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The Actuary The magazine of the Institute & Faculty of Actuaries

When the public interest impinges on business relationships

Actuaries mean business

In the interviews I conducted in preparation for my presidency, the request expressed, above all, from people outside the profession was that actuaries must present their results in the business context. By that I mean (and the people I was talking to mean) presenting the implications for those affected by the actuary’s work and disclosing the insights we have picked up during the project, even if they are incidental to the project or not derived with full actuarial rigour.

Within the advisory role should be included as much scope as the employer or client will allow for presentation of conclusions within the business context and to cover all the issues raised. This is helped by designing solutions, whether products, schemes, plans, or transactions, not for our own personal satisfaction, but to meet the needs of employers, clients, and the various affected third parties.

Professional duty
The individual actuary’s role as an adviser is to act in the interests of the employer or client. The role is usually enshrined in a job description for an employed actuary, or an engagement letter for a consultant. The role may often be a formal one that involves a requirement to blow the whistle. But how much further does an individual actuary have to go because he or she is ‘professional’? The first port of call is to the professional conduct standards (PCS), augmented by guidance notes where appropriate. How far beyond that? I have wrestled with this question for some months now to try to make it as clear as possible for young actuaries how to position this extra yoke of being ‘professional’.

As members of a profession, actuaries are familiar with the obligation to maintain and observe the highest standards of conduct. The PCS says that advice should normally include sufficient information and discussion about relevant factors and about the conclusions of the actuary’s work to enable the intended recipient of the advice to judge both the appropriateness of the recommendations and all the implications of accepting them. This challenge is not easy, especially in a world of fast-changing mores and regulations. An actuary advising an insurer should normally address the implications for the policyholders; in the case of a pension fund, the actuary should address the implications for scheme members.

The decision tree
I have come to the conclusion that there is a resolution tree for addressing concerns about third parties in a project. The initial steps of the resolution tree depend on a mutual understanding that there is a strong business relationship between the actuary and the employer or client. That business relationship is the means by which the employer or client receives advice, by which the actuary is paid, and by which there is an expectation that, all being well, further advice and payment may be exchanged in the future.

Good relationships between actuary and principal are characterised by a full mutual understanding of the responsibilities of each to the other, both immediately and in the future. This relationship is a powerful bond within which all matters, including professional and public interest matters, can be discussed and resolved. The resolution tree then is:

  • First, the concern should be well thought through. You may persuade yourself the issue is trivial or not that relevant, or that it can be resolved in the normal course of the business relationship with your employer or client.
  • Having passed the trivia and relevance tests, it should be communicated, as far as possible, with the employer or client and resolved in the business context of the project. Sensitive clients will welcome the value-added implications and insights – again, part of the business relationship.
  • Where you have doubts as to the right course of action, the issue should be discussed with a senior actuary in your firm to try to resolve within the project.
  • If this is inappropriate for any reason, and the actuary still has doubts, he or she is encouraged to raise the issue with the Professional Guidance Committee (PGC) for consideration.

The key feature of this process is that an issue does not fester; it gets resolved one way or another.

To make life easier, it is as well in scoping a project to reach an understanding with one’s employer or client about who is responsible for considering the implications of the project for third parties. A fully scoped project with a reasonable timescale (you know, as you always have) might include:

  • identifying the client’s ‘publics’ who might be affected by the completed project;
  • excluding those who can look after themselves (eg government) or who would be only trivially affected;
  • checking that someone on the team is responsible for considering the implications for each ‘public’;
  • identifying those implications;
  • taking them into account in presenting the results of the project;
  • communicating the results.

If an individual actuary has a concern that cannot be resolved because:

  • it is serious;
  • it falls outside the PCS (or guidance notes);
  • it cannot be brought within the scope or timescale of the project;
  • it cannot be resolved within the project; and
  • it cannot be resolved with a senior actuary in the firm;the concern is likely to be of interest to the Professional Guidance Committee, who will want to help with its resolution. If the issue is of general application, and not specific to one particular client, the PGC may decide that it should be taken on as a general issue for the profession to champion.

We are establishing a process within the public interest remit of the profession to take on such issues and digest them for the good of our members. I hope that the processes for an individual actuary outlined in this article will enable and empower actuaries to address difficult issues, whether in co-operation with their employer or client, within their firm or with the profession. I would welcome feedback – favourable or otherwise – from members who try out the process.