The Actuarial Standards Board (ASB) of the American Academy of Actuaries recently approved an exposure draft of a proposed revision of Actuarial Standard of Practice (ASOP) No. 12, Risk Classification (for All Practice Areas). The ASOP applies to actuaries when performing actuarial services with respect to designing, developing, selecting, modifying, reviewing, evaluating, or opining on any elements of a risk classification framework in connection with financial or personal security systems. The standard also applies to actuaries when performing actuarial services with respect to using any elements of a risk classification framework in connection with financial or personal security systems, to the extent practical and consistent with the scope of the actuary’s assignment.
The original ASOP No. 12, adopted in 1989, was developed as the need for more formal guidance on risk classification increased as the selection process became more complex and more subject to public scrutiny. The ASOP was updated in 2005 to reflect ongoing changes in actuarial work related to risk classification at that time. In light of the evolution in practice since 2005, the ASB believes it is appropriate to revise the standard in order to reflect current generally accepted actuarial practice.
Notable changes include the removal of several existing definitions and the addition of new definitions such as “risk measure” and “unintended bias”; the addition of several new sections such as 3.2.4, Multivariate Effects, and 3.4, Potential for Unintended Bias; and revising the scope to expand the list of activities to which the standard applies.
The comment deadline is May 1, 2024. Information on how to submit comments can be found in the draft.
