Professionalism Counts is a column in Actuarial Update, the Academy's monthly newsletter.
PRECEPT 8: THE RESPONSIBILITY THAT COMES WITH POWER
Precept 8, Annotation 8-1 of the Code of Professional Conduct (the Code) observes that an actuarial communication prepared by you as an actuary “may be used by another party in a way that may influence the actions of a third party.” This is your power as an actuary. In recognition of this special ability, Precept 8 requires you to do what you can to ensure that your powers are used for good, not evil—sort of like what Superman’s father did for his son in the Fortress of Solitude.
When exercising your powers, Precept 8 requires you to take reasonable steps to ensure that your actuarial services are not used to mislead other parties. That doesn’t mean that you are ipso facto responsible if an intended user manipulates your services to, for example, mislead regulators or otherwise avoid legal responsibilities.
Precept 8 does not require you to anticipate and take precautions against every conceivable misuse of your services or create a foolproof work product, but it does place some responsibility on you to make certain—as best you can—that your actuarial communications will not be misused or misapplied by intended users of your product. Precept 8 directs the actuary to recognize the possibility that the actuary’s work may be misquoted, misunderstood, or otherwise misused and to address that possibility by complying with the Code of Professional Conduct.
For instance, Precept 1, Annotation 1-2, states that “An Actuary shall not provide Actuarial Services for any Principal if the Actuary has reason to believe [emphasis added] that such services may be used to violate or evade the Law or in a manner that would be detrimental to the reputation of the actuarial profession.”
It’s important to note here that “has reason to believe” does not mean that the actuary can avoid responsibility by deliberately ignoring the obvious. Social scientists have long identified the human tendency for us to see what we want to see and to fail to notice unethical behavior in others when it’s not in our interest to do so.1
Precept 1 requires more from the actuary in order to fulfill the actuary’s responsibility to the public and to the actuarial profession. As the Committee on Professional Responsibility (COPR) wrote in the 2003 discussion paper, The Actuary’s Relationships with Users of a Work Product, “[I]f an actuary has reason to believe that the actuary’s work will be misused, the appropriate action is to resolve the matter through discussions with the principal or, failing appropriate resolution, to decline to provide the services.”2
However, in the same paper, the COPR also recognized that “[i]t is not always easy for an actuary to determine whether or not a work product is likely to be misused. … More often, however, the principal will not clearly indicate an intent to misuse the work, and the actuary may not have any objective reason to doubt the principal’s good faith.”3
In such cases, actuaries meet their obligations under Precept 8 by complying with Precept 4 and taking appropriate steps to make certain that their work products are clear and appropriate to the circumstances and intended audience and “contain the necessary caveats to put a third-party reader on notice of the nature and scope of the actuaries’ conclusions.”4
Including disclosures in the work product that clearly define its intended use and intended audience and provides cautions against other uses of the work product by other audiences may make it more difficult for principals or third parties to use your work in a manner inconsistent with how you intended it to be used.
To further help to prevent abuse, you might also include language in the actuarial document, retaining letters, or other agreements with your principal “that limits distribution to other users (for example, by stating that it may only be provided to such parties in its entirety or only with the actuary’s consent).”5
In summary, when exercising your powers as an actuary, the public and the profession expect you to take reasonable steps to make certain that your work product is not used to mislead or deceive others. As attested by The Amazing Spider-Man: “With great power comes great responsibility.” acknowledgment of qualifications, the requirements for recordkeeping, and the discussion whether internal communications and drafts could be considered statements of actuarial opinion. “Appendix 1 reminds us that labeling a statement as a draft does not automatically preclude it from being considered a statement of actuarial opinion,” he said. “An actuarial opinion is defined by its contents and the reliance intended to be placed upon it, not by an arbitrary label applied by the actuary who produced it.”
Coggins reviewed communications as they are addressed in actuarial standards of practice (ASOPs). Not only do the ASOPs include a specific standard devoted to communication—ASOP No. 41, Actuarial Communication—but every ASOP also includes a section on communications and disclosures.
Discussing the importance of clear and appropriate communication, she said, “We should certainly know our audience or intended users. Are they technical or non-technical? Do they prefer high-level or very detailed content? Are they more visually or numerically oriented? When we are in doubt, it’s always helpful to seek the input of a peer. Such input is an excellent way to gain an understanding of the effectiveness of our actuarial communication.”
Communication often arises in requests for guidance (RFG) or cases that come before the ABCD. Kent discussed how the Code, the ASOPs, and the USQS are examined in the ABCD process. He focused on the precepts related to advertising, violations of the Code, and cooperating with the ABCD. Discussing Precept 13, he noted it contained three points. First, each actuary has the responsibility to do something about an unresolved potential violation of the Code.
The second component is that actuaries can resolve many complaints themselves. “If it can be fixed through a discussion, revision of a work product, or appropriate modifications of another actuary’s behavior, this is the easiest avenue for addressing a potential violation and avoiding the submission of a complaint,” he said. Many communication issues are resolved in the discussion between actuaries that is recommended (but not required) by Precept 13, he added. The third part of Precept 13 relates to submission of a formal complaint.
The presenters used illustrations from Requests for Guidance (RFGs) that were or could be received by the ABCD to explore more communication issues and how they might be addressed and resolved. These scenarios included a change in actuaries, misrepresentation of work product on a blog, and relationship to the principal, and raised issues such as integrity, control of work product, courtesy and cooperation, titles and designations, and violations of the Code.
A Q&A session followed. In response to a question on whether providing information and opinions to a supervisor constitutes an actuarial opinion, Coggins said, “If you are offering an opinion, in any form, and you anticipate that that opinion will be relied upon … then that is a statement of actuarial opinion.”
Slides and audio are available free to logged-in Academy members.
1. Pazzanese, Christina; “Seeing What Leaders Miss”; The Harvard Gazette; Aug. 7, 2014.
2. The Actuary’s Relationships with Users of a Work Product, Committee on Professional Responsibility Discussion Paper; 2003, p. 8. 3 Id. At 9.
3. Id. At 9.
4. Id. At 10.
5. ASOP No. 41, Actuarial Communications, section 3.7.
Reliance: A Matter of Responsibility