|Actuarial math is useful in financial forensic analysis|
By Melanie Price
Actuaries are the premier experts on analytics, statistics and predictive models in the finance and insurance industries. The advanced mathematical skill-set of an actuary can be useful to nearly any type of business. Many actuaries are independent consultants, work for the government or work for insurance or financial firms.
Expert testimony from these actuary professionals has become more prevalent and effective in the court room throughout the last few decades. Recently, defense attorneys and prosecutors have had success using actuaries to provide insight in a variety of complex topics like finance, insurance, pensions, criminal tendencies or predispositions, and other subjects that require large data sets, statistics and expert interpretation.
Actuaries' expansive expertise on trial
The trial between the Atlantic Mutual Insurance Co. vs. Commissioner of Internal Revenue in 1998 was the first time and perhaps the most renowned occasion when actuaries were used in Supreme Court hearings. Expert testimony from four professionals from the Casualty Actuarial Society provided clarity regarding the definition of "reserve strengthening" that helped the Supreme Court reach a final decision. Atlantic Mutual Insurance Co filed a claim against the commissioner of the IRS concerning the application of the Tax Reform Act of 1986. The actuaries from the Casualty Actuarial Society provided testimonies for both parties. The four actuaries were used to define “reserve strengthening”, the IRS term that would dictate the provisions of forgiveness for the previous tax year.
Actuaries were also used in the sexual predator case, Elliott v. State. The state of Missouri used actuarial testimony in Mr. Elliot's initial hearing to assess the potential danger and probability for re-offense of his violent crimes. Elliot’s defense appealed claiming that the state of Missouri had provided insufficient evidence and never actually met with Mr. Elliot before designating the convicted sexually violent predator to a secure mental ward. The court ruled that the state's expert testimony from the actuary was admissible and reliable. The expert actuary witness used the static-99 application to demonstrate the long-term risk potential of Mr. Elliot committing a re-offense once released from prison.
Expert actuary testimony was also used in the 2011 trial of Harry Marnie v. WCAB. Both parties used testimony from actuaries to help provide evidence regarding how to offset State Employees Retirement System (SERS) payments between the employer and the claimant who was recently collecting disability from a work injury. The case went through multiple courts, and judges heard actuarial testimony from both parties. Despite appeals from the claimant, the courts ultimately decided that according to the employer’s actuarial testimony, WCAB was entitled to offset the SERS payments. This case set precedent that, despite the lack of precise calculations, the actuarial testimony was still deemed legally sufficient because it was sound and credible.
As the actuary industry and big data continue to evolve, it's reasonable to expect more and more cases that feature these financial professionals. It's also reasonable to expect actuarial testimony to become more popular for a more divergent array of court cases.
About the author: Melanie Price is an actuarial science student who has grown to share her attorney husband's interest in landmark legal cases. She writes more about her chosen profession at Guide to the Best Online Actuarial Science Degree Programs.
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