August 2003 Actuarial Review - Ethical Issues Forum

Ethical Issues Forum
An Actuary is an Actuary is an Actuary?
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 may apply in real-life situations.
Joe Jones is a client executive with the brokerage firm of XYZ, Inc. While Joe started his career in the actuarial department and became a CAS Associate long ago, he left the actuarial world for the fast-paced, exciting position of insurance broker. To have something to fall back on, if necessary, Joe is current on his dues and remains a member in good standing with the CAS. However, to avoid the stereotype and stringent rules of the actuarial profession, he does not tell his clients or insurance companies that he is a credentialed actuary. Neither Joe's business card nor biography includes any reference to his ACAS designation.
Joe is the broker of record for Acme Widget Company (Acme) and is in the process of placing their workers compensation insurance renewal. Because of recent adverse loss experience and the hardening market, Acme's insurance renewal quotes are all greater than 200 percent of the expiring program premium. Acme explains to Joe that they are being severely affected by the economy and if he cannot find a more acceptable renewal quote that they will be forced to change their brokerage firm. Acme is the largest account of XYZ and its loss would be devastating to the organization.
In a desperate need to find a solution, Joe schedules a meeting with NEW Insurance Company (NEW). Because of Joe's concern over NEW's financial condition, they were not one of the insurers previously asked to bid on the Acme account. Joe knows from past experience that despite the fact that there are no credentialed actuaries on staff, this carrier places a great deal of weight on the results of their internal pricing department's premium indications. While Joe has not reviewed Acme's historical experience in any detail, he does remember the "hot button" areas that can have an influence on the actuarial projections. Joe places a call to the head of NEW's pricing department. He tells the department head that while there is not time to gather the necessary information, he suggests the possibility that the recent adverse experience is a result of a significant strengthening of the case reserves and a speed-up in the claims closing rate. Joe goes on to promise to put in a good word with management for inclusion of NEW on the list of approved carriers at XYZ if they can quote the Acme business at close to the expiring premium.
NEW writes the Acme business at the same premium as the expiring policy. Of course, experience over the next few years shows that neither case reserve strengthening nor increased closing rates were present and NEW experienced a 200 percent loss ratio of the Acme account.
Do the actuarial standards of practice and code of conduct apply to Joe in his nonactuarial role? If yes, has Joe violated the standards or code?
No
Joe is clearly functioning outside of an actuarial position and has taken care not to present himself as an actuary to his clients or insurance company contacts. As a result, Joe is not subject to the standards or code of conduct. Even if he were subject to the standards/code, suggestions regarding the pricing area for NEW to consider would not represent any violation.
Yes
Whether or not Joe is functioning in a pure actuarial role, he is a member of the CAS and is subject to the applicable standards of practice and code of professional conduct. If Joe wishes to leave the actuarial field, he should give up his membership in the CAS. Suggesting the presence of case reserve strengthening and claim closing acceleration without any real support is clearly an attempt to lower the premium quote. Joe is not acting honestly and with integrity and, as a result, does not uphold the reputation of the profession. Therefore, Joe is in violation of Precept 1.