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Actuaries are a vital component of the work that insurance companies and insurance brokers do. Insurance is, quite literally, a risky business. The actuaries are there to help these companies keep the risks low and the profits high!

If an insurance company is liable to pay out on an insurance agreement and doesn’t have the sufficient provisions to be able to do so, they could find themselves in a rather sticky situation. The company needs to ensure that it can keep offering and taking on large agreements to bring in as much income as possible, whilst being safe in the knowledge that they can keep afloat if and when they do have to pay out on agreements.

Calculating risk levels...

Never fear; the actuaries are here! They are extremely well skilled in using statistical modelling to calculate the probability and risk that an eventuality will occur for a particular insurance agreement application. This could include looking at medical records, or even data on environmental disasters. This is called ‘reserving’.

They then calculate how much the insurance company would have to pay out on in the event of a valid claim. From this they can provide guidance on how much provision the company would need to have in order to safely take on the agreement and a suitable premium (the amount the client would have to pay to take out the package).

Assets vs. liabilities...

They will also analyse the company’s assets (the ‘provisions’ the insurance company has) against its liabilities (what it may be expected to pay out if eventualities occur and the insurance company has to cough up what it owes the customer) to make projections for how much capital the insurer will need to generate in the future.

So basically, the work actuaries do is fundamental to the way insurance works. They are highly skilled with mathematics, economics and data analysis, and they must also, crucially, be able to communicate their estimations clearly to colleagues and clients. At times they may also deliver their negotiations with insurance brokers (a firm working on behalf of the prospective client to get them the best insurance deal) or lawyers.

Specialisms in actuarial roles in insurance...

Actuaries in insurance often branch out into specific areas of insurance; the better they can get to know a certain area and its trends and idiosyncrasies, the better they will be able to make their estimations and predictions.

Typical specialist areas include general insurance – things like home insurance (households or personal items like laptops and other assorted gadgets) and motor insurance – and life insurance, where the actuary plays a key part in tailoring the agreement.

Actuaries can also be employed by the government to work on private and public sector issues such as projections for the NHS; though the most common employers are insurance and pension companies and actuarial firms.

Health and care

Actuaries have long been involved in financial planning for the NHS, and this is now a growing area for actuarial work, as the Government looks for ways to restructure the welfare state to meet the changing needs, demands and expectations of a changing population.
Evolving health provision models to meet changing needs is also a feature of the expansion of private sector work. Here, actuaries work with other health professionals to find appropriate solutions for private medical insurance, income protection, critical illness, and long-term care insurance.
Health and care insurance business, such as critical illness, income protection and long term care insurance, is often written alongside life insurance business, and the actuarial roles are therefore similar to those described in the insurance section.  Some health insurance business, such as private medical insurance, is written on a short term (annually renewable) basis, and so more akin to general insurance.  Although many of the roles and activities are the same as for these other types of insurance business, the inherent risks differ.  

There is naturally more emphasis on understanding morbidity rates (i.e. rates of becoming sick or disabled or needing medical treatment and, where relevant, rates of recovering from sickness), which is a more complex analysis than that of mortality (i.e. death) rates – and there is less available historic data on which to base statistical analysis and estimation.  It is also necessary to consider aspects such as the implications of medical advances, medical cost inflation and interactions with State provision of health and care services.  Some health and care actuaries are more closely involved in wider contexts, such as national healthcare funding systems.  For example, how best can we ensure that there will be adequate provision for long term care in old age under increasing national budget pressures and an ageing population?

And the money…

Actuaries have a great amount of responsibility, and salaries reflect this. A starting salary is around £35,000 and a senior actuarial analyst can earn in excess of £60,000. It is a very competitive industry, so work experience and top grades are important!   

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