What are actuarial standards of practice?

Actuaries are basically the risk forecasters of the modern insurance world. Their job is to use risk analysis, mathematics, statistics and probability calculations to deliver concrete predictions about potential risks in different contexts. Insurance companies and many other organizations hire these professional forecasters to assess their exposure for insurance coverage, loans or investment policies.

Actuarial standards of practice are the specific documentation and procedure standards that the Actuarial Standards Board establishes for professionals in this field to make sure they’re following best practices. These standards of practice are maintained and enforced for uniformity in a field that can be complex and highly abstract to the clients who depend on actuaries.

What do actuarial standards of practice apply to?

The importance of actuarial standards of practice exists because actuaries have extraordinary influence when it comes to setting prices and costs in most insurance and claims-related industries. Their work can directly affect business decisions in many ways.

When it comes to planning for the future in a highly probabilistic world, having a concrete notion of how likely it is for a bad event to occur is crucial. Everyone understands that certain people will die, certain disasters will happen and certain ventures will fail in different ways. Knowing the hard statistics of likelihood is what allows for cost calculations.

For these reasons, the methodology that an actuary uses for their forecasting becomes important. Without correct practices, insurance providers can’t easily set profitable and competitive rates for the range of services they offer to businesses and others.

Actuarial standards of practice apply to actuaries working in all claims and insurance coverage-related areas of the financial protection landscape. Their job includes calculating the odds of risks and disasters for:

• Financial products and financial insurance
• Accident and death coverage
• Natural disaster protection
• Major human accidents
• Vehicle insurance
• Factory or workplace situations
• Health insurance settings
• Property insurance coverage and claims
• Mutual life insurance coverage
• Long-term care insurance
• Business insurance
• Property insurance

Actuaries forecast for the sake of setting correct coverage prices in a wide range of areas that affect businesses of all sizes. The Actuarial Standards Board is careful to establish the specific rules by which actuaries in different fields analyze, document, report and forecast the situations they’re paid to predict the odds of.

Why actuarial standards of practice may be important for your business

An actuary helps in the creation and delivery of products and services that incorporate the financial costs of risk as a fundamental component. If your business is involved in any project or industry that involves covering your employees or assets against the possibility of future harm, then an actuary is affecting your operating costs somewhere down the line.

Basically, the professional standards of actuaries in all aspects of the insurance industry have a direct impact on how affordable or costly your financial coverage is. Even if you don’t directly use an actuary as a consultant for your business, you’re still subject to their professional services.

Actuaries are used by the companies that you buy insurance from for your facilities, your employees’ health care and your workplace injury policies. They’re also used by the institutions that lend your business money.

Which businesses might need actuarial services and professionalism?

Some businesses outside of the insurance industry also directly hire actuaries as consultants. If your company is involved in industries, such as banking, investment, health care or resource extraction, you might benefit from having a trained actuary on staff. They can be hired as business analysts or risk assessment officers.

Actuaries are especially vital in loan and banking-related industries because they can assess how much of a risk these businesses will face when they make loans for different ventures. Your business might also depend on actuarial professionalism when it comes to manufacturing.

If you’re building products that provide safety-critical functions for others in some way, actuarial forecasting can be crucial for your business. A consulting actuary can assess the potential failure and disaster odds for your products or the scenarios they’re used in.

The main point for your business is that actuarial standards of practice are extremely important for trusting the forecasting quality of the actuaries you depend on. How well their analysis and documentation procedures are calculated defines how costly many things will be in certain business contexts.

How should my business use the actuarial standards of practice?

Many businesses need an accountant or a lawyer on standby. Most, however, probably won’t need to directly interact with an actuary unless they grow to a certain size or enter certain riskier industries. In other words, unless your business is involved in health care, high-risk industrial ventures, mission-critical manufacturing, banking or insurance, you probably won’t need to hire an actuary directly. Actuarial standards will also be outside the scope of your involvement.

Nonetheless, it’s useful to at least be aware of how actuaries play a significant role in many of your business’s operations and loan applications. It’s also good to understand that their profession is governed by certain operational and conduct standards.

The Actuarial standards of practice that are used in the United States are similar to those applied in many other countries, although specific rules and standards can vary by country.

Actuarial Standards of practice FAQ

Are the actuarial standards of practice a set of legally binding rules for actuaries?

The actuarial standards of practice aren’t rigidly designed to dictate exact approaches for actuarial outcomes. They’re more of a framework for professional assignments and a source of guidance on best practices. However, the ASB does have considerable authority for certifying actuaries and ensuring that their work follows U.S. Qualification Standards.

How does the ASB promote its actuarial standards of practice in the actuarial industry?

The ASB works closely with the Actuarial Board for Counseling and Discipline to promote its standards among actuaries throughout their relevant fields. It ensures they adhere to the standards of professionalism the ASB has created with the help of volunteer actuaries in the U.S. Working actuaries who disregard ASB ASOP rules can be subjected to a professional discipline process. This helps promote adherence to these standards.

Does anyone but the ASB set the actuarial standards of practice?

The final authority for the creation and refinement of the actuarial standards of practice is the ASB itself. However, it establishes these standards through a rigorous, transparent and volunteer-based process of committee meetings, board sessions and reviews.

How does the ASB set its actuarial standards?

When creating a new actuarial standard or modifying an existing one, the ASB first evaluates current actuarial practices. It then consults with volunteer actuaries for guidance. At that point, it publishes what it calls an exposure draft, so it can get input from practicing actuaries and other interested parties, such as business leaders. This process might be repeated based on comments received until a final standard is refined and published as a new ASOP rule.

Where can I find a copy of the ASB’s actuarial standards of practice?

The ASB maintains a website where it offers up-to-date copies of its actuarial standards free for public review. These up-to-date standards can be found here.