Course on Professionalism

1. Course on Professionalism ASOP #23 – Data Quality

2. Purpose • Give guidance in: • Selecting data • Relying on data supplied by others • Reviewing data • Using Data • Disclosures with regard to data quality

3. Scope • Applies to all areas of practice • Does NOT require audit of data • If standard establishes requirements in addition to those imposed by law, satisfy both • Originally effective 12/31/1993; updated effective for work products for which data was provided on or after May 1, 2005 or projects started on or after July 1, 2006

4. Question 1 • Which of the following statements are not true regarding the scope of ASOP 23? • A. Applies to Property & Casualty actuarial work • B. Requires audit of data if known limitations in data • C. Applies to Health Insurance actuarial work • D. All of the above are true

5. Overview • Accuracy and validity of actuarial analyses are dependent on the quality of data used • Expectations that actuaries will use appropriate data in their work and will disclose material imperfections in underlying data

6. Issues and Recommended Practices • Completely accurate, appropriate, and comprehensive data are rarely available • An actuary performs an analysis with available data and sufficiently discloses material data limitations, and their implications • Data review may not always reveal imperfections • This standard does not recommend that an actuary audit data

7. Selection of Data • Understand intended use • Consider desired and possible alternative data elements • Data considerations: • Appropriate for intended purpose, including whether sufficiently current • Reasonableness and comprehensiveness • Known, material limitations • Cost and feasibility of alternatives • Sampling methods, if used

8. Review of Data • Definition of “review” added, pointing out that it is an informal examination of obvious characteristics of the data • Applies whether the actuary prepared the data or received data from a third party • Review for reasonableness and consistency, “unless review is not necessary or is not practical”

9. Nature and Extent of Review • Make reasonable effort to determine the definition of each data element • Identify questionable data values with material impact; consider attempts to improve data • Review of prior data

10. Question 2 • With respect to selection of data, which items should receive due consideration? • A. Intended use • B. Known, material limitations of data • C. Cost and feasibility of alternatives • D. All of the above

11. Reliance on Data Supplied by Others • Accuracy and comprehension of data is responsibility of the provider • Actuary may rely on data supplied by others but should follow guidance under 3.5: review of data first (new clarification) • Okay, unless material errors or unreliability become apparent

12. Use of Data Professional judgment prior to use: • Will use of imperfect data produce material bias or highly uncertain results? • Is the data adequate to satisfy analysis purpose? • Can data be corrected or additional data provided?

13. Documentation/Disclosure • Refer to guidance from ASOP 41: Actuarial Communications • Include in actuary’s report: • Source(s) of data • Whether or not data reviewed • Materiality of biases due to imperfect data • Adjustments or modifications made • Extent of reliance on data supplied by others • Limitations on use of work product • Any unresolved concern about the data • Conflicts with law or regulations

14. Summary • An actuarial analysis is based upon a thorough review of data, along with practical knowledge of the field of practice and training in actuarial theory, … • The accuracy and validity of the actuarial analysis are dependent on, among other things, the quality of the data used

15. Question 3 • Which of the following are true? • A. The source of data should be disclosed • B. Data with known limitations should not be used for actuarial analysis • C. Data provided by a third party source should be audited prior to its use