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What is an Actuary in Insurance and their Roles & Responsibilities?
Insurance actuary lists itself under the lesser-known jobs that are highly important for the proper functioning of an insurance company. They are expert people who are appointed to carry out certain crucial roles and responsibilities which saves the company from suffering any kind of financial loss.
In this article, we have discussed the meaning, roles, and types of insurance actuaries, which build a significant part of the Indian insurance industry.
Scroll down to learn more!
Table of Contents
What is an Actuary in Insurance?
An actuary is a professional who specialises in the field of analysing financial risks by implementing statistical, financial and mathematical theories. In insurance, actuaries aid in assessing risks which helps companies in the estimation of premiums for their policies.
They are given the responsibility to analyse the financial risks by evaluating the mathematical, statistical and financial theories. Moreover, they also help in premium estimation.
How Do Insurance Actuaries Work?
The Insurance actuaries divide the financial risks majorly between two groups: High-risk and low-risk individuals. High-risk people are more prone towards raising claims than low-risk people. Hence, separating them in this manner helps to balance out the liabilities and maintain proper business.
Types of Insurance Actuaries
Insurance actuaries specialise in different areas of the insurance industry and they are:
Role of the Actuary in Insurance
The main work of insurance actuaries is to gather all the financial statistics and mathematical theories which helps the concerned insurance companies to anticipate and analyse the risks. Apart from this, the actuaries also perform the following tasks:
Pricing
The current market values and data are analysed by actuaries to formulate policies and fix reasonable prices.
Capital Modeling
The actuary projects the policyholder's liabilities and assets to evaluate its solvency and future monetary requirements.
Investment Portfolio
They evaluate the investments in bonds, funds and stocks.
Risk Management
The actuaries have to assess the assets and procure valuable advice for the agents and customers whether the company is able to secure them or not.
Who Can be Appointed as Actuaries for Insurance Companies?
As per the Appointed Actuary regulations put forth by the Insurance Regulatory and Development Authority of India, any insurer or insurance company should mandatorily appoint an actuary to manage financial risks and uncertainty of the insurance business.
To be appointed as an actuary with any insurance company, an individual has to fulfil the following criteria, as put forth under regulations:
He/she should be a resident of India.
Should be a fellow member as per the Actuaries Act, 2006.
In the case of life insurance
He/she should have passed a specialisation subject related to life insurance. Currently, specialisation refers to a Specialist Application subject as put forth by the Institute of Actuaries in India.
A prospective candidate should have at least 3 years of post-fellowship experience pertaining to the annual statutory value of life insurers.
A minimum of 10 years’ experience in the life insurance industry, out of which, at least 5 years should be that of the post-fellowship experience.
In the case of general insurance
He/she should have passed a specialisation subject related to general insurance. As per the Institute of Actuaries in India, currently, specialisation refers to a Specialist Application subject.
He/she should have at least 1 year of post-fellowship experience pertaining to the annual statutory value of a general insurer.
A minimum of 7 years’ experience in the general insurance industry, out of which, at least 2 years should be that of the post-fellowship experience.
In the case of health insurance
- He/she should have passed a specialisation subject related to health or general insurance. Similar to the above two categories, as per the Institute of Actuaries of India, currently, specialisation refers to the Specialist Application subject.
- He/she should have at least 1 year of post-fellowship experience pertaining to the annual statutory value of a health or general insurer.
- A minimum of 7 years of experience in the general or health insurance industry, out of which, there must be at least 2 years of post-fellowship experience.
Apart from these, an individual can be eligible for the position of Appointed Actuary with any insurance company if they comply with the following criteria:
- Should be an employee of an insurance company.
- Is not already appointed as an actuary with any other insurance company in India.
- Is not over the age of 65 years.
- Possesses a Certificate of Practice from the Institute of Actuaries in India.
- Has not committed any professional breach or is not guilty of any other misconduct.
Individuals satisfying the above criteria can be appointed as an actuary for insurance companies by the IRDA.
Is There an Association of Actuaries in India?
Yes, the Institute of Actuaries in India is a professional body for actuaries in India. Formed in the year 1944, the Actuarial Society of India (ASI) was converted into the body corporate of the Institute of Actuaries in India under the virtue of the Actuaries Act, 2006.
Objectives of ASI
- To propagate the advancement of actuaries in India.
- Facilitating research on the subject relevant to actuarial sciences.
- Opening avenues to promote communication between different members of the profession.
- Providing the necessary guidance for those studying actuarial sciences in India.
The Actuarial Society of India is also one of the founding members of the International Actuarial Association, which is the organisation for all actuarial bodies across the world.
How Can One Become a Member of the Institute of Actuaries in India?
To become a member of the Institute of Actuaries in India (IAI), an individual has to belong to any of the categories mentioned below:
Are Actuaries Required for both Life and General Insurance Companies?
Yes, actuaries are crucial for both life and general insurance companies. Few companies appoint full-time actuaries while others hire the consulting services of actuarial firms.
Actuaries are an indispensable part of any insurance company. They play a key role in determining the policies put forth by these companies.
Insurance actuaries hold a very important position in an insurance company and help in making very crucial decisions that are profitable for the company. There are various types of actuaries in insurance who are hired by various insurance companies owing to their competence and work experience to provide the best service to their customers.
FAQs about Actuaries in Insurance
Are actuaries only required by insurance companies?
No, like actuaries in insurance, there are actuaries in finance, who examine the risks of investments in the financial market.
When was the concept of actuarial science first introduced?
The concept of insurance has been around since the 17th century. From that time, the concept of assessing risks was given a scientific take with the first mortality table being introduced by the end of the 17th century. The concept of actuarial science has been around since then.
What are the training requirements for insurance actuaries?
To become an insurance actuary, an individual should hold degrees in statistics, mathematics, accounting, finance or economics. There are several universities around the world that offer degrees in the subject of actuarial science.
What is the meaning of actuary?
An actuary is basically a person employed by an insurance company who is entitled to the work of compiling and analysing statistics. With this data, they calculate the financial risks associated with an insurance premium.
What does an insurance actuary do?
The main work of an insurance actuary is to analyse the statistical data along with the demographic data to evaluate the financial risks associated with insurance policy premiums.
What is the actuarial process of insurance?
The actuarial process is defined as a way to assess the financial risk and develop plans to reduce its impact on the company. Apart from this an actuary also performs the following tasks:
- Calculating premiums.
- Rating method reserves.
- Catastrophe modelling.
- Investment portfolio.
- Pricing.
Do insurance brokers have actuaries?
Yes, the insurance brokerage firms appoint actuaries in their team as they have a significant role during the rise of premiums.
What is the main industry of actuaries?
Actuaries mainly belong to the financial industry who use their knowledge, expertise and experience to anticipate the financial risks and develop plans for reducing them as well.
Do all insurance companies have actuaries in India?
Yes, almost all insurance companies either hire a full-time actuary or actuarial consulting firm to get their work done.
What are the skills required to become an actuary in India?
The various types of skills required to be an actuary in India are listed in the following section:
- Mathematical Skills.
- Analytical Skills.
- Computer Literacy.
- Decision-Making.
- Business Knowledge.
- Communication Skills.
- Attention To Detail.
- Coding Skills.
- Interpersonal Skills.
Do general and life insurance companies need actuaries?
Yes, the role of an actuary is very crucial in general and life insurance as they need to assess the financial risks associated with these types of insurance.
What does the work of an Insurance Actuary include?
The main work of an Insurance Actuary includes using statistical and financial modelling to anticipate the financial risks that come with insurance policy premiums. They go through a series of the following steps to get their work done:
- Risk assessment.
- Policy Design.
- Financial Planning.
- Modelling and Analysis.
- Communication.
- Research.
What kind of training is required to become an Insurance Actuary?
To become an insurance actuary, a person needs to go through the following steps:
- Get a bachelor’s degree in maths, or in subjects that are closely related to the work of an actuary.
- The beginners should start with junior actuary roles.
- Join the SOA or the CAS to earn the associate-level certification.
- Having a degree in Actuarial Science speeds up the process of becoming an Insurance Actuary.
What is the example of an actuary in insurance?
Actuaries are appointed under different types of insurance and they are:
- Life Insurance: The policyholder’s health and lifestyle are taken into account to anticipate the potential risks.
- Property and Casualty Insurance: The type of property and location is considered to develop the policy premiums.
- Health Insurance: Here, the lifespan of a policyholder is estimated to formulate annuity policies and life insurance.
What is the difference between underwriters and actuaries?
People are often confused between underwriters and actuaries. If we talk about underwriters, they assess the individual risks considering the age, gender, location, medical history, etc. However, the actuaries work in a much broader arena and assess the future financial risks of an insurance company. They hardly communicate with the customers while the underwriters mainly communicate with the customers.
How do actuaries help insurance companies assess risk?
The following methods are implemented by the actuaries to assess the risk posed to the insurance companies:
- Demographic Information: Helps in correlating the different variables.
- Life Tables: Helps in predicting future mortality rate changes.
- Historical Data: Helps in identifying patterns and trends.
- Mathematical Models: In this, advanced models are used to quantify the upcoming financial consequences.
How do actuaries calculate insurance premiums?
To calculate the insurance premiums, the actuaries initially require a variety of data sets. After that they use the following methods to calculate insurance premiums:
- Risk Theory.
- Tracking Payment Statistics.
- Considering External Frauds.
- Forecasting the Financial Impact of Catastrophes.
- Statistical Methods.
What are some of the challenges faced by actuaries in insurance?
Some of the major challenges faced by actuaries in insurance are:
- Changing Customer Needs.
- Employee Retention.
- Climate Change.
- Cybersecurity Threats.
How can actuaries help insurance companies improve profitability and financial stability?
Many times, when the profits and finances are miscalculated, the insurance companies can face huge monetary losses. Hence, to minimise them and to improve profitability and financial stability, the insurance companies appoint actuaries who formulate a detailed financial proforma that helps you to have a better look at your company’s future.
What is the power of an actuary?
The actuary mainly holds power in the insurance industry where he or she is entitled to assess the financial risks and come up with a suitable premium for the policies that the policy buyers are opting for. This requires immense knowledge of financial statistics and mathematical theories for proper calculation and risk evaluation.