$2) is equal to $1, this is a fair game and somewhat akin
to a traditional market transaction.
Now suppose instead the price of tossing the coin
were $1 million, and the payout for heads were $2 million. You would want some assurance that the program
provider—the counterparty on the other side of the
bet—had the wherewithal to make good on the $2
million payment. You would probably want to know
whether the provider of this program were well-enough
capitalized so that it could pay—even, for example, if
you were to get three or four heads in a row. You would
probably also want to know whether the provider’s
business practices were sustainable over some relevant
time horizon and whether the provider would be able
to keep the promise of payment, particularly if you paid
for the right to flip the coin upfront but did not actually
flip it until sometime later.
But, what if you were not in a position to know those
things on your own? Even if you could intuit them for
the relatively simple case of a coin flip, what if instead
you were looking at a financial security program, with
many different participants, contingencies, timing, and
These additional complexities, risks, and range of
possible outcomes—the actuarial questions—mean that
ordinary people need help beyond “fair market value”
to figure out whether a program does indeed provide
financial security and peace of mind.
Enter the actuarial profession—and the professionalism of actuaries. That’s right: professionalism, not
just smarts. It is not enough for actuaries to be smart
to garner the public’s trust. To have confidence in their
financial security programs, the public needs to be able
to trust actuaries and the information we provide to our
principals and regulators. We earn that trust by following
the precepts of the Code of Professional Conduct.
In the abstract, if you were looking for advice or
information on a potentially life-altering decision, what
attributes might you consider to be worthy of your trust?
A few that come to mind include:
■ ■ Honesty. Does the potential adviser tell the truth?
What can be verified? Do the explanations for what
cannot be verified seem well-reasoned and plausible?
■ ■ Integrity. Are interests well-defined and potential
conflicts of interest disclosed? Does the potential
adviser demonstrate, through word and action,
adherence to principles?
■ ■ Consistency. Do the same (or similar) circumstances
always produce the same (or similar) conclusions?
■ ■ Reliability. Does the potential adviser follow through
on commitments—saying what he or she will do,
doing what he or she says?
■ ■ Open communication. Does the potential adviser
communicate clearly about data, methods, reasoning, and appropriate use? Is everything expressed
in understandable terms?
■ ■ Norms and standards. Do they exist? Does the
potential adviser follow them? If not, why? How
does the community enforce them?
■ ■ Ability to assess and communicate risk. What
does the potential adviser envision as the possible
futures? What are the potential risks—upside and
downside? Does the potential adviser make clear
all the potential consequences of any decisions a
member of the public might make?
■ ■ Adaptability. Does the potential adviser adapt to
changing circumstances or the availability of new
Actuaries are bound by a Code of Professional Conduct
that incorporates all of these attributes, expressly or
implicitly. Consider just a few examples:
■ ■ Precept 1 explicitly requires honesty and integrity.
■ ■ Precepts 2 and 3 require actuaries to meet standards
of qualification and practice, which help ensure consistency, reliability, and that actuaries adapt to change.
■ ■ Precept 4 requires clear communication.
■ ■ Precept 13 defines the community enforcement
The value of the actuarial services we provide depends
on the core values of actuarial professionalism: honesty,
integrity, competence, objectivity, and a commitment
to service. When we embody these values in our daily
work, we build the public’s trust in what we say and their
confidence that the financial security programs upon
which they rely will be there when needed.
This brings us full-circle back to the Academy’s
mission statement. Actuaries, by word and action, serve
the public by assuring the public that the promises of
financial security programs will be met. The public’s trust
is hard-earned, one small step at a time, but can be easily
lost with only one action. This is one of the reasons that
Precept 1 of the Code of Professional Conduct puts the
responsibility to the public and the reputation of the
profession front and center.
Over the next year, I look forward to engaging
Academy members in a fuller discussion of how our
collective commitment to professionalism can serve the
public and the profession.