Actuaries play a critical role in the insurance industry.
An insurance actuary will use mathematical and statistical models to predict the likelihood of events such as accidents, illnesses or natural disasters with the aim of helping insurers develop sustainable financial strategies.
Their primary role is to analyze data and assess financial risks associated with policies that are issued by insurance companies.
This article will provide an overview of insurance actuaries, including what they do and how they can assist insurers.
What do insurance actuaries do?
Insurance actuaries have a multilayered role and their contributions extend widely across their business.
They assess risk.
Actuaries analyze historical data, claims, risk exposures and demographics to predict the probability of future events.
Their assessments inform how much insurers charge by way of premiums and their investment strategies.
They help determine reserves.
Insurers must maintain actuarial reserves to ensure financial stability and to make sure that they can continue to service their clients.
Actuaries need to estimate the required reserves to meet future claim obligations with the ultimate goal of protect the company against unexpected financial hits, and satisfy requirements from regulators.
They help calculate premiums.
Premium rates are set by actuaries who balance risk assessment, administrative costs and profit margins. This ensures policies remain competitive while maintaining the insurer’s profitability.
They assess investment.
Insurance companies will usually invest collected premiums to generate additional income.
Actuaries evaluate these investments to ensure alignment with financial objectives and risk tolerance. They will do this to try and optimize returns for the company.
Actuaries vs underwriters
Actuaries manage risk at a broad level. They analyze high-level data to predict future trends and inform financial decisions that the insurance company must make.
Underwriters on the other hand assess individual applicants’ risk profiles to approve or deny coverage, directly influencing the insurer’s underwriting profitability. Their job is more individual-centric.
How an actuary can help your insurance company
Actuaries provide key support to insurers including:
Annual & quarterly reserving
Actuaries will review reserve calculations to ensure insurers maintain sufficient funds to meet future claims and regulatory requirements. They’ll use advanced statistical models and data analysis in order to achieve this.
Ratemaking
Actuaries will also analyze data to set competitive premium rates that balance affordability for policyholders and profitability for insurers.
Financial proformas
Actuaries will create financial proformas. These proformas are designed to offer insights into future performance and identify potential challenges to mitigate financial risks.
Regulatory and financial support
Expert actuaries will also assist with regulatory filings (for example, filings to the appropriate financial regulation), preparing financial statements and actuarial opinions.
Looking for an actuarial consultant to help your company?
Sometimes actuaries within insurance companies will need consultants to help them.
The actuarial consultants at Axxima features actuaries accredited by the Canadian Institute of Actuaries that offer appointed actuary, audit review, peer review, modelling and other services across a variety of industry sectors.
