Lia Kopin-Green
July 13, 2022

What is an Actuary?

An actuary is a professional who analyzes the financial risks of insurance policies. With the help of mathematical data and complex algorithms, actuaries determine the risk of insuring different types of people. This information helps insurance companies develop suitable policies and calculate premiums.

Actuaries are best known for their mortality analyses in life insurance policies, but actuarial science is also used in other types of insurance, such as property, liability, and workers’ compensation insurances. 

Key Takeaways

  • An actuary analyzes and manages the financial risks of insurance policies.
  • Actuarial data and rates help insurance companies create policies and calculate premiums.
  • It is common for actuaries to work in the life and health insurance fields, but they can also deal with other types of insurance as well.

Actuarial Rates

An actuary's primary responsibility is calculating actuarial rates. The actuarial rate uses an estimate to show the value of a future loss. As these estimates are based on historical losses, they cannot be considered completely accurate. Therefore, actuaries will not typically rely solely on them, but rather use them as a guide to help insurance companies determine how much to underwrite certain risks in their policies. Insurance companies can charge the right premium while still making a profit by utilizing properly calculated actuarial rates.

Life Insurance Actuaries

Actuaries in the life insurance field assist in the development of insurance policies and premiums by using various statistics and methods to perform life expectancy data analysis. These actuaries will consider the lifestyle and health factors of certain groups to provide information that will help insurance companies decide how much to charge for their policies.

Life insurance actuaries are also responsible for conducting mortality risk analysis. By doing so, actuaries work alongside insurers using mortality tables to estimate the predicted lifespans of their policyholders. This analysis allows insurers to determine the number of premiums they will receive compared to how much in death benefits they may be required to pay out. Generally, the insurer will make less profit than expected if a large percentage of its policyholders pass away before they are expected to. 

As morbid as it may sound, these mortality tables indicate how likely it is that someone at a certain age will die before their next birthday by showing event probabilities such as deaths or illnesses. Age and sex play a significant role in determining life expectancy. Also, actuaries may include lifestyle variables in their mortality tables, including factors such as smoking, the debt amount, occupation, and socioeconomic status.

Bottom Line

Analyses conducted by actuaries are crucial to the insurance industry. Understanding the role of actuaries can allow you to learn more about the pricing behind your premiums.

Do you have more insurance questions? For all the help you need, contact an expert insurance attorney as soon as possible.

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