Page 43 - Insurance Times June 2023

that is more likely. For example, if a town historically gets a Life Insurance:
lot of hail, the premium for that coverage will likely be high. Actuaries have worked with companies that provide life
If that same town is far from large bodies of water and insurance, pensions etc… from the start and it's more of
waterways, flood coverage will likely be cheap.
the traditional area actuaries build a career in. In this
field, actuaries are involved in all stages of the produce
Another concept actuaries use is weighted probability.
development, pricing, risk assessment and marketing of
Because there are usually more than one or two factors (not
the products. They also can work in financial
simply heads or tails) when it comes to predicting life events,
management by developing plans from their analysis to
actuaries have to factor in not only the possible outcomes,
ensure customers get a good return.
but the desired outcomes and how many ways one can get to
those outcomes. General Insurance:
Actuaries normally are found working with insurance
For example, rolling one dice, the probability of rolling a two companies and consultancies and in some instances can
would be the same as rolling a four: 1/6. But by rolling two work in general insurance also. General insurance
dice, there would be a greater chance of rolling a score of includes providing cover for personal insurance such as
four than of two. This is because there is only one combination home and motor insurance, as well as insurance for large
to get two when using two dice (1, 1), but four can be scored commercial risks such as a natural disaster. Actuaries
with more than one combination (1, 3 or 2, 2 or 3, 1). This are employed by insurance companies to work in
means the probability of scoring four is weighted heavier reinsurance and broking operations as well as assist with
than two. their financial management this is done by analysing
statistics about claims severity and frequency to help
To determine weighted probability, determine the total insurance companies invest wisely to ensure they
number of possible outcomes (total values) in the scenario. maximise income and pay out potential claims. Actuaries
Then, determine how many ways the outcome can occur. also analyse different types of risk depending on the
Divide the number of ways to achieve the outcome by the different groups of people and circumstances to help
number of possible outcomes. design and price policies correctly.

This is done where actuaries use statistical techniques
Going back to the example of the two dice, when trying to
to create a statistical model which will then be used
determine the weighted probability (%) of rolling a score of
extensively in the analysis of large amounts of data. This
four with two dice, the total number of possible outcomes is
analysis is then used to understand the risks and to make
36 (6 sides × 6 sides = 36 outcomes). There are three ways to
sure that the amount paid for insurance are adequate
achieve this roll (1, 3 or 2, 2 or 3, 1). The final calculation is as
to meet the eventual settlement of insurance claims.
follows:
Actuaries have been integrally involved in estimating
3 preferred outcomes ÷ 36 possible outcomes = 0.083 or 8.3%
ultimate costs for unforeseen circumstances such as
Again, the insurance companies factor in a huge number of terrorist attacks, natural disasters and industrial
outcomes and ways to achieve those outcomes when deciding diseases.
what is or is not covered, which is why they rely on highly
Risk Management:
trained professionals to crunch the big numbers. The bottom
Risk management is a great career path for actuaries as
line is that insurance companies do not just randomly decide
it is well suited with their skills and expertise. Another
what is and is not covered. They do the math to make sure
key skill that actuaries need is to explain their findings to
they can sustain their financial health so they can protect
businesses to understand so they can implement the
their clients
actuary's findings in their future decisions. As well as
analysing specific risks from this they develop models for
Actuarial functions:
businesses to help minimise their own future risks.
Actuarial science and insurance can work hand in hand or
hand in glove to protect companies and individuals in Basis of Rate Making:
unforeseen circumstances. Actuaries use their expertise in Insurance is a business. An insured, or a policyholder,
finance and statistics to asses risk in insurance, finance and pays premiums to transfer his/her risks to the insurance
other industries. They then advise businesses and individuals companies, or the insurer. The goal of the insurer is to
of the amount they would need to set aside to tackle risks collect enough premiums to cover for losses should they
and costly events that may happen in the future. occur as well as to make a marginal profit. In order to do
The Insurance Times June 2023 39