The CAS Risk Management Committee (RMC) is charged with:
- looking at known risks that affect the actuarial profession and the CAS, and
- making recommendations to the CAS Board as to which are important and what can be done about them.
While the RMC’s focus has been on known risks, as practicing professional actuaries we also need to be able to look beyond known risks and foresee what our future presents in areas that could affect our careers.
Every day we see things that could jeopardize our profession. For example, within the insurance company arena, the emerging use of non-actuaries for statistical and analytical work is reducing the opportunities for actuaries in the marketplace. At one time, the actuarial skill set was viewed as critical for performing certain insurance company analyses. In recent years, companies have turned to other professionals, such as MBAs, who may bring a broader set of business and communication skills to the task (by colleen at dress head support). If we don’t completely understand, identify, and begin to mitigate the risks associated with this marketplace trend, there will be a significant negative impact on our profession in the future.
The RMC would like to hear from you. What do you see as future issues? What is happening now in your geographical or specialty areas? We will take these thoughts and insights and investigate strategies to keep our profession strong.
We look forward to your input. Please “Leave a Reply” below. If you would rather provide input to the Risk Management Committee directly, please send an email to the Committee’s staff liaison, Todd Rogers, at trogers@casact.org.
Thanks for posting a provocative question, Terry. Allow me to offer an equally provocative response. In my mind, a significant risk facing the actuarial profession is that of inertia. Whether this risk is emerging or present is debatable, but the ramifications are largely unrealized so let’s call it emerging. The SOA’s recent proposal to merge the CAS, SOA and Academy into a single US actuarial organization is controversial and presents potential challenges to the CAS, but I would suggest that many arguments presented in support of the merger contain a kernel of truth. Let me be clear on this – I do not believe the proposed merger is in the best interest of the CAS or the profession. That said I do believe the proposal illuminates issues we need to address, and inertia will present a huge challenge. One area where inertia is clearly beginning to manifest itself is in the CAS examination process.
The CAS examination process has evolved over the years but remains relatively unchanged at its core. Pass rates are low and travel times significant. A colleague and contemporary of mine commented that the problem with the CAS exam process is nobody involved really feels good about it. Failing candidates see low pass rates and wonder why more than 60% of people sitting for an exam fail – even on Fellowship exams taken by qualified actuaries with many years of experience. Successful candidates know that they probably managed to correctly answer only two out of three questions at best on the exam they just passed. A new Fellow can look back on his or her exam experience and realize that over all the years of studying and writing exams they may have earned about 50% of the possible points if they average all their scores. Employers generally fund the exam experience so they don’t feel good about having more than half their candidates fail each exam sitting. Why does this system persist?
The CAS exams are written and administered by a dedicated and professional group of practicing actuaries who contribute a significant portion of their time to the profession. Likewise, the syllabus is monitored, challenged and updated by an equally dedicated group of volunteers. They do a stellar job of administering the education of CAS candidates within the confines of the traditional examination process… but those confines evolve very slowly. If we are to compete for the best talent in the future we need to critically assess our examination process and consider implementing some bold changes to align the effort and the rewards. I’ll offer two thought starters in that regard.
• Leading undergraduate business schools typically have “weed-out” courses to identify those students that have the wherewithal to succeed in the program. The CAS process, by comparison, seems to “weed out” at every stage. Might we consider a structurally (and philosophically) different approach to Fellowship exams at a minimum that emphasizes learning over testing and recognizes the “weeding out” process has already taken place? Both pass rates and scores on FCAS exams should be markedly higher than on the ACAS exams. I suspect neither is the case.
• My colleague suggested a set of model questions (400, e.g.) be developed and shared for each exam that candidates should be prepared to answer. From these model questions, perhaps 50-60 would be selected and modified for a given sitting (different numbers, dates, names, etc.). Scores would likely increase, but so should the pass mark. Exam preparation, administration and grading would be simpler and the process would feel fairer. Executed properly this would do nothing to reduce the knowledge level of successful candidates, and might actually enhance it.
These ideas are incomplete and likely aspirational, which is why they are presented as thought starters and not solutions. Either way, we ought to be encouraging this type of dialogue for ALL risks facing our profession. Thanks again, Terry.
Nothing could be more misguided and perverse than to blame the examination system, which is the primary wellspring of the success of the actuarial profession in the United States and Canada, for problems that are either grossly mischaracterized or do not exist. However, this sort of grotesque falsehood has been very fashionable lately in some elite circles, despite being intensely unpopular with the vast majority in our profession.
By far the biggest risk to the actuarial profession is that standards will be dummed down with weaker exams or exemptions from exams. That, and nothing else, is the 800 pound gorilla in the room risk. Full stop, Period.
The simple, easy, reliable way to mitigate this risk is to invest more money and resources in improvement of the syllabus and exams, and completely forget about trying to shorten travel time, cut down on the number of exams, increase pass rates, or open alternative pathways to membership.
I love the actuarial syllabus and actuarial profession. I do not think either needs to be changed, but I completely agree with Mr. Franklin regarding the exams and the future or our profession.
I feel that there are two factions emerging: 1) those of us who see that the exams are not a good preparation for competition in the evolving marketplace, and 2) those of us who are afraid that the pass rate will be so altered that we will flood the market with actuaries and lessen the ability of existing actuaries to find work.
I think both positions are right, and I believe we can adopt changes to the exam system that will address both concerns.
I can only speak from my own experience. I have earned an MBA and J.D. I have passed the California Bar Exam. I have achieved the status of ACAS and MAAA. I also have published a paper in one of the CAS journals. Compared to the other accomplishments I have listed, sadly, I have found the CAS exams (particularly the higher-level exams) to be a poor test of my ability and knowledge. I have also found the exams to be poor predictors of success in a business setting. Furthermore, much of the time spent in preparation for actuary exams does not translate to improved skills in a business setting.
During the past five years, I have run a small actuarial department, and I have routinely felt compelled to screen job candidates for basic business skills. Some candidates are very qualified, knowing how to do advanced statistics, SQL, business analysis, give presentations, etc. Others seem to have the main skill of knowing how to pass actuary exams. I have had full fellows fail my basic tests, and I have declined to interview them further. Several times, I have resorted to employing non-actuaries to do business and statistical analysis.
I have no issue with low pass rates and long travel times; however, this needs to be based on achievement that actually corresponds to skills valued by employers. Being able to answer 30 short questions in 3 hours is not a good predictor of these skills. In fact, if you limit the pass rate to 30%, the people who will do the very best on such a test may actually be those with the least to add to our profession. The tests as of 2011 do not test the application of the skills in a business setting and do not test deep theoretical knowledge. This is why so many of us are uncomfortable with the process.
The exam committee does a great job of selecting material for study, and given the format of the exam, writes good exams. The format of the exam is the main problem. Originally, essay tests were designed to allow students to have different ideas of how to solve problems but still receive full credit. As we currently have roughly 30 questions in a three-hour block, there really is not any time for independent thought. Because one only has a few minutes to jot an answer, either the person knows the answer exactly as the exam committee desires or does not. Someone may have a deep knowledge of the subject matter of the particular question, but with only six minutes per question, may not be able to give an answer that allows the exam graders to realize how deeply the candidate understands the issue. The format turns the exam into a rote memory test rather than a tool to assess whether the candidate is capable of analyzing novel problems, formulating a relevant solution, and presenting the solution in a professional manner. I think the first few exams are great, but once we reach fellowship level exams we should be testing complex thought, theory, and business acumen. Mr. Evans is right; we need additional resources to improve the exams.
Here are two alternatives for the exams that could be more relevant (and still have a low pass rate—I agree with Mr. Evans that the problem is not long travel time):
Alternate 1: The exams are eight hours, taken at a testing center, where candidates use a computer and have access to the following programs: a spreadsheet, a word processor, a database, and a statistical application. You have only eight questions and require the student to start with the source data, analyze it, and then write a professional memo demonstrating your results. (I take this approach with candidates who apply to work for me, and I am often stunned at the inability of some credentialed actuaries to perform what I consider required in today’s work environment.)
Alternate 2: The exams have two hours of multiple-choice questions designed to ensure the candidate covered all of the material. Additionally the exam has a number of essay questions administered in the manner I described in alternative #1 above. (I realize that too many essay questions may be hard to grade.) If it is logistically too hard to have a database, statistical program, etc., at least the essay questions should allow the use of a word processor and a spreadsheet. (Think of how much easier it would be to grade typewritten answers!)
Other alternatives may add value such as requiring an oral presentation or publishing a paper. For example, successfully publishing of a paper tests the ability of an applicant to actually add to the profession, not just excel at current principles. Furthermore, there may need to be interim steps, such as keeping the exam process, as is, for the next 12 – 24 months, but publishing a list of questions, such as proposed by Mr. Franklin. There are many professionals, such as myself, who would love to work toward FCAS, but feel that the last few exams are so unreflective of our knowledge that we are not sure if we want to invest the time to continue. I would love to be a fellow, but would only like to invest the hundreds of hours to continue if I felt that the hours would be well spent. Having a question bank would help me to understand exactly what I am supposed to know, whereas under the current system I have to spend most of my study time guessing how to properly prepare for an exam; just studying the material in the syllabus in no way prepares one to pass under the current format. Like Mr. Franklin, I have shown our fellowship exams to thinkers from other professions who are amused at the weirdness of our five-minute “essay” tests.
Personally, I am concerned that the CAS profession has carved for itself a niche that may shrink. We all cannot work for companies with large, traditional actuarial departments like the NCCI, and we all cannot have our main work be that of signing reserve opinions. Mr. Evan’s opinion above may accurately reflect the situation in his work environment, but it does not represent my work environment where we openly compete with MBAs in other divisions. As of right now, the exam process seems geared to restrict the number of fellows and thoroughly prepare students for the two types of professions I described above. Twenty years from now, actuary departments at insurance companies may end up being very small, only designed to do reserving. Actuaries may be passed over for senior level roles. The more creative work related to strategy will be done by some other profession that we allowed to crop up right next to us.
I urge the CAS to do the following:
1) Alter the exam system so that it trains participants to be able to compete in the current environment. Tests should be modern, using computers and testing complex thought, theory, business application, and professional presentation skills.
2) Do not lesson the travel time if we are able to construct an exam system that actually appropriately utilizes people’s time and is genuinely educational.
3) Structure the process so that once people have made it through the main weeder exams the focus is on education with the idea that the participant will eventually make it.
I am willing to help the CAS by participating in working groups if my help is desired.
Unrelated to the examination process, I think another issue is that actuaries often do not interact with other professionals. As such, there can be gaps in our understanding of how other professionals address risk. We become complacent that what we are doing is the best that can be done and we’re the only ones that can do it. To Mr. Franklin’s point on more emphasis towards learning, I think the profession would benefit by reaching out to other professionals and understanding better their involvement in addressing/mitigating/quantifying risk.
I believe the primary threat to the actuarial profession is letting the dead hand of tradition drive our every day work.
If the new techniques or concepts published in “Variance” seldom enter our practice while the statisticians readily employ new ideas to solve problems in ratemaking/classification, we should not be surprised that statisticians are increasingly in demand to do class plan work.
If we attend conferences and hear about new methods, but nothing changes in our day to day work, we should not be surprised that employers may not be enthusiastic about sending our members to conferences.
If we continue to recruit primarily through actuarial schools where the students appear to be focused on moving through the exams which are in turn based on years of existing practice, we should not be surprised that we lack the “new blood” needed to help move the profession along in adapting new methods.
The biggest threat to the actuarial profession is our inability to transcend the profession itself. We are underrepresented amongst the executive ranks despite, in my opinion, being one of the most qualified members to lead organizations both strategically and operationally. In order to be a good actuary, one must understand a great deal about the insurance marketplace and the interaction between marketing, underwriting, claims and systems. Who else can bring to the table such a skillset? We ought to be dominating the leadership positions within the industry, but nothing can be further from the truth. We do have our seat at the table, but it is rarely “THE” seat and more than likely simply the position of another senior technical advisor standing ready to offer an opinion when asked about something considered “actuarial”.
This constant discussion of the exam system is possibly a symptom of the greater disease. We are very focused on our technical aptitude. But is that all we wish to be? Technicians. Valuable? Yes. Highly Paid? Depends on your utility of wealth. Satisfied? Hell, no! I did not get into this career to spend my last twenty years as a Chief Actuary. I want to lead the charge and build successful businesses using everything I have learned as an actuary and continue to build upon those skills for the rest of my career. And where I can have the most impact is from the CEO seat. Maybe I personally am just not good enough, but over the years I have seen plenty of exceptional actuaries that were at least as capable as C-level non-actuaries and they rarely transcend the proverbial “glass ceiling” that we seem to have ordained for ourselves.
Let’s solve this problem by showing that we are capable of leadership. Then we will not have to worry about threats to our profession.
I agree that the exams are a barrier. It has become so difficult to pass exams, that only a percentage of those passing have important skills other than “passing exams” such as management skills and leadership.
As a regulator, I see a wide range of quality in actuarial products. If a company wants to know what to do to be profitable, then a company will hire a top-notch actuary such as Terry. If a company is run badly and wishes to hide this fact from regulators and stockholders, then there are actuaries who are good at coming up with a “reasonable” answer that may not be the most accurate representation of reality. I do not believe that the actuarial profession has shown much desire to police itself. To what extent does the lack of consistent quality and integrity hurt the reputation and value of our profession?
Reading the comments above indicates that another risk to the CAS is lack of clarity on what is our value proposition to employers and to members.
There is a split between saying we are the insurance quantative analysis experts which was implicit in having passed a rigorous set of exams and the desire to see members move into more general management roles which require more soft skills. Another way of saying this is we need to pay attention to brand management before we change the syllabus or aspects of the CAS.
How we position our brand may need to change given the change in computing horsepower and the resulting change in the range of analytical routines available. Changing our exam process and continuing education without first identifying the goal of that education process is unlikely to work well.
My impression is that employers looked at us in the past as the primary source of quantative expertise for insurance related analysis, but comparing the skill set of most practicing actuaries to the skill set of statisticans and financial engineers appears to be leading many employers to question our value. That leads to the questions of what can be done to repair the brand damage we appear to have suffered and do we want to shift our syllabus and continuing education requirements to better compete in this new environment.
Another threat to the profession is the rather poor track record on reserving at the industry level. This was highlighted by S&P some years ago, but the industry level reserves have continued to show a systematic cyclical pattern of change to prior years. The amount of overall IBNR held by the industry (as % of premium) for the current accident year is roughly constant over time regardless of the level of rate adequacy. This could suggest that naive or formulaic approaches would perform as well as a professional actuarial staff.
I like what Mike wrote and want to add a few more thoughts.
There are two skills we have discussed:
1) Technical skills
2) Soft skills
I think if you examine the current exams for their ability to test both of these skills, I think you will see the problem:
1) Technical: The exam material is relevant. The tests are NOT. Learning how to jot quick answers from memory using a calculator has no bearing to technical success in the current work environment. We might as well be using slide rules. When I interview, if I meet someone who does not know how to run a GLM in R or SAS, does not know how to write SQL to obtain data from the server, does not know how to use pivot tables, yet somehow has passed many or all of the actuary exams, sadly I have met someone who will expect a high salary but be able to add little intelligent analysis to my team. (This is probably going to be true, even if we provide training, because someone who has made it that far, but does not have the drive to learn relevant real world tools along the way, is unlikely to perform better now the he or she has passed the threshold to being a credentialed actuary.) The changes to the exams over the last five years have been extremely unhelpful in this regard. The tests have been made noticeably easier, and the grading has become noticeably more picky. Learning how to exactly answer questions for CAS test 8 or 9 has very little relevance to being a good technical actuary.
2) Soft Skills: The actuary exams can actually cause a selection bias against people with soft skills. Those who have superior soft skills often get promoted into product management and discontinue taking the exams. This is particularly true as they grow jaded with the silliness of the exam format. I encourage people like this to read the exam material and just not take the exams.
While it may be useful to redefine our image, it would not be helpful to slow the process of modernizing the exams while we wait. It would be as if we were still using slide rules, and we decided that we needed to have more committee meetings prior to switching to calculators. The technology has already moved on. Those stuck in the exam process are wasting valuable time perfecting already obsolete skills.
If you wish to be a licensed dentist, you must pass an exam where you actually work on people’s teeth. To earn an MBA, you must actually give presentations. To pass the California Bar Exam, you are given facts and plenty of time to type legal memos.
Forty years ago, actuaries could enter a meeting and be presented reports that had been painstakingly computed using mainframes and punch cards, and by simply glancing at the reports and making a few punches on the calculator, could provide amazing insight. The actuary could explain what needed to happen next, and computer programmers would dutifully go and write more COBOL. In other words, the exams actually were relevant to the work performed by the actuary (quick questions that can be solved by knowing some tricky math and having a calculator.)
Those days are over. Rarely does a new fellow simply glance at reports, punch a few items on a calculator, and in so doing add value.
Regardless of whether we stress soft skills, we desperately need to update our exams to prevent the wasting of time learning irrelevant skills. Technical tests should be done using spreadsheets and word processers, not paper, pencil, and a calculator.
I agree that we may want to change our brand and alter our syllabus, but this should not slow down the improvement of the exam process. The CAS granting some failed students to see their tests was a great first step. More movement would be helpful.
I notice that the CAS is going to make an attempt at being relevant: http://www.soa.org/education/general-insurance/edu-general-ins.aspx
Who knows? Maybe they will create a format that is relevant. This certainly increases the pressure on us.