Page 196 - Ebook health insurance IC27

The Insurance Times

Q9. Explain the importance of Actuarial function in a Health Insurance
Company.

Ans. Insurance is a business of risk transfer. A policy holder pays premium to an
insurance company and in return, the insurance company promises to compensate
the policy holder for any unforeseen losses during the covered period.

Insurance companies rely on their estimates of likely future payments for such
claims to maintain profitability at the end of the covered period.

A company can only come to know whether it is at a loss or profit after the
completion of the policy year. If the premium collected becomes less than the
claim paid, the company suffers loss. So,to remain in profit, the company takes
the following steps :
(i) Collect right amount of premium
(ii) Sell the policies to only good/standard risks
(iii) Manage claims so that there is no extra claim payments and
(iv) Maintain a reserve fund to remain solvent all the time.

The Actuarial department of a health insurance company helps the company in
two major tasks : (i) Calculate the premium reserve for each product (ii) Calculate
the reserve to keep for the policies sold.

The Actuaries conduct other analysis to assist the above mentioned functions, like
(i) Analysis of expenses.
(ii) Analysis of movement of policies such as renewals, cancellations etc.
(iii) Asset liability modeling.
(iv) Analysis for modeling customer behavior such as fraud, renewal etc.

200 Guide for Health Insurance