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Actuarial Standards of Practice: Voluntary Versus Mandatory

by Charles Gruber

As a result of a July 1998 mailing by the CAS on revised rules of procedure for disciplinary action, I sent out to CAS members, through the Internet, my thoughts on voluntary versus mandatory actuarial standards of practice. I postulated that the CAS needed a basic directional change in its approach to discipline. I stated that the CAS should:

In my letter, I also listed several arguments for voluntary standards, which I summarize in the table above.

Of the approximately 800 E-mail addresses listed in the CAS directory, about 200 sites came back as non-deliverable. Over a week's time, I received 11 replies, with two stating that they didn't want unsolicited E-mail. I was disappointed because a typical mailing response rate is from two percent to four percent; thus I'd expected from 12 to 24 replies. I was told, however, that my response rate was excellent.

Of the nine responses, four agreed with my position on voluntary standards, four disagreed and one requested further clarification. There is, of course, no conclusion to be drawn from such an insignificant sample. I have extracted from it, however, the essence of the respondents' comments on mandatory versus voluntary standards:

Mandatory Standards

As a profession trying to define itself as a "science," and trying to broaden its applications, the actuarial profession must establish and enforce standards of practice.

...actuaries present themselves as experts in areas where they are not qualified, and, even when qualified, produce work products that fail to meet any reasonable actuarial standard...the credibility of the society and profession depends on its public commitment to maintaining standards.

Voluntary Standards

...any mandatory standard becomes a tool for a lawyer...they [should] be called guidelines or something less restrictive.

...voluntary standards could be more helpful to many practitioners. Policing the actuarial profession is a poor substitute for developing actuaries capable of performing quality work.

At the last Casualty Loss Reserve Seminar in Philadelphia, I attended a panel on loss reserving standards. The three panelists, all members of an Actuarial Standards Board committee drafting the standards, went through various comments received from the membership. Some comments were incorporated into the committee's forthcoming draft; other comments were rejected as not being the view of the committee. I realized that by just this process of including and excluding opinions, the committee automatically puts a segment of CAS members in potential violation of the selected standards. Why should professional work of several thousand practitioners be determined by committee? Imagine Copernicus being sanctioned by a panel of medieval astronomers who insisted the Earth did not orbit the sun. Or some committee in Queen Isabella's court ruling that Columbus couldn't be a sailor because he wanted to find a pathway to the East by sailing west.

I urge actuaries to become involved and express their opinions about standards and the discipline process. My belief is that many actuaries will see it my way: voluntary standards improve actuarial performance and professionalism.