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The Actuary The magazine of the Institute & Faculty of Actuaries

A very great pity

W hen The Actuary magazine asked for
an article from this almost-70-year-
old, I wondered why. I am hardly likely to be at the cutting edge of actuarial thinking or active in the profession, so it can only be for what might be of use from the experience of a long if undistinguished career in the profession.
When I was starting out in the 1950s there were plenty of oldies ready, as we thought, to bore us with tales of the golden days of their youth as compared to ‘now’. I vowed never to inflict the same punishment when I came to their state, and now look at me! Anyway, while we had to look interested for politeness’s sake, at least you have the option of not reading on.
It just seems to me that there has been a revolution in culture, opinion, and the general idea of right and wrong over my working lifetime, and it may be worth a brief note.

For example, in the early 1950s the examinations tended to stay in the same format for at least five to ten years. These days, there seems to be something new every year. The whole pace and gamut of Institute activity has grown prodigiously.
When I first walked into Staple Inn, it occupied four floors. On the ground floor there was the hall, council chamber, and one office housing the secretary and two assistants. On the second floor you found the library, staffed by one librarian. On the third floor you found the Actuarial Tuition Service, staffed by its secretary and one or two assistants. On the top floor was the Phelps room, a retreat for actuarial students given afternoons off by their employers to study. During the time I was a student, I can remember just one change in the tuition service offered, and that was occasional face-to-face classes to supplement the correspondence courses.
The paid staff were, of course, administrators. A small army of volunteers did all the basic work of tutoring, marking, and examining, etc. This volunteer force was drawn almost entirely from newly qualified fellows. No doubt altruism played its part, perhaps helped by some encouragement from senior life office actuaries. At that time, pensions consultancy was in its infancy and most of the career jobs were in life assurance. Consequently, senior actuaries could in many ways influence any individual’s professional future, and while this was never shouted about, there was an implicit understanding. You offered yourself to the Institute when it was suggested, or risked the displeasure of the patricians. One who suffered this fate remarked that the initials for Master of Arts, Fellow of the Institute of Actuaries had another, more sinister connotation!
The training of an actuary was rather more informal at that time. He had his correspondence courses; otherwise he could always go to a qualified actuary in his office for help, which would invariably be given. It was also drummed into him that, when qualified and in a responsible post, his judgement would almost certainly be the last word, for who was there to argue against it? At that time, we had the technical field to ourselves. That technical field, to the best of my recollection, amounted to an ability to do algebra. I recall once, in the calculation of a tax charge, saving the cost of a lot of auditors’ chargeable hours that had been spent finding the solution to a quadratic equation by trial and error.

Directors were elected to look after their constituency, the shareholders. The advising actuary had also to consider the policyholders and the wider public interest. What legislation there was seemed descriptive rather than prescriptive. It amounted to requiring a report of the assumptions underlying the valuation, specimen premium rates and surrender values, and sufficient data to permit an independent valuation to be made. Using regulations containing prescribed actuarial bases and the like was the ‘continental’ way of doing things; here we were trusted to exercise proper professional judgement.
At the time I entered the profession there was no published code of conduct. There was a disciplinary procedure but I never recall its being implemented. It was all done behind closed doors, rather like the recruitment of ‘volunteers’.
Has this not changed beyond recognition? Recently I spoke to a senior life office actuary of long acquaintance. He said that all the fun had gone out of it. The Civil Service, he felt, was happy to see companies regulated out of business until there were a malleable three or four giants. Somebody else always knows better than we do; any argument, and the licence to practise (another innovation) might be in jeopardy. We have a vast and always changing looseleaf book of regulations to govern everything we do.
Why has there been such an enormous change? There are no absolute answers to this question. It is all a matter of opinion and here, for what it is worth, is mine.

How change began
I think it all began with the Fire Auto Marine (FAM) disaster. A gentleman discovered that if you sell cheap motor insurance, collect the premiums, but don’t pay the claims, it can be very profitable. Nothing new about that, perhaps, but somehow he got himself accepted into the BIA, the establishment of the insurance industry at the time, and thereby got an operating licence from whatever the trade ministry was then called. Following the subsequent collapse and débâcle, there was a public inquiry which censured a senior civil servant for allowing this to happen. The Civil Service determined that such a thing would never happen again to one of its own. All rapprochement between government and industry was at an end and Parliament has been kept hard at work ever since legislating to restrain independent judgement. The entry into the European Community has accelerated this process, as have some unexpected decisions by the courts.
There may, however, be more to it, and here I go out on a limb, probably to incur the wrath of my professional brethren.

Business principles
I was taught there were two principles of business, caveat emptor and uberrima fides respectively, ‘let the buyer beware’ and ‘of the utmost good faith’. The first applied to ordinary commerce where the prospective buyer was supposed to know sufficient about the item for sale at least to ask the right questions. The second applied to the professions and certain operations like insurance, where the considerations were supposed to be beyond the ken of the ordinary man.
Moreover, it worked both ways. The buyer or client was supposed to be as honest with the professional as the professional with the client and this mutual trust was the basis of their contract. For a professional to use this trust and his superior knowledge to gain some advantage would be monstrous. An important part of the duty of the life office actuary was to restrain the excesses of the salesmen. This was not entirely altruism on his part as, in the longer term, bad advice rebounded to the discredit of his office.
In the late 1980s compulsory membership of occupational pension schemes was abolished and members were given the right to transfer their liabilities to a life office; of course, in doing so, they lost the employer’s contribution. Now, no decision is ever right or wrong in foresight. All one can speak about is prudence or imprudence. As a general proposition, can it ever be prudent to sacrifice the employer’s contribution? I think not. Nonetheless, under ‘professional’ advice billions of pounds-worth of pension fund assets in final salary schemes were transferred to money purchase arrangements. Now legislation has required that losses thereby be assessed and expensively restored to the ill-advised.
It may be too much to expect front-end commission remunerated salesmen to ensure that their clients’ interests are fully served, but my question is: would my actuarial mentors have allowed this mass confidence trick to be perpetrated without intervention? Again, I think not.

Declining standards
I am fast running out of space, but we all know this is just one example of declining professional standards by omission rather than commission and, perhaps in the current panic for financial success, there are other professions to whom this might apply. There seems to be a lot more large-scale litigation against professionals than was once the case.
When the professions can no longer be relied on to act in the public interest, then government must step in to do it instead. It is a great deal more expensive, and I don’t mean just in the financial sense. Regulations must be enacted and enforced by intelligent people who otherwise would be much more productively employed.
It is all a very great pity.