Keep Standards Mandatory
by David G. Hartman
David G. Hartman currently chairs the Actuarial Standards Board.
In the November 1998 issue of the Actuarial Review, the "Random Sampler" column put forth several proposals, one of which was that "the CAS should promote voluntary standards"-that is, voluntary actuarial standards of practice. My belief is that the CAS should dismiss that proposal. This is my personal opinion, but, based on my experience as the current chairperson of the Actuarial Standards Board, I believe this viewpoint would be widely shared within the profession.
Like all professions, the actuarial profession has four key characteristics:
- A unique body of knowledge;
- A program of continuing education;
- A code of conduct and standards of practice; and
- A disciplinary process.
These characteristics are found in professions of all kinds, for example, accounting, law, and medicine. We who are members of the actuarial profession must have standards if our work and our profession are to be publicly respected. Not surprisingly, the International Actuarial Association (IAA) requires actuarial associations to embody all four characteristics in their organizational structures in order to maintain or apply for membership in the IAA.
In the United States, an actuarial standard of practice (ASOP) serves as a guide to what is acceptable practice in a particular area of actuarial work. Generally, an ASOP codifies existing practice. Should an exposure draft of an ASOP propose to "raise the bar" in any respect, this proposal is highlighted. An ASOP is promulgated only after an extensive exposure process, during which comments are encouraged from all actuaries and other interested parties.
Users of actuarial work products rely on the assurance that the work behind those products conforms to standard actuarial practice. The ASOPs' authoritative guidance is the basis and support of that assurance. However, an ASOP is not a straitjacket. The existence of a standard does not preclude experimentation and innovation, nor discourage the development of new methods and techniques. Methods are not prescribed in a standard, nor is an ASOP a cookbook on how actuaries are to do their work. In addition, ASOPs include a deviation clause that usually reads as follows:
An actuary must be prepared to justify the use of any procedures that depart materially from those set forth in this standard and must include, in any actuarial communication disclosing the results of the procedures, an appropriate statement with respect to the nature, rationale, and effect of such departures.
From one perspective, ASOPs are already voluntary, as an actuary may choose to follow them or to disclose in what way his or her practice deviates from the guidance given in applicable ASOPs. But what is ultimately voluntary is the decision whether to be a member of the actuarial profession, or not. If an actuary does not like mandatory standards (to which one agrees to be bound on joining the profession), he or she can always choose to resign from the profession.
Standards are like laws and regulations; without them it is difficult to have a smoothly running society that protects the rights and interests of its citizens. Likewise, standards protect the rights and interests of both actuaries and our various publics.
We who have invested so much time and effort to become actuaries, and who benefit from being members of such a respected profession, should not support moving to voluntary standards. At the same time, I urge all actuaries to express their opinions about exposure drafts of ASOPs.
Editor's note: As Mr. Hartman states, he is discussing ASOPs in the United States. The ASOPs issued by the Canadian Institute of Actuaries differ from those issued by the American Academy of Actuaries, and the rules for deviating from the ASOPs also differ.