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 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 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 life and health
insurance or property and casualty insurance. They produce probability
tables which determine the likelihood that a potential future 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 amount 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 are helping to
develop long-term-care insurance and annuity policies, the latter a
growing investment tool for many individuals.
Actuaries in other financial services industries manage credit and help price
corporate security offerings. They also devise new investment tools to
help their firms compete with other financial services companies.
Pension actuaries working under the provisions of the Employee
Retirement Income Security Act (ERISA) of 1974 evaluate pension plans
covered by that Act and report on the plans’ financial soundness to
participants, sponsors, and Federal regulators. Actuaries working in
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 affecting 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 with existing
lines of business by forecasting demand in competitive settings.
Both staff actuaries employed by businesses and 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 instance, they may provide advice on how to
lessen the risk of injury on the job, which will lower worker’s
compensation costs. Consulting actuaries sometimes testify in court
regarding the value of the 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. Many consulting 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.
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