Actuaries assess the impact of risks on organizations. Since the future is full of uncertainty, and undesirable events are guaranteed to occur, companies need workers who are skilled at quantifying and managing risk. While many actuaries work behind the scenes, they are important to the insurance and pension sectors in analyzing and protecting their employers’ and clients’ overall financial health.
Role in Insurance
According to the Bureau of Labor Statistics, the majority of actuaries work in health, life and property and casualty insurance to structure insurance policies in a way that produces high-yielding yet industry-competitive premiums. In life and health insurance, actuaries assess risk factors such as type of profession, state of residence, preexisting medical conditions, mortality rates and even certain lifestyle choices like smoking. In property and casualty insurance, which encompasses both personal and commercial lines of insurance, actuaries focus on risk factors such as the frequency of weather-related catastrophic events in a given region, the likelihood of theft, product liability and employee environmental risks.
Understanding these risk factors provides actuaries with the science needed to generate reliable mathematical computations for determining the anticipated number of claims and the amount consumers should pay for insurance coverage. While some actuaries predict the events a company may face to properly price insurance policies, others predict the amount of reserves needed to cover future expenses. Major insurance companies have thrived for decades due to actuaries’ efforts in risk assessment.
Role in Pensions
Outside of insurance, actuaries provide their expertise by serving as pension actuaries. According to the Institute and Faculty of Actuaries, pension actuaries provide specialized advice to companies to determine how much money is needed to pay future pension benefits and the impact these payments will have on the companies. By studying factors such as retirement age and life expectancy, actuaries determine the risks involved in offering a pension plan as a part of the benefits package. If significant risks are present, the company may abandon the pension plan or revise it to provide a more company-friendly structure. For example, actuaries may help a company revise its pension’s structure by calculating and suggesting the highest amount a company should offer to employees while avoiding financial ruin.
Becoming an Actuary
Finding ways to mathematically calculate potentially catastrophic financial risks is no easy undertaking. According to Ohio State University, in addition to rigorous college coursework in mathematics, finance, economics and risk management, actuaries must undergo a series of examinations to obtain the necessary professional credentials from either the Casualty Actuarial Society or the Society of Actuaries. Pursuing these credentials prepares actuaries to practice and be successful in the workforce.
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