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Should smokers pay more for their health insurance? Should younger drivers pay higher car insurance premiums? Actuaries answer questions like these to ensure that insurance and pension organizations can pay their claims and maintain a profitable business.
Using their knowledge of mathematics, probability, statistics, and principles of finance and business, actuaries determine premium rates and the various benefits of insurance plans. To accomplish this task, they first assemble and analyze statistics on birth, death, marriage, parenthood, employment, and other pertinent facts and figures. Based on this information, they are able to develop mathematical models of rates of death, accident, sickness, disability, or retirement and then construct tables regarding the probability of such things as property loss from fire, theft, accident, or natural disaster. After calculating all probabilities and the resulting costs to the company, the actuaries can determine the premium rates to allow insurance companies to cover predicted losses, turn a profit, and remain competitive with other businesses.
For example, based on analyses, actuaries are able to determine how many of each 1,000 people 21 years of age are expected to survive to age 65. They can calculate how many of them are expected to die this year or how many are expected to live until age 85. The probability that an insured person may die during the period before reaching 65 is a risk to the company. The actuaries must figure a price for the premium that will cover all claims and expenses as they occur and still earn a profit for the company assuming the risk. In the same way, actuaries calculate premium rates and determine policy provisions for every type of insurance coverage.
Employment opportunities span across the variety of different types of insurance companies, including life, health, accident, automobile, fire, or workers' compensation organizations. Most actuaries specialize either as casualty actuaries, dealing with property and liability insurance, or as life actuaries, working with life and health insurance. In addition, actuaries may concentrate on pension plan programs sponsored and administered by various levels of government, private business, or fraternal or benevolent associations.
Actuaries work in many departments in insurance companies, including underwriting, group insurance, investment, pension, sales, and service. In addition to their own company's business, they analyze characteristics of the insurance business as a whole. They study general economic and social trends as well as legislative, health, and other developments, all of which may affect insurance practices. With this broad knowledge, some actuaries reach executive positions, where they can influence and help determine company policy and develop new lines of business. Actuary executives may communicate with government officials, company executives, policyholders, or the public to explain complex technical matters. They may testify before public agencies regarding proposed legislation that has a bearing on the insurance business, for example, or they may explain proposed changes in premium rates or contract provisions.
Some actuaries are employed in financial services, helping to manage credit and help set a price for corporate securities. In this capacity they may help shape an organization's risk-management policies and serve as advisers to corporate executives, shareholders, and the general public.
Actuaries may also work with a consulting firm, providing advice to clients including insurance companies, corporations, hospitals, labor unions, and government agencies. They develop employee benefits, calculating future benefits and employer contributions, and set up pension and welfare plans. Consulting actuaries also advise health care and financial services firms, and they may work with small insurance companies lacking an actuarial department.
Since the government regulates the insurance industry and administers laws on pensions, it also requires the services of actuaries to determine whether companies are complying with the law. A small number of actuaries are employed by the federal government and deal with Social Security, Medicare, disability and life insurance, and pension plans for veterans, members of the armed forces, and federal employees. Those in state governments may supervise and regulate insurance companies, oversee the operations of state retirement or pension systems, and manage problems related to unemployment insurance and workers' compensation.
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