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, whose work affects virtually every industry in existence.
Indeed the actuarial profession today offers a career path leading 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 fair 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 commitment is why a company's financial solvency depends to a large extent on the actuary's calculations and judgment.
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 various 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 insurance 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, nationwide 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 property 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 divorce cases.
- give evidence on how automobile insurance rates are determined.
- be the authority a labor union calls to a collective bargaining session to estimate 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 financial services, risk management and health care fields.
Actuaries in government
Individuals interested in public service will find opportunities to work as actuaries at state, provincial, or federal government agencies.
Most actuaries working in the U.S. government are employed by 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 servicemen 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 federal 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 entail advising legislative 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.
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.
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.
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 designed 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.