In My Opinion

"NEED to Know" vs. "NICE to Know" by Paul E. Lacko

Newspaper and magazine articles tell us that we are living in the Information Age, that knowledge is the key to success, that we must keep up or fall to the wayside. And we can't know everything about everything, because there's too much of everything to know. Instead, we first exert considerable effort to distinguish the things we NEED to know from the things that would be NICE to know. Then we devote most of our professional time and energy to the things we NEED to know.

Despite the broad variety of responsibilities and tasks we encounter along our individual career paths, we all have to pass a set of exams that are intended to provide us with a lot of knowledge about the things that property/casualty actuaries all NEED to know. The exam syllabus changes over time, of course, because the things we NEED to know change over time. We no longer NEED to know some things that we once NEEDED to know; those things still might be NICE to know, but those things are dropped from the syllabus. Some things we now NEED to know are added to the syllabus that maybe didn't even exist a few years back.

In our traditional property/casualty practice areas, the knowledge base continues to expand over time. For example, Pat Grannan's "Random Sampler" and Victoria Stachowski's article in this issue of The Actuarial Review both discuss international topics that hardly any of us encountered in our day-to-day work ten years ago. (More than twenty years ago, my department manager told me, "I'm sure glad I don't have to pass the exams now. They're hard!" Today, I look at the syllabus and think, "I'm sure glad I don't have to pass the exams now. They're hard!" The more things change….)

The CAS devotes considerable effort to distinguish what we NEED to know from what would be NICE to know. Last year's survey of CEOs and other industry officials has resulted in some evidence that perhaps a better job can be done. In November 1999, the CAS Task Force on the Review of Education and Examination Process and Procedures (see front-page story) presented a list of 31 recommendations for improvement. Thirty-one recommendations! The system evidently needs more than a quick tune-up.

Sholom Feldblum's opinion piece in these pages exhorts us to look at the Web site of the Association for Investment Management and Research (AIMR), which includes the syllabus for the exams that lead to the designation of Chartered Financial Analyst. (Someone who attains the CFA designation is called a charterholder.)

I did look at the Web site. I was impressed.

I printed out the syllabus, which ate up about half a ream of paper.

I have only begun to read the syllabus, but two things have caught my attention already. First is that the Level I exam is offered once a year and it consists of two three-hour sessions. That makes it two exams in my book. There are three levels of exams, so I am expecting to find six exams in total. That's a lot of material and a lot of exams.

What really got me thinking, however, is the first paragraph of my half-ream of paper, which says the following:

"The CFA curriculum is solidly grounded in the practice of the investment profession. Periodically (most recently in 1995), AIMR surveys CFA charterholders around the world to determine those elements of the body of investment knowledge that are important to them in their practice. The survey helps establish the Candidate Body Of Knowledge (CBOK) and determine how much emphasis each of the major areas should receive on the CFA examinations."

Included in my half-ream of paper is ten pages of "The Candidate Body Of Knowledge Outline" for the CFA designation. This outline appears to consist of what a financial analyst NEEDS to know. I see nothing that I would classify as merely NICE to know.

In my opinion, a Casualty Actuarial Student Body Of Knowledge Outline would be immensely valuable. The first paragraph of the 2005 CAS Syllabus of Examinations might say something like the following:

"The 2005 CAS Syllabus is solidly grounded in the practice of the property/casualty actuarial profession. Periodically (most recently in 2000), Fellows and Associates around the world were surveyed to determine those elements of the body of actuarial knowledge that are important to them in their practice. The survey helped establish the Casualty Actuarial Society Body Of Knowledge (CASBOK) and determined how much emphasis each of the major areas should receive on the CAS examinations."

A CASBOK Outline would help many people to understand what actuaries NEED to know and to comprehend the actual practice of the property/casualty actuarial profession. College students would be able to compare and contrast the CAS course of study to other postgraduate options, such as an MBA program or the CFA course of study. The "best and the brightest" might be attracted to the breadth and depth of the CAS curriculum, once they can see what the curriculum will teach them.

The CASBOK would likely persuade CEOs and other industry leaders to place a higher value on their actuaries' contributions to their organization. The CASBOK would tell them what is required in order to meet certain responsibilities placed on their organizations by law, regulation, custom, and practice. The actuarial work cannot be done by MBAs and CFAs; they clearly do not have the requisite body of knowledge.

The CASBOK should make clear that actuaries' training does not produce MBAs or CFAs. On the one hand, it may become clear why actuaries do not move into certain positions typically filled by MBAs and CFAs. On the other hand, it may become clear that actuaries are at least as well-educated as MBAs and CFAs to take on certain responsibilities that have not been considered "actuarial" in the past.

The process of constructing a CASBOK will help us to identify what material we pack into one set of exams and how we organize that material into a set of exams. For example, a CASBOK might help us to determine how much emphasis we give to theory vs. practical knowledge at different stages of the exam process. (It might also lead us to add certain items that we have traditionally omitted. Doesn't it seem odd that we spend countless hours filling out state filing forms, but the exams give no instructions or advice to us?)

What we NEED to know takes precedence if we intend to continue to be the property/casualty industry's preeminent experts in all matters related to pricing and reserving.