What is an Actuary
What does an Actuary do?
An actuary is a combination of business
executive, mathematician, financier, sociologist, and investment manager.
Actuaries are problem solvers who use actuarial science to define, analyze, and
solve the financial, economic, and other business applications of future events.
The actuary's responsibilities date back to the early 1800's, when most
actuarial work centered on developing mortality tables and life insurance
policies. Today most actuaries are best known for their work in the insurance
and pension fields, where they design financially secure benefit programs to
protect people. But that is changing, and actuaries are finding themselves
involved in many other areas.
Trained to analyze uncertainty, risk, and probabilities, actuaries create and
manage programs which will reduce the adverse financial impact of the expected
and unexpected things that happen to people and businesses. These programs focus
on areas such as life, health, property, casualty, and investment possibilities.
Projects with which actuaries may be involved can be as varied as:
- Determining a company's monetary value in a merger or acquisition.
- Estimating the impact of seat-belt laws in automobile losses and
determining appropriate rate discounts.
- Projecting Social Security benefits so money can be collected to pay
workers planning to retire in 20 years.
- Determining why malpractice insurance costs for doctors are skyrocketing.
- Projecting what the AIDS epidemic will cost life and health insurance
companies in five, ten, and twenty years.
- Determining the price for a liability policy.
- Collecting and investing enough money so that an insurance company can pay
claims.
- Designing a new retirement program for a company.
- Calculating the price to charge for insuring a satellite launch.
- Estimating the benefit costs for a labor union contract.
- Answering questions like, "What risks are insurable," and "How much and
where shold companies invest money?"
- Estimating the costs of a major earthquake on the West Coast.
The actuary helps design these plans and then evaluates the
financial risk a company takes when it sells an insurance policy, offers a
pension plan, or undertakes some other endeavor. In performing these duties,
actuaries have many responsibilities. First, the actuary must make sure that
there is enough cash on hand to pay benefits when people make claims on their
insurance policies or draw income from their pension plans. Secondly, the
actuary must also see to it that the price charged to participants in these
programs is fair. In this capacity, actuaries are responsible for the financial
solvency of their company's or client's projects, aprograms, and investment
portfolios.
While actuaries work on all sorts of projects in diverse business
environments, they have one thing in common: they use quantitative skills to
analyze and plan for future financial situations. This broad involvement in
business has taken actuaries well beyond the traditional mathematician's role
and placed them in an environment where they must be aware of evonomic,
legislative, and social developments which will affect their company and
clients. Their comprehensive understanding of both financial and technical
intricacies makes them the most influential of professionals, whise work affects
virtually every industry in existence.
Indeed the actuarial profession today offers a career path leafing to
significant leadership positions in the business community.
Where do Actuaries Work?
Actuaries in life, health, property, and casualty insurance
companies.
About two-thirds of all actuaries work for life, health, and
property / casualty insurance companies. Each type of business assumes financial
risks for people and pays their claims as incurred. Actuarial responsibilities
in these fields will generally include making sure that one's company properly
defines and carefully evaluates the insurance risk; charges a fiar price to
assume the risk; and has an efficient system to pay claims and expenses as they
occur while operating profitably as a business. These responsibilities are
important because when the actuary calculates the cost of insurance contracts
for his company, he is committing it financially for many years. This
committment is why a company's financial solvency depends to a large extent on
the actuary's calculations and judgement.
As a life or health insurance company actuary, some of the responsibilities
might include:
- Investigating the effects of medical impairments on long life
- Applying mathematical models to insurance company problems
- Participating in carious aspects of corporate planning
- Calculating a fair price for a new product
- Developing new ways to compensate insurance agents
- Identifying the benefits a new insurance contract will cover
- Preparing the company's financial statement.
As a property / casualty actuary, some of the responsibilities might include:
- Conducting studies of rates by geographical area and type of insurance,
such as automobile rates or homeowners rates
- Preparing supporting materials to substantiate rates at a hearing on rate
changes which the company files with the insurace regulatory authorities
- Developing plans for the company to enter a new line of insurance
- Conducting research on new statistical models and methods for estimating
claims.
Actuaries in consulting firms
An increasing number of actuaries work as
independent consultants. Some operate their own offices, while other work for
large, natuionwide actuarial consulting firms. Actuaries who work as consultants
provide actuarial advice for a fee to clients. These clients may include
insurance companies, corporations, hospitals, labor unions, joint
labor-management trustees, state and local governments, federal government
agencies and attorneys. Most consultants specialize in an area of business, much
as a doctor specializes in an area of medicine, and become experts in pension
planning, other employee benefits, life or health insurance, or proerty and
casualty insurance. An independent consultant might find himself called upon to:
- testify in court about the value of potential lifetime earnings lost by a
person who has been disabled or killed in an accident.
- provide figures representing the current value of future pension benefits
in dovorce cases.
- give evidence on how automobile insurance rates are determined.
- be the authority a labor union calls to a collective bargaining session to
esptimante what a new health benefit proposal would cost.
- give investment advice.
- evaluate a company's insurance program costs.
Consulting actuaries work with and advise chief medical officers, chief
operating officers, and often chief executive officers, especially in the
finanical services, risk management and health care fields.
Actuaries in government
Individuals interested in public service will
find opportunities to work as actuaries at state, orivincial, or federal
government agencies.
Most actuaries working in the U.S. government are employedby the Social
Security Administration, Health Care Financing Administration, Internal Revenue
Service, Public Health Service, Department of Defense, Veterans Administration,
Railroad Retirement Board, and the U.S. Treasury Department. Responsibilities in
these departments might include supervising the financial operations of
insurance and retirement plans which protect federal employees and servicement
or providing testimony before a Congressional committee on the long-range costs
that changes in the Social Security program of Medicare financing would
generate.
Actuaries working at the state level in the U.S. are usually employed by
state insurance departments. Here one may be in charge of examining an insurance
company or employee benefit plan to make sure it is financially sound or that
the rates charged are proper. The work may also involve supervising the
financial operations of insurance and retirement plans which cover local and
state employees. Also, one might advice legislative committees on what standards
are needed to license new insurance companies.
An actuary working for the Canadian deferal government will probably be
employed in the Department of Insurance or a department administering social
security programs. The responsibilities may include being asked to prepare cost
and funding information on proposed changes to a program. One may also be
involved in projecting population trends which will affect medical insurance or
pension systems. If employed in the provincial government, the work may entain
advising lefislative committees on regulations dealing with insurance or pension
matters.
Rating bureaus, such as the National Council on Compensation Insurance (NCII)
and the Insurance Services Office (ISO) in the I.S. or the Insurers Advisory
Association (IAA in Canada, seek the service of actuaries to develop
industry-wide rates by area for various types of insurance and classes of risk.
As a rating bureau actuary, one might be working on research projects to
determine more appropriate methods of recognizing differences in risk. Perhaps
one may be more involved in bureau and inter-company committee assignments to
make recommendations regarding rates and the specific factors used in
calculating them.
Other areas
Actuaries also find significant and rewarding opportunities
in the educational field, serving as teachers, researchers and professors at
colleges and universities in both the United States and Canada. The academic
atmosphere provides opportunities to conduct research, publish papers, and
perform part-time consulting work.
Who to contact for more information
Society of Actuaries
475 North Martingale Road, Suite 800
Schaumburg,
Illinois 60173
Phone: (708) 706-3500
Fax: (708) 706-3599
The Society
of Actuaries is an international research, education and membership organization
for actuaries in the life and health insurance, employee benefits, and pension
fields. It administers examinations leading to Associateship and then to
Fellowship. A continuing education program is also provided through seminars,
symposia, and membership meetings.
Go to their Web Page.
Casualty Actuarial Society
1100 North Globe Road, Suite
600
Arlington, Virginia 22201
Phone: (703) 276-3100
Fax: (703)
276-3108
The CAS is an international research, examination, and membership
organization for actuaries in the property and casualty insurance, workers'
compensation and liability coverage fields. It also administers a series of
examinations leading to Associateship and then to Fellowship. A continuing
education program is available through seminars and membership meetings.
Go to their Web Page.
American Society of Pension Actuaries
Actuaries, Consultants,
Administrators and other Benefits Professionals
4350 North Fairfax
Drive, Suite 820
Arlington, Virginia 22203
Phone: (703) 516-9300
Fax:
(703) 516-9308
ASPA is a professional membership organization desogned to
educate actuaries, consultants and administrators in the pension field and to
preserve and enhance the private pension system. It administers a series of
examinations leading to Membership and then Fellowship. A continuing education
program is also available through seminars, conferences and involvement in the
organization.
Go to their Web Page.