Up to Code JuliA t. pHilips
Are you a rule follower?
are YoU a rUle folloWer or a rUle Breaker? if you
assume that rules are generally reasonable, you’re probably happy to
follow them. i believe that actuaries are generally rule followers (which is
a good thing) but that we should think harder about the reasonableness of
the rules we follow, especially in a world where others are rule breakers.
We need to ask ourselves more often than we do whether the rules are
reasonable. in particular, we should pose the following questions:
■ Is there a compelling reason to
break the rule?
■ What are the consequences of
breaking it?
Most people have an inherent bias
for or against rules. Everyone knows
people who have a strong inclination to
follow whatever rules have been set up.
Everyone also knows people whose tendency is to ignore rules.
In my experience, most actuaries
fall into the first category. This is based
partly on observing fellow actuaries
during my 30 years in the profession,
partly from my 15 years regulating life
and health insurance in Minnesota, and
partly from my six years serving on the
Actuarial Board for Counseling and
Discipline (ABCD).
Most people with whom I talk
agree with my conclusion. A friend
who’s a retired actuary recently
told me that he’s come to realize
that most other people don’t
respect rules the way he
does. He’s disappointed by that realization.
A co-worker who reviews actuarial memorandums but isn’t an
actuary says, “Actuaries
can’t lie.” My husband,
who retired as an actuary nine years ago, is a
splendid youth softball coach.
One reason for his success: he knows the
rulebook by heart.
Our integrity and knowledge make
us respected professionals. Sometimes,
however, we’re so narrowly focused
on complying with the rules that we
don’t realize that the rules themselves
aren’t reasonable. We need to evaluate
each rule by asking ourselves the above
questions—and use our judgment in following it.
Here are some situations from my
experience that require actuaries to ask
questions and analyze a situation, rather
than blindly following the rules.
what’s the Rule?
We sometimes read the Code of Professional Conduct, an Actuarial Standard
of Practice (ASOP), or a statute once or
twice and then rely on memory. Each
new situation requires a rereading of the
rule so as to better apply it to the new
situation. I’ve had many discussions
with company actuaries who are certain that a state statute says one thing,
but when we look at the actual wording
it says something else.
whose Rule is it?
Many supervisors have a rule: “Do
whatever I tell you to do.” In the 1980s,
I talked to an actuary who had followed the company president’s orders
to reduce health insurance reserves to a
level much lower than was reasonable.
The actuary later restated the reserves
and lost his job. In this case, following
orders led to violating the code and the
standards. In retrospect, he regretted his
decision to follow orders.
In my 15 years with the Commerce
Department in Minnesota, I’ve worked
for seven different commissioners. One
former commissioner ordered me to approve a rate filing that I’d recommended
be disapproved. His rationale was that
he had the authority to approve or disapprove filings and the power to order the
filing’s approval. I agreed with his understanding of his authority but stated
that his signature had to go on the filing
instead of mine (this was in the old days
when filings were on paper), and that
the filing would contain a memorandum
from me with my analysis. In that case,
my actuarial rules trumped his rules
and the filing was disapproved.
I frequently receive
actuarial memorandums that
demonstrate
compliance with
a model law of the
National Association of Insurance Commissioners (NAIC). If the
actuaries understood the function of
the NAIC, they would understand that
while the model laws are guidance for
