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The Actuary The magazine of the Institute & Faculty of Actuaries

If the shoe fits, wear it

I am sure that many an actuarial student who has pounded his or her desk in frustration when preparing for an exam will empathise with what I am about to say. Not many students will tell you they think the exam system is fair and reasonable, and certainly none who has been writing exams for as long as I have! I am sure that even those fortunate enough to have qualified will be able to recall those dark days, that is, if they are willing to risk all that psychological trauma resurfacing.I shall begin with a short example, which will probably convey my thoughts better than mere arguments.Question: Describe how you would tie your shoelaces in the morning. (5)My answer:I decide which pair of shoes I am going to need. (1)I get them from where they are stored. (1)I put them on my feet. (1/2)I may do this either while standing up or sitting down. (1/2)I tie the knot using the ‘single bow and loop around’ method. (1)Others may use the ‘double bow and knot the both of them’ method. (1)Specimen solution:Putting on your shoes is very important because it protects your feet from being barefoot. (1)Make sure you have two shoes. (1/2)Shoes may take the form of ordinary work shoes, running shoes, squash shoes, tennis shoes, formal shoes, etc. (1/2)The type of shoe you wish to wear will depend on the purpose of your putting on shoes. (1/2)Ensure that you have the right shoe on the right foot (1/2) and the left shoe on the left foot. (1/2)This is important to prevent discomfort. (1/2)Draw the shoelaces in to tighten the flaps, ensuring that the tongue is not wrinkled up. (1/2)Again, this is important to prevent discomfort. (1/2)Tie the shoe, either using the ‘single bow and loop around’ method or the ‘double bow and knot the both of them’ method. (1) [Max 5”I hope the examiners will excuse me if I appear facetious, but I am sure many students will get my drift. I think the root cause of the problems with actuarial exams is that they are not a very good way of testing application skills. To be fair to the examiners, they have not been given an easy task. However, I believe that the exams have unfortunately become a series of hoops that students have to jump through which do not necessarily test actuarial abilities.Because of the extreme competitive pressure – we all know that only 30% to 40% of candidates will pass any 300 or 400 series exam – I would guess that the majority of candidates know their bookwork very well. The examiners would like to differentiate between candidates on a basis other than bookwork, ie the higher-order skills such as analysis and synthesis mentioned in the course notes. Unfortunately this is not done very consistently and appropriately, with the result that passing the exams not only requires knowing the work, but also a dollop of good fortune.Owing to the extreme time pressure, if a candidate incorrectly gauges where the emphasis of a question is, he or she will have missed the boat. I believe that often candidates have the knowledge that examiners are looking for, but that the question can be interpreted in more than one way. If candidates were allowed time to cover all the bases, this would not be so serious, but in the exam you are required to get a mark every 1.8 minutes. That is about the amount of time a person of average writing speed can write down the two points which will get one mark. Therefore, if you take the wrong fork in the road, there is no turning back.This problem is exacerbated by the narrow range of scores achieved by candidates. The Institute does not release the actual scores, but judging by university results, and my (by now very extensive!) experience in writing exams, I would estimate that about 75% of candidates achieve results in about a 10% range (I wonder whether anyone in the examination department can confirm that?). Given that only half of the candidates in this range are going to pass, there is not much basis for differentiation. A slight misinterpretation of a question, or attempting to display higher-order skills in a question that rewards only bookwork, can easily make the difference between seeing your name on the website and waiting for that nasty letter.

No time to thinkHere is a concrete example of the points I am trying to make: a few years ago in a 404 exam (September 2000, paper 2), there was a question regarding an employer who wanted to provide retirement benefits with a fixed contribution rate. The question asks candidates to outline options for both defined contribution and defined benefit schemes. The impossibility of having a defined benefit scheme with a fixed contribution rate sticks out like a sore thumb, and one would have thought this was a golden opportunity to demonstrate higher-order skills and explain to ‘the finance director’ why this was not possible. One would especially expect this in the second paper of a fellowship exam. However, the marking schedule did not address this conflict once, and 95% of the points covered were straight from the notes, merely describing DB and DC schemes in general. Any candidate who tried to address this issue would have lost marks by wasting time – and because of the small margin between success and failure.For the above reasons, candidates do not have faith in the worth of trying to display higher-order skills. The strategy with the best chance of success is to make sure that you get every single bookwork mark. It is not worth wasting time on speculating about secondary issues, or thinking beyond the syllabus, because you don’t know whether you will choose the correct question in which to do so; even if you do, your opinion may not correlate with the marking schedule. Rather, put down the facts and go on to the next question. If you stop to think, you will be penalised by not completing the paper. At the end, cross your fingers and hope that you have beaten the other candidates, who will have been playing the same game.I would like to stick my neck out by guessing that fewer than 5% of candidates score more than 70% for any of the 300 or 400 series exams. This is because everyone is attempting to answer only 80% of the paper in the first place. The higher concepts in actuarial science are being lost because of the strategy that candidates adopt to maximise their chances of passing.

Making sense of the future?Apart from the most obvious negative effect of this, which is that passing the exams is a real bind, there are second-order effects which can harm our profession.Actuarial science has a high drop-out rate. It would also be vain to suggest that those who drop out are on average less intelligent than those who do not (some might even suggest the opposite). My opinion is that those who possess lateral thinking skills and creative abilities will be the first to become frustrated with this system. Or, put differently, candidates are not given the opportunity to develop these skills during the qualification process. Obviously I am not suggesting that there are no qualified actuaries with these attributes – far from it. But the tendency will be for those people to join other professions with a better ‘risk and reward’ profile.I would go as far as saying that the result of this selection process can be seen in the scope that actuaries have in the employment market. Yes, one does hear of wider fields in The Actuary, but generally these are cases of isolated individuals – perhaps those who have been able to tolerate the examination system better than average. In my experience, actuaries are generally confined to the various forms of insurance and pensions and, occasionally, investments.

Breaking the chainsIn my opinion, actuaries should be able to help any organisation or enterprise that seeks to plan beyond a certain time horizon, and our examination system could be helping us to achieve this wider scope.I believe that the focus on the minutiae of life insurance, general insurance, and pension fund administration in the examinations could be shackling our profession. The addition of a new subject on financial economics is an excellent start on the way forward, but if that examination is conducted along the same lines as the rest of the 300 series, it could be a damp squib. We need a chance to be able to develop and demonstrate broader abilities if our profession is to flourish and continue to add value to the world.I am very anxious to hear the opinions of others on my thoughts, especially those of the examiners. I would be quite willing to take back what I have said if someone can convince me otherwise. I really hope that this article will stimulate some constructive debate.Lindsay Wanliss works for Liberata Life Pensions & Investments Ltd in Basingstoke.