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A Closer Look: Role of an Actuary in Insurance

Zopper Team Basics of Insurance December 18th, 2023
Actuary in Insurance

In the insurance industry, an actuary holds a vital position. An actuary is an individual who has expertise in mathematics, economics and statistics. A specialist in evaluating the risks and calculating a suitable policy premium is what an actuary basically does. Through the implementation of mathematical theories and financial statistics, the actuary estimates the premiums, which helps in minimising the risk for the insurer. 

How Do Actuaries Help Insurers?

Actuaries help insurance businesses with a thorough evaluation of risks and returns that are linked with every proposal. The principle that insurance actuaries work on is the division of high and low-risk individuals. On the basis of their health, lifestyle, demographics and economic status, the individuals can be divided into groups. 

When people from two sections are grouped together, the actuary helps the insurance company to create a more secure strategy in its financial liabilities and make a profit in the business. 

Their estimation of risk and return also assures the policyholders that the claims they raise will be settled. The recommendations that an insurance actuary makes, therefore, help both the parties, i.e. the policyholder and the insurance company.

Let us take this example, a smoker opts for a life or health insurance policy. As compared to a non-smoker 30-year-old male, a 30-year-old smoker make would have a much higher premium. This is because his lifestyle habits pose a threat to him. 

A higher premium would help the company deal with the risk, a hole in the pocket may dissuade the smoker from this deadly habit.

Apart from insurance pricing, insurance actuaries assist with the investments that are made by the insurance company. The aim is to improve the company’s income and also maintain a stable payout capacity so that the claims raised by policyholders can be settled timely. 

Who can be appointed as an actuary and what are their functions?

Wondering who can be appointed as insurance actuaries? The IRDAI mandates that every insurance company has to appoint an actuary to manage the risks in the business. To be appointed as an actuary, the person has to be an Indian citizen, and the individual has to be a fellow member of the 2006 Actuary Act. 

Typically, actuaries function across several segments pertaining to life, health and general insurance, for which they need to have passed their subject of specialisation and fulfill the required eligibility criteria.  

Summing up, there is a greater need to expand the number of certified and professional actuaries in the coming years so as to support the overall growth of the insurance sector.

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