intelligent one).

Of course, even if you do good work, that also will not be enough. In extreme cases, as was the situation in the equity funding scandal, someone may ask you to break the rules. In almost all cases, though, the line is not that clear—more likely, it will look like you are being asked to bend the rules.

Ethical Dilemmas

It is almost certain that, in the course of an actuary’s career, they will be faced with some ethical dilemma. So, what might this look like? A few years ago, Chris Chapman, a past president of the CIA, outlined some of the more common situations that have led to actuaries being disciplined.

Succumbing to Pressure From a Superior or Client to do “Poor” Work

Sometimes this request comes in the form of flattery, and clients (and superiors) will use that to their advantage. “It is just a small thing—I’m sure you can do it fast (or faster than the other firm)” or “This is not important; just copy what you did last time.”

  • Your professional reputation is worth more than any one client or any job. Sometimes, you may need to walk away from an assignment, client or job.
  • The challenge is sometimes the issue truly is not important or does not require a high level of detail. However, the actuary can’t let others decide that for them.
  • Learn to negotiate. It may not be easy, but you will find that deadlines are usually negotiable. It’s not the end of the world if you say “no.” In fact, even if you’re being pressured by a client or superior, you may be surprised by the response. As one client said to me, “I just wanted to know what your limit was.”

Failure to Disclose or Correct Errors

Sometimes the error is not material and disclosure could appear to lead to more trouble than it’s worth. However, nondisclosure of all but the most trivial errors is generally not appropriate.

Aggressive Interpretation of Standards

Actuaries should not be working too close to the “barely legal” line. We are not tax lawyers who interpret the standards in aggressive ways deemed to be to the benefit of our clients. We will be judged by our peers as to whether we acted as a reasonable actuary.

Working Outside of One’s Competence

As noted earlier, an actuary can no longer rely on their intelligence and general knowledge of actuarial work. The profession has been effectively enhancing and refining the standards of practice, including the qualification standards. This means that actuarial work now almost always requires much more extensive experience and detailed understanding of the standards.

The Need for Professionalism

In response to the increasing concern about our duty to the public and the profession, starting near the end of the last century, the profession dramatically increased its attention to professionalism. In addition to the introduction of the FAC and the Associateship Professionalism Course, there have been regular professionalism workshops and sessions at the meetings of the various actuarial organizations.

Besides the obvious goal of enhancing knowledge of professionalism and ethical issues, simply discussing cases can help to not only raise awareness of potential issues, but also help to prepare us to deal with a situation when it arises. A firefighter once told me that the reason we have fire drills in our buildings is that they have found, when faced with danger (e.g, fire), the rational parts of our brains tend to shut down. So we need to have the process “drilled” into heads, so that we are better equipped to deal with the danger. Having discussed ethical dilemmas in a safe situation will help us learn that we should not act rashly or hastily; rather, we need to take the time to discuss the situation with a colleague, mentor or lawyer.

The Actuary, the Employers and the Clients

To do good work for our employers and/or clients, mere competence at mathematical wizardry, coupled with high ethical standards, are also not sufficient to be perceived as a “professional” in the current working environment. The marketplace has higher expectations for actuaries than that. At the FAC, the course director advises the fellowship candidates that a recent study the SOA sponsored shows financial executives think actuaries have strong industry knowledge, but no broad business knowledge, are inflexible, have poor managerial skills and have almost no interpersonal skills—especially when compared to those who hold MBAs. This same study shows that actuaries generally have great quantitative skills, pay tremendous attention to detail and are trustworthy, but are limited in our ability to communicate effectively.

We would likely agree that there are some misperceptions here. However, at least to some degree, this is driven by our inability as actuaries to articulate our positions and convince our employers and clients that we have the answers they need. The attitudes and opinions of financial executives strongly suggest that actuaries need to improve their communication skills.

It is important to note that improving “communication skills” goes well beyond learning how to effectively present, although that is an important component of the Communication Competency. What is becoming obvious is that employers and clients are demanding a higher level (i.e., clearer) communication from us. We do better work when our clients understand the issues—not when we ask the client simply to rely on our technical skills.

In the book titled What do you Think? (subtitled Preparing for the Question That All Clients Ask), the late Bradley M. Smith, FSA, MAAA, FLMI, a past president of the SOA, outlines what he looked for in an employee and/or what a client looks for in a consultant. He begins with seeking out capability/competence, trust/integrity and commitment to getting the work done. However, the list goes beyond that. 

In Chapter 13, titled “The (Not So) Little Things Matter,” Smith identifies a number of issues of importance to clients/employers that reflect on us as professionals. Many of these can be viewed as simply behaving with common courtesy; however, they matter greatly to those with whom we interact. These courtesies include proofreading documents and returning calls and emails promptly based on the client’s timetable—not ours in isolation. It also means making sure that emails are treated as professional communications.

A few years ago, the CFO of a client was anxiously awaiting a year-end report from us. We had more or less finalized it in the morning, but I didn’t want to send it out yet. At lunchtime, by coincidence I bumped into the CFO when we were both walking in the underground concourse near our offices. He asked me if I had sent him the report yet, and I told him that it was almost ready—I wanted to review it one last time after my lunchtime walk had cleared my head. He paused to ponder what I had said, and then told me that he agreed that was a good idea. Now let me be clear: We had not promised the report for the morning, so it was not that I was ignoring his deadline; rather, it was simply that he probably would have been happier if we had delivered it a few hours earlier.

Early in my career, I was given some advice. Paraphrasing a bit, it went like this: Your client/boss will ask you a question about an issue/problem. Be sure to answer the question that you’ve been asked, because not responding to the question (e.g., maybe it’s not the key issue related to the problem at hand) would be disrespectful, and the client/boss could easily be offended. However, if there is another issue that is more critical, be sure to address that as well—otherwise you will not have served your client’s/boss’s best interests.

Sometimes, due to limitations of time, resources or even approval to proceed, you may only be able to raise the key issue. However, don’t simply ignore it because they didn’t ask. If you have thought about it, you will be better prepared to answer when the client/superior does ask the question: “What do you think about the problem at hand?”  Sometimes it is worded as: “If you were in my position, what would you do?” You probably shouldn’t be making the decision for the client, but you will be in a better position to guide/advise them.

It is also worth noting that there are times when your knowledge or experience will not be enough. Sometimes your boss or client will ask you a question and you don’t know that answer. Sometimes, you will be asked to complete a task and you don’t know how to proceed. In those situations, your best course of action is almost always to admit that you don’t know the answer or how to proceed. Even if the request is urgent, you will likely get in more trouble if you try to fake it. Instead, ask for help or ask for time to learn what you need to know to execute the task.

In her presentation on professionalism at the FAC, Kathy Wong, FSA, tells fellowship candidates: “In my first discussion with a new subordinate, I told her: ‘You will never get in trouble with me if you admit up front when you don’t understand an assignment or need guidance on how to approach it. You will get in trouble if you pretend to know something because you’re afraid to ask and then do a poor job.’”

In his book, Blink, Malcolm Gladwell addresses medical malpractice lawsuits. He points out that a lot of skilled doctors get sued, and a lot of doctors who make mistakes don’t. A better predictor of probability of a doctor being sued is not whether they do good technical work, but rather how they communicate and interact with patients. Gladwell quotes a malpractice lawyer as saying that people don’t sue doctors they like.

Our clients probably share a similar perspective. It is invaluable to have a relationship with clients, so we’re not simply providers of numbers and invoices. It could be something as simple as asking a few questions about the business so you can better understand the context of how actuarial products and services fit into their bigger picture. If you have a relationship that extends beyond the basic business interactions, clients are more likely to be understanding if and when something goes wrong.

Professionalism encompasses almost all aspects of the work we do, and our responsibilities to the people and organizations for which we work. As Smith replied when asked what the market expects of him: “Specialized knowledge and capability, someone it can trust, someone committed to completion of the assignment, clear communication and pleasant to deal with … professional!”

Charly J. Pazdor, FSA, FCIA, is a retired actuary.

Copyright © 2020 by the Society of Actuaries, Schaumburg, Illinois.