Through their knowledge of statistics, finance, and business, actuaries assess the risk of events occurring and help create policies that minimize risk and its financial impact on companies and clients. One of the main functions of actuaries is to help businesses assess the risk of certain events occurring and formulate policies that minimize the cost of that risk. For this reason, actuaries are essential to the insurance industry.
Actuaries assemble and analyze data to estimate the probability and likely cost 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 level and the way in which a company should invest resources to maximize return on investments in light of potential risk. Using their broad knowledge of statistics, finance, and business, actuaries help design insurance policies, pension plans, and other financial strategies in a manner which will help ensure that the plans are maintained on a sound financial basis.
Most actuaries are employed in the insurance industry, specializing in either life and health insurance or property and casualty insurance. They produce probability tables or use more sophisticated dynamic modeling techniques that determine the likelihood that a potential event will generate a claim. From these tables, they estimate the amount a company can expect to pay in claims. For example, property and casualty actuaries calculate the expected number of claims resulting from automobile accidents, which varies depending on the insured person's age, sex, driving history, type of car, and other factors. Actuaries ensure that the price, or premium, charged for such insurance will enable the company to cover claims and other expenses. This premium must be profitable, yet competitive with other insurance companies. Within the life and health insurance fields, actuaries help to develop long-term-care insurance and annuity policies, the latter a growing investment tool for many individuals.
Actuaries in other financial service industries manage credit and help price corporate security offerings. They also devise new investment tools to help their firms compete with other financial service companies. Pension actuaries work under the provisions of the Employee Retirement Income Security Act (ERISA) of 1974 to evaluate pension plans covered by that Act and report on the plans' financial soundness to participants, sponsors, and Federal regulators. Actuaries working for the government help manage social programs such as Social Security and Medicare.
Actuaries may help determine company policy and may need to explain complex technical matters to company executives, government officials, shareholders, policyholders, or the public in general. They may testify before public agencies on proposed legislation that affects their businesses or explain changes in contract provisions to customers. They also may help companies develop plans to enter new lines of business or new geographic markets by forecasting demand in competitive settings.
Consulting actuaries provide advice to clients on a contract basis. The duties of most consulting actuaries are similar to those of other actuaries. For example, some may evaluate company pension plans by calculating the future value of employee and employer contributions and determining whether the amounts are sufficient to meet the future needs of retirees. Others help companies reduce their insurance costs by lowering the level of risk the companies take on. For example, they may provide advice on how to lessen the risk of injury on the job. Consulting actuaries sometimes testify in court regarding the value of potential lifetime earnings of a person who is disabled or killed in an accident, the current value of future pension benefits (in divorce cases), or other values arrived at by complex calculations. Some actuaries work in reinsurance, a field in which one insurance company arranges to share a large prospective liability policy with another insurance company in exchange for a percentage of the premium.
Work environment. Actuaries have desk jobs, and their offices usually are comfortable and pleasant. They often work at least 40 hours a week. Some actuaries—particularly consulting actuaries—may travel to meet with clients. Consulting actuaries also may experience more erratic employment and be expected to work more than 40 hours per week.
| 1. | Ascertain premium rates required and cash reserves and liabilities necessary to ensure payment of future benefits. |
| 2. | Analyze statistical information to estimate mortality, accident, sickness, disability, and retirement rates. |
| 3. | Design, review and help administer insurance, annuity and pension plans, determining financial soundness and calculating premiums. |
| 4. | Collaborate with programmers, underwriters, accounts, claims experts, and senior management to help companies develop plans for new lines of business or improving existing business. |
| 5. | Determine or help determine company policy, and explain complex technical matters to company executives, government officials, shareholders, policyholders, or the public. |
| 6. | Testify before public agencies on proposed legislation affecting businesses. |
| 7. | Provide advice to clients on a contract basis, working as a consultant. |
| 8. | Testify in court as expert witness or to provide legal evidence on matters such as the value of potential lifetime earnings of a person who is disabled or killed in an accident. |
| 9. | Construct probability tables for events such as fires, natural disasters, and unemployment, based on analysis of statistical data and other pertinent information. |
| 10. | Determine policy contract provisions for each type of insurance. |
| 11. | Manage credit and help price corporate security offerings. |
| 12. | Provide expertise to help financial institutions manage risks and maximize returns associated with investment products or credit offerings. |
| 13. | Determine equitable basis for distributing surplus earnings under participating insurance and annuity contracts in mutual companies. |
| 14. | Explain changes in contract provisions to customers. |
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