Ethical Issues Forum
Editor's Note: This article is part of a series written by members of the CAS Committee on Professionalism Education (COPE) and the Actuarial Board of Counseling and Discipline (ABCD). The opinions expressed by readers and authors are for discussion purposes only and should not be used to prejudge the disposition of any actual case or modify published professional standards as they November apply in real-life situations.
Keeping Promises Insurance Company (Keeping Promises) filed for a 25 percent rate increase in their private passenger automobile program with the Insurance Department of their domicile state. Keeping Promises is a small monoline, single state automobile insurance writer with approximately $5 million in annual premium. Keeping Promises used a competitive rate comparison to provide support for this rate change.
After receiving Keeping Promises' request, Joe Regulator of the Department of Insurance called the president of Keeping Promises. Joe stated that in his opinion the proposed rates were reasonable but, due to a new Department of Insurance requirement, all companies with at least $5 million in premium must file a rate-level indication with all rate filings. Joe stated that all automobile rate changes are required to be approved by the commissioner of insurance (after considering recommendations from Joe) but gave the president of Keeping Promises a tentative approval recommendation for his rates. However, Joe stated that a rate-level indication needed to be prepared and reviewed by his department prior to the company's rate filing being presented to the commissioner.
Given their size, Keeping Promises does not have an actuarial department. To respond to the Department of Insurance request, Keeping Promises retained Steve Numbers, FCAS, MAAA. Steve Numbers is the sole proprietor (and only employee) of Numbers-R-Us actuarial consulting firm. Steve completed the requested rate-level indication, which suggested a rate increase of between 25 percent and 35 percent based on various scenarios. Steve's report was filed with the Department of Insurance and Keeping Promises' rates were formally approved by the commissioner.
Approximately six months later, Steve was in the process of modifying the worksheet used in Keeping Promises' report for use in another assignment when he discovered an error in the rate indication calculation. After correcting the formula, the rate indication range for Keeping Promises changed from 25 percent-35 percent to 5 percent-15 percent. Steve immediately called the president of Keeping Promises to notify her of the error. Steve and the president call Joe Regulator to discuss the situation. Joe is concerned with the error on Steve's part but is embarrassed that he did not discover the error in his review of the rate indication. Joe states that given the rate comparison, it is likely that the commissioner would have approved the rate change even with the new rate indications and suggested that no further action is required.
Despite Joe's comments, Steve recommends to the president of Keeping Promises that a revised indication be filed. The president strongly disagreed and prohibited Steve from filing a revised rate indication with the Department of Insurance. Additionally, she reminded Steve of the confidentiality provision in the contract between Numbers-R-Us and Keeping Promises.
Does Steve have a professional obligation to notify the commissioner or file a revised rate indication or both?
Steve has notified Keeping Promises and a representative of the Department of Insurance (Joe Regulator). He has fully disclosed the error in the rate filing and as a result Steve is not in violation of the Code of Professional Conduct. However, it would be good practice for Steve to document his conversations with Keeping Promises and Joe Regulator.
Even if Steve wanted to discuss this issue with the commissioner, the confidentiality provision in his contract with Keeping Promises and Precept 9 prohibit Steve from discussing this issue with anyone outside of his client unless given specific permission to do so.
Precept 9An Actuary shall not disclose to another party any Confidential Information unless authorized to do so by the Principal or required to do so by Law.
While Steve's contract is technically with Keeping Promises, the work performed was specifically relied upon by the commissioner. It appeared from the conversation that Joe may be concerned about how this issue reflected on him and may not be in a position to speak for the commissioner. Steve has a professional obligation to disclose this error to the commissioner and if asked, to file a revised rate indication.
Failure to disclose this issue to the commissioner would violate Precept 1 and possibly Precept 8.
Precept 1An 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 actuarial profession.
Precept 8An Actuary who performs Actuarial Services shall take reasonable steps to ensure that such services are not used to mislead other parties.
While the disclosure has the potential to result in loss of business to Steve, Steve has a professional obligation to disclose his error directly to the commissioner.