Role and Importance of Actuary

An actuary is a business professional who deals with the measurement and management of risk and uncertainty. The name of the corresponding field is actuarial science. These risks can affect both sides of the balance sheet and require asset management, liability management, and valuation skills. Actuaries provide assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms.

While the concept of insurance dates to antiquity, the concepts needed to scientifically measure and mitigate risks have their origins in the 17th century studies of probability and annuities. Actuaries of the 21st century require analytical skills, business knowledge, and an understanding of human behavior and information systems to design and manage programs that control risk.[6] The actual steps needed to become an actuary are usually country-specific; however, almost all processes share a rigorous schooling or examination structure and take many years to complete.

The profession has consistently been ranked as one of the most desirable.[8] In various studies, being an actuary was ranked number one or two multiple times since 2010 and in the top 20 for most of the past decade.

An actuary is a professional who specialises in the field of analysing financial risks by implementing statistical, financial and mathematical theories. In insurance, actuaries aid in assessing risks which help companies in the estimation of premiums for their policies.

Role of an Actuary in an Insurance Company

It is ideal for insurance companies to create policies that bear minimal risk and can generate stable returns. Estimating risk and return from each proposal also in turn aids in assuring policyholders that their claims will be settled.

With regards to insurance, actuarial practices involve analysing factors related to a customer’s life expectancy, construction of mortality tables that help one to have a measurement of predictability and offering insight to brokers.

Actuarial science mostly finds its application in the life insurance mortality analysis. However, they can also be applied in case of other general insurance fields like property and liability insurance.

Sometimes recommendations for the determination of premium for insurance policies made by actuaries can also have a positive impact on the behaviour of policyholders. For instance, premium payable by non-smokers for life insurance policies is often significantly lesser than that for smokers. This might push individuals to quit smoking to avail their life insurance policies at a lower premium.

Responsibilities

Actuaries use skills primarily in mathematics, particularly calculus-based probability and mathematical statistics, but also economics, computer science, finance, and business. For this reason, actuaries are essential to the insurance and reinsurance industries, either as staff employees or as consultants; to other businesses, including sponsors of pension plans; and to government agencies such as the Government Actuary’s Department in the United Kingdom or the Social Security Administration in the United States of America. Actuaries assemble and analyze data to estimate the probability and likely cost of the occurrence of an event such as death, sickness, injury, disability, or loss of property. Actuaries also address financial questions, including those involving the level of pension contributions required to produce a certain retirement income and the way in which a company should invest resources to maximize its return on investments in light of potential risk. Using their broad knowledge, actuaries help design and price insurance policies, pension plans, and other financial strategies in a manner that will help ensure that the plans are maintained on a sound financial basis.