One of the main functions
of actuaries is to help businesses assess the risk of certain events
occurring and to 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 and the
way in which a company should invest resources to maximize its 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
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 payable in claims resulting from automobile
accidents, an amount that varies with 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. The premium must be
profitable, yet competitive with other insurance companies.
Within the life and
health insurance fields, actuaries help companies develop health and
long-term-care insurance policies by predicting the likelihood of
occurrence of heart disease, diabetes, stroke, cancer, and other chronic
ailments among a particular group of people who have something in
common, such as living in a certain area or having a family history of
illness. Such work of actuaries can be beneficial to both the consumer
and the company because the ability to accurately predict the likelihood
of a particular health event among a certain group ensures that premiums
are assessed fairly based on the risk to the company. Additionally, life
insurance actuaries help companies develop annuity and life insurance
policies for individuals by estimating how long someone is expected to
Actuaries in other
financial services industries manage credit and 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.
determine corporate policy on risk, for example, and also help explain
complex technical matters to company executives, government officials,
shareholders, policyholders, or the general public. 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.
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 offering them
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.
Some resources in this section are provided by the the US Department
of Labor, Bureau of Labor Statistics.