Why the Insurance Industry Needs Actuaries

Anyone who watched enough YouTube videos to learn Excel can generate pro forma financial statements. But can they document the backup data and assumptions?

Can they determine how accurate these forward-looking statements are likely to be? And critically, can they quantify that degree of accuracy through a professional-grade risk assessment?

If not, then it becomes difficult for the company’s management to craft a strategy to mitigate those risks. And the more difficult it is to mitigate risks, the more that company can expect to pay for business insurance.

Why insurance actuaries are critical

An insurance actuary analyzes complex data to evaluate the likelihood and magnitude of such events as accidents, illnesses or natural disasters, then quantify the financial implications.

The field of actuarial insurance offers at least four distinct use cases:

1. Assessing risk. By analyzing historical data, claims, risk exposures, demographic information and other relevant factors, insurance actuaries predict the probability of car accidents, health-related issues, property damage, lawsuits or other negative events.This drives how insurers determine premiums.
2. Assisting with determining reserves. The law – as well as sound business practice – requires insurers to hold a certain amount in reserve, and it’s the actuaries who estimate the amount of reserves required for a portfolio of risks.
3. Calculating required premium levels. Actuaries play a pivotal role in determining how much policyholders should pay for their insurance coverage. They factor in the calculated risks, administrative costs and the insurer’s desired profit margins to establish competitive yet sustainable premium rates.
4. Assessing investments. Actuaries evaluate the investment portfolios funded by collected premiums, ensuring they align with the company’s financial objectives and risk tolerance.Their expertise in diversification and risk management helps maximize returns while minimizing exposure to market fluctuations.

Insurance actuaries may specialize in a particular type of insurance, whether that be life and health, or property and casualty.

How this helps you

Actuaries aren’t underwriters, but they make underwriting possible. Actuarial insurance assesses and manages risk at the macro level so that underwriting can evaluate risks associated with an individual covered party.

Insurance actuaries, then, have a highly specialized and in-demand skill set. And yet, a company might not require a full-time practitioner. Such a firm would likely benefit from engaging an actuarial insuranceconsultant.

These professionals can determine reserve requirements as well as how much your insurance policies are projected to pay out in a given period.

As a result, your firm could establish and standardize repeatable processes related to ratemaking, financial pro-forma determination, and composition of notes mandated by regulators or the financial community.

Actuarial consultants don’t need to keep these skills in their own black boxes to preserve their value to your company. They regularly offer expert ongoing education and training to keep your team updated on the latest industry trends, compliance hurdles and best practices.

Through workshops, seminars, and one-on-one training, consultants help your staff refine their actuarial and analytical skills, ensuring that your company remains at the forefront of industry knowledge.