IAI Actuarial Core Principles · Business Management · Professionalism and ethics case studies
Meera, a pricing actuary at an Indian life insurer, prepares a report for the product committee, whose members are senior executives without actuarial training. The report relies on a lapse assumption that is highly uncertain and could materially change the proposed premium. Which approach best meets the Actuaries' Code requirement to communicate clearly?
The actuary should explain the lapse assumption in plain language, state how uncertain it is and show how the premium would change if it proves wrong. This lets non-actuarial decision makers understand the material risk, which the Actuaries' Code's communication requirement demands.
- AShow the lapse assumption only in a technical appendix, because the committee is not trained to interpret it
- BExplain the lapse assumption in plain language, state its uncertainty and show how the premium changes if it is wrongCorrect
- CGive a single premium figure with no mention of uncertainty, to avoid confusing the committee
- DQuote the assumption as a precise percentage so that it appears reliable
- Leave the assumption out and tell the committee verbally if they ask
Explanation
Communication must be clear and suit the audience, and it must make material uncertainty and limitations visible. Plain-language explanation with the sensitivity of the premium does this. Burying the assumption, hiding the uncertainty or omitting it leaves the committee unable to judge the risk.
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