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The Actuary The magazine of the Institute & Faculty of Actuaries

Compound interest, not public interest

T here has been much talk in recent years about actuaries having a responsibility to take account of the ‘public interest’. A clear explanation of the meaning of the term ‘public interest’ never accompanies such talk. This seems to be a singular omission in a profession that is usually pictured as being overconcerned with precision of calculation and expression.

The charter and the Professional Conduct Standards
The charter of the Institute charges it ‘In the public interest to provide knowledge and research in all matters relevant to actuarial science and its application’. But those who urge us to have regard for the public interest seem to have in mind something much loftier than the mere provision of knowledge and research.
Some guidance on what is meant might be expected in the Institute’s Professional Conduct Standards with which all members must comply. Here, in section 2.1, we are told that the profession ‘ has an obligation to serve the public interest. Collectively it seeks to do so by informed contribution to debate on matters of public interest and by influencing those with power to protect and enhance the public interest. Individually members must maintain and observe the highest standards of conduct’.

Words on the website
Those needing further elucidation of these Delphic utterances will have been pleased to find that there is now a section of the Institute’s website (under ‘About the profession’) with notes that elaborate on the Professional Conduct Standards. The notes divide public interest responsibility into three key areas. The first two, education and setting standards, are not further discussed either on the website or in the notes. The website sets out how the profession will address the third area: ‘Taking action directly or by seeking change by others on public interest’. The explanation includes a claim, unsupported by any examples, that issues of public interest have not been addressed soon enough in the past and suggests that less damage is done if issues are not left to fester. There is a call for swift action followed by an admission that on issues other than education and standard setting the profession has no direct control over events.
There is then a woolly paragraph that must surely have been written by a committee. It sets out a process for identifying a matter which may be of public interest, deciding whether it is worth bothering about, referring it to various committees, considering what to do about it, weighing it up, reporting on it, advising members about it, and finally making a statement about it. The process does not give the impression that it will result in the swift responses that the profession had previously called for.
Finally, the notes have a section headed ‘The position of the individual member’. Here I hoped I might gain an inkling as to what all the palaver was about. But all I can find is a statement that I am not bound to follow the profession’s position on any issue, but I should probably tell someone if the views of my client or employer conflict with the profession’s and if I am confused, then the appropriate committees are available to assist.

Presidents’ pronouncements
I thought I would look at a few presidents’ addresses to obtain an insight into the thinking of our leaders on the subject. In 1990, Hugh Scurfield made an approving comment about Canadian initiatives but did not develop the matter. Chris Daykin spoke approvingly in 1994 of the Canadians recognising ‘the centrality of the public interest in its code of conduct’. He asked ‘are we afraid of being regarded as the conscience of the financial services industry?’ and claimed that we expect an appointed actuary ‘to act in some sense on behalf of the supervisor, as a guardian of the public interest’. He made a number of other contentious comments in a similar vein.
More recently, Jeremy Goford recognised that the 1884 Charter is a very narrow foundation on which to build a public interest edifice and acknowledged that while the profile of the subject has increased significantly ‘the profession has struggled with how broad an interpretation to accept’. Jeremy commissioned the Communications Committee to study the matter with the aim of producing a statement that could be understood by one and all. I presume that his article in the April 2003 issue of The Actuary was a step along the way. There is a resolution tree for an individual actuary who has identified an issue of public interest to follow. I, for one, did not find the article of great assistance.

The role of the Institute
To my mind, the primary or perhaps the only role for the Institute in serving the public interest is as a provider of sound training for actuaries, in giving ongoing guidance, and doing its best to ensure that this guidance is being followed and any deviation brought to book.
An additional legitimate concern might be to see that legal and regulatory frameworks are such that that the work of actuaries is effective and well regarded. The troubles with the Equitable Life in the UK and HIH in Australia indicate that the existing frameworks for insurance companies have not been effective in achieving that outcome. There has been criticism both of individuals and of the professional bodies and existing regulatory systems have been found wanting.

The role of the individual
When advisers such as actuaries are given responsibilities to parties other than their employer, there is a confusion of roles that does nothing to enhance the standing of the profession. The profession’s reputation will be much better protected if multiple lines of responsibility that give rise to conflicts of interest are removed. Actuaries should certainly not, as Chris Daykin suggested, be expected to act on behalf of the supervisor, as guardians of the public interest.

Morris review
The interim assessment of the Morris review of the profession was published as this article was being finalised. There is a section titled ‘The public interest and accountability’ which indicates that I am not alone in my concern that ‘public interest’ is a vague and ill-defined concept.
The interim report outlines the various roles of actuaries and has charts showing how they all have multiple lines of accountability. Who could disagree with the suggestion in paragraph 5.22 that ‘imposing too many reporting duties on actuaries undermines their commercial usefulness to their clients, can leave them isolated, and can undermine the reporting responsibilities of senior management and trustees’.
The report has a lengthy section on the subject of whistle-blowing, and sets out three general options for ‘clarifying the circumstances in which actuaries may or must disclose information’. The fourth option, not considered in this section of the report, is to do away with this line of accountability entirely.

Greenhouse and other gases
There is, of course, an extensive array of matters of general public interest in which actuaries might take an interest. An example is the question of global warming, a subject on which Alan Greenfield makes impassioned pleas in recent issues of Actuary Australia. I have sat high above the waters of Lake Wanaka and read a placard saying that an ice-field covered that point 20,000 years ago. The melting of that vast body of ice indicates that a warming process was taking place long before Henry Ford’s products started emitting greenhouse gases. While individuals may busy themselves with such non-actuarial questions, the profession in reality has no role to play.

Solemn nonsense
In my opinion, the problem derives from actuaries being trained in a fairly narrow speciality. Many maybe most have a broad understanding of the commercial and financial world but this is a product of their experience rather than their training. They have a useful but steadily decreasing role to fulfil in giving guidance to institutions managing with-profits life insurance policies and on the benefit promises of pension schemes. Actuaries are also well equipped but by no means uniquely so to assess the value of the future liabilities of other insurance-type institutions.
The professional bodies should focus on the training of its members, and on constructing a framework that ensures that the work that members do carry out is of the highest possible standard, and that any failures are appropriately penalised. Individual actuaries should not be given ambiguous responsibilities.
Above all, it must be remembered that actuaries are not saintly figures, and somehow trying to paint them as the conscience of the financial services industry is just solemn nonsense.