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Ethical Issues Forum
Owning Up...or Not 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.
Until recently John Q. Actuary, FCAS, MAAA, worked for Insurance-R-Us Insurance Company (IRU), one of the largest insurance companies in the state of West Carolina. John was a senior vice president with direct responsibility for overseeing the company’s ratemaking department for the past several years. While John does not personally perform the calculations involved in the rate filings, he reviews the work and the filings go out under his name.
After a long and illustrious career at IRU, John concludes that the time has come to give back while doing a job that he will find personally rewarding. John decides to take a public sector position, at a significantly lower salary, at the West Carolina Insurance Department. John leaves Insurance-R-Us with the best wishes of his former colleagues as well as the substantial position in the stock of his former company that he has acquired during his term of employment.
Once on the job with the Insurance Department, John receives an IRU rate filing requesting a 10 percent reduction in premiums. While reviewing the new filing, John discovers that the currently approved rates, filed under his name, contain a calculation error in the production of the company’s rate manual. The error resulted in consumers being overcharged since the implementation of the last filing by approximately 10 percent. John notes that the calculation error has been corrected in the new filing, but that the error was not disclosed in the filing.
What should John do now?
Option One
Due to his substantial stock position in IRU, John should recuse himself from the review of the rate filing. Precept 7 of the Code of Professional Conduct addresses conflicts of interest. The precept states: “An Actuary shall not knowingly perform Actuarial Services involving an actual or potential conflict of interest unless: (a) the Actuary’s ability to act fairly is unimpaired; (b) there has been disclosure of the conflict to all present and known prospective Principals whose interests would be affected by the conflict; and (c) all such Principals have expressly agreed to the performance of the Actuarial Services by the Actuary.”Further supporting the decision to recuse himself is the fact that he may have violated Precept 3 of the Code of Professional Conduct, which states: “An Actuary shall ensure that Actuarial Services performed by or under the direction of the Actuary satisfy applicable standards of practice” by not thoroughly reviewing the calculations in the prior filing.
Option Two
The prior insurance rates were reviewed and accepted by the Insurance Department and IRU is correcting the issue in the new filing. Therefore, John is not professionally obligated to make any comment on the error in the prior filing. John should limit his review to the appropriateness of the current filing only, after disclosure to all parties of his stock holding in IRU.Option Three
While John should have notified the insurance commissioner about a potential conflict of interest prior to starting his review, in order to uphold the integrity of the profession, John needs to bring the error in the prior filing to the insurance commissioner. Failing to disclose the error that he has discovered would be in violation of Precept 1 of the Code. Annotation 1-4 states that “[a]n Actuary shall not engage in any professional conduct involving dishonesty, fraud, deceit, or misrepresentation or commit any act that reflects adversely on the actuarial profession.”
