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Policy Aims to Save Actuaries from Financial Disaster

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Most CIA members hope they will never need it, or assume that their employer provides coverage, but for an unfortunate few, professional liability insurance has proved a lifeline during the thankfully rare occasions when an actuary faces the possibility of court action.

Following concern among the membership that some consulting actuaries were having difficulty securing adequate coverage, the Institute asked Dale Parizeau Morris Mackenzie (DPMM), one of Canada’s largest insurance brokerage and risk management firms, to develop a suitable solution. The result was ProAct, which was recently discussed during sessions at the Annual Meeting.

Alexis Tertulliani, Vice President – Commercial and Risk Management at DPMM (pictured above), explained how ProAct operates and the value it has for CIA members.

"We found that very few insurance markets were willing to insure the kind of risks involved in actuarial consulting," he said. "Many consulting actuaries were operating without professional liability coverage. Actuaries can be held personally responsible for errors, and even unfounded claims against them have an important financial impact. Many firms may not fully appreciate professional liability risk, or believe that the risk is too remote, so they go on without coverage."

Following a market study to discover CIA members’ specific requirements, the ProAct program was created to assist those facing action from clients or the public. For example, said Mr. Tertulliani: "An actuary working on a defined benefit pension plan would use assumptions, and what if those rates do not materialize? When a decision is then made to increase or decrease premiums or benefits, there could be a claim for mismanagement. It might be that a mistake was made, or it could be that the future didn’t turn out as planned. If the methodology was sound and based on standard practices, the fact that the result was not as planned does not indicate negligence. In claim cases, we have found that 50 per cent or more of costs incurred by actuaries are in defence costs, and they could amount to millions of dollars.

"This is such a specialized field that even going through the motions of defending yourself can be very expensive; retaining counsel and hiring an outside expert to analyze your work could easily cost thousands. Even a small claim could cost you $20,000 in defence costs."

ProAct aims to mitigate some of that expense by providing coverage limits ranging from $250,000 to $5 million. The coverage is provided by Lloyds, and premiums vary depending on the consulting firms’ profile, activities, revenues, claims history, limit of insurance, and deductible; a pension consulting actuary, for example, could expect to pay between 1.5 and 2 percent of their consulting revenue for suitable coverage.

Mr. Tertulliani added: "Professionals are expected to carry insurance. They protect themselves, and there are often regulatory requirements to have insurance for public protection. The actuarial profession is one of the few professions where the many consulting professionals do not carry insurance.

"This year Joe Nunes [a member of the former Professional Liability Insurance Advisory Committee] was active in coordinating the Litigation Against Actuaries, and Professional Liability Insurance session at the Annual Meeting. The primary objectives of the session were to provide insight on the insurance underwriting process, review the principal policy coverages and exclusions, highlight a consultant’s risk exposures and potential situations that may give rise to a claim, as well as claim examples.

"We have had good participation in the program, and relatively low claims frequency. Hopefully most people will never have to make a claim, but they feel there is value in insuring against this risk. Our retention level is extremely high, as people realize that this is a good long-term solution."

For more details on ProAct, visit http://www.pro-act.ca/index_en.html.


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