The Value of ASOP 1

By Jeff Shouldis • March 15, 2017 • 0 Comments
Editor’s Note: This is the latest installment in our ongoing series of posts on professionalism.

Recently I received a text message from my wife that said, “You should consider taking out the trash in the kitchen.” Now, text messages can struggle to describe tone and can often be interpreted in multiple ways. So my mind raced: What exactly does this mean — that I “should consider” this? I was offered advice how to respond: “I considered taking out the trash and then decided it just wasn’t for me. “ (Not the best advice…) 

In realizing that something as simple as a request for garbage removal could be construed in different ways, how are we supposed to possibly decipher items as complex as actuarial communications and the actuarial standards of practice?

Lucky for actuaries, there are lots of resources to help us navigate some of our daily issues, and these resources can start with ASOP 1 (Introductory Actuarial Standard of Practice). ASOP 1 provides an overview and defines terms that are commonly used throughout the other ASOPs. The definitions in ASOP 1 are intended to apply across all ASOPs (unless a particular ASOP already includes a specific definition for that term.)

For example, if an actuary is faced with the question, “Is the method in this prior report a reasonable approach?” or is reviewing ASOP 4 to find: “The actuary should evaluate whether a prescribed assumption or method set by another party is reasonable for the purpose of the measurement,” then the actuary may benefit from some clarity about what is reasonable. Familiarity with ASOP 1 may help, as it provides this guidance about what is “reasonable”: 

The intent is to call upon the actuary to exercise the level of care and diligence that, in the actuary’s professional judgment, is necessary to complete the assignment in an appropriate manner. Because actuarial practice commonly involves the estimation of uncertain events, there will often be a range of reasonable methods and assumptions, and two actuaries could follow a particular ASOP, both using reasonable methods and assumptions, and reach different but reasonable results.

If an actuary receives data and has suspicions about the data quality, then the actuary may start with ASOP 23 and read: “If the actuary believes questionable or inconsistent data values could have a material effect on the analysis, the actuary should consider further steps, when practical, to improve the quality of the data.” Again, ASOP 1 may enhance this guidance, as it expands on “materiality” to add: “When evaluating materiality, the actuary should consider the purposes of the actuary’s work and how the actuary anticipates it will be used by intended users.”

ASOP 1 elaborates on the usage of the terms “must” versus “should” versus “may.” For example, if an actuary has a phone conversation with a client and winds up discussing results, the actuary may double-check with ASOP 41 and find: “Where the actuary has a concern that the oral communication may be passed on to other parties, the actuary should consider following up with an actuarial document.” ASOP 1 adds: 

The word “should” indicates what is normally the appropriate practice for an actuary to follow when rendering actuarial services… Failure to follow a course of action denoted by either the term “must” or “should” constitutes a deviation from the guidance of the ASOP… The terms “must” and “should” are generally followed by a verb or phrase denoting action(s)… For example, the phrase “should consider” is often used to suggest potential courses of action. If, after consideration, in the actuary’s professional judgment an action is not appropriate, the action is not required and failure to take this action is not a deviation from the guidance in the standard.

ASOP 1 describes other recurring terms found throughout the ASOP such as “professional judgment,” “practical,” “deviation,” “known,” etc. Furthermore, ASOP 1 captures the overall purpose of the ASOP to explain: “The purpose of the ASOP is to identify what should be considered, done, documented, and disclosed when rendering actuarial services.”

Actuaries rely on many resources in our daily work: colleagues, co-workers, the ACOPA listserv. The ASOPs are one of those many resources. If you find yourself going to the ASOPs regarding a situation, you may benefit greatly by also reviewing ASOP 1. ASOP 1 helps to explain the context of other ASOPs and reminds us of the purpose of the ASOPs. 

And if you really apply it, you may even find yourself with some improved common sense in text messages back to your family.