Actuarial Science

Insurance Actuary: Role and Responsibility

insurance actuary

For the Indian insurance industry to run well, a number of crucial jobs are involved. The position of insurance actuary is one of these important roles. You wish to learn more about it. This article emphasizes the functions and responsibilities of an insurance actuary and defines what that individual does.

What is an Insurance Actuary?

An expert who assesses financial risks to determine an appropriate premium for insurance policies is known as an insurance actuary. These experts estimate appropriate rates using mathematical theories and financial statistics to reduce risks for insurance businesses.

How does an Insurance Actuary work?

A financial risk is divided into a group of high-risk and low-risk people by an insurance actuary. High-risk individuals continue to have a larger likelihood of making claims than low-risk individuals. Putting them all together in one place makes it easier for insurance companies to balance out their financial obligations and continue operating. 

For instance, in the case of health insurance, actuaries might evaluate groups or people based on their health, demography, lifestyles, and other criteria to divide them into low-risk and high-risk categories. Because of this, insurance firms can provide claim-related payments as needed and yet turn a profit.

Role of actuaries in insurance companies

For continued operation, insurance companies rely on actuaries’ judgments. However, this is not just restricted to customer risk evaluation. The following may also play a part in actuaries’ jobs.

Insurance pricing

Insurance actuaries assist in the design of policies and the establishment of fair pricing by analyzing the data related to a group that will be insured. Therefore, the policy premium increases wherever there are more odds of payouts. 

By examining the data pertaining to a group that will be insured, insurance actuaries help in the design of policies and the formulation of fair pricing. Where there are higher payoff probabilities, the policy premium rises accordingly.

Investment portfolio

Actuaries in the insurance industry may also participate in the evaluation of the company’s investments in funds, bonds, equities, etc. Together with the investment team, they might offer assistance with asset research in an effort to increase income and keep the ability to pay out claims at all times.

Financial reserves

The amount of money set aside by insurance firms for potential policy claims is known as financial reserves. Actuaries examine prior claims to estimate the amount that should be set aside as financial reserves. By providing prompt payouts for claims, insurance companies can preserve client satisfaction. 

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Types of insurance actuaries

Here are examples of a few types of insurance actuaries working in the industry. 

Health insurance actuaries:  In order to calculate the potential risks in health insurance, actuaries consider the policy applicant’s current and prior health as well as lifestyle characteristics. 

Disability insurance actuaries: These actuaries assess the hazards that could render a person permanently or temporarily disabled. 

General/property insurance actuaries: These actuaries handle the physical and legal hazards connected to people and their properties. They aid in establishing insurance prices for policies covering commercial property, automobiles, and homes, among other things.

How do insurance companies appoint actuaries?

According to the IRDAI’s (Insurance Regulatory and Development Authority of India) Appointed Actuary Regulations, insurance companies are required to employ an actuary. 

Here are the standards insurance firms must adhere to when selecting actuaries for various categories.

Universal criteria

  • They must dwell in India.

  • The Actuaries Act of 2006 stipulates that they must be a fellow member.

  • They must work for an insurance provider.

  • They shouldn’t now work as an actuary for another insurance firm.

  • They ought to be younger than 65.

  • They need to be in possession of a Certificate of Practice granted by the Indian Institute of Actuaries.

  • They shouldn’t be held accountable for any wrongdoing or ethical violation.

Criteria for General Insurance Actuary

  • Specialization in a topic related to general insurance, as recommended by the Indian Institute of Actuaries.

  • Minimum 1 year of post-fellowship work experience in the statutory yearly valuation of a general insurer.

  • Relevant 7 years of general insurance sector experience, with at least 2 years coming after a fellowship.

Criteria for Life Insurance Actuary

  • Specialization in a life insurance-related field as defined by the Indian Institute of Actuaries.
  • 3 years at least of post-fellowship job experience in the yearly mandated valuations of life insurance companies. 
  • 10 years of relevant work experience, at least 5 of which must have come after a fellowship.

Criteria for Health Insurance Actuary

  • Specialization in a field related to general or health insurance, per the Indian Institute of Actuaries. 
  • A general/health insurer’s yearly statutory valuation requires at least a year of post-fellowship work experience.
  • 7 years of relevant experience in the general/health insurance sector, with at least 2 years coming after a fellowship.

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All about the Institute of Actuaries in India

The nation’s regulatory authority for actuaries is the Institute of Actuaries in India (IAI). As the Actuarial Society of India, or ASI, this actuarial organization was established in 1944. Based on the Actuaries Act of 2006, this organization was changed into the Institute of Actuaries in India. The primary goals of this body are listed below.

  • Promoting actuarial progress in India.
  • Giving those who are actuaries a common forum for communication.
  • Enabling actuarial work-related research and studies.
  • Assisting those in India who want to study the science of actuarial practice.

Types of membership offered by the Institute of Actuaries in India

One can receive a membership in the Institute of Actuaries in India in the following categories : 

Student:  By signing up for their test and obtaining admission, people can enroll as students at IAI.

Associate: The associates are student members who pass the Core Principal Series and Core Application Tests administered by IAI. Associate voters are permitted to participate in Council elections.

Fellow: Fellowship is divided into a number of subcategories depending on various criteria, including Fellowship via IAI examination, Fellowship via Mutual Recognition Agreements (MRA), and Fellowship via Affiliate to Fellow.

Frequently Asked Questions (FAQs)

What kind of training is required to become an Insurance Actuary?

Ans: A training in economics, finance, accounting, mathematics, and/or statistics is required for an insurance actuary. They should be graduates of an actuarial science-related field.

Do general and life insurance companies need actuaries?

Ans: For both general and life insurance firms, the job of actuaries is crucial. They support the process of developing regulations that generate revenues for the business. A company may decide to employ an actuarial consulting firm or appoint actuaries full-time depending on the requirements.

What does the work of an Insurance Actuary include?

Ans : An actuary’s primary task is to evaluate potential risks associated with the sale of insurance products. However, they may also serve in a consultative capacity and carry out administrative tasks as part of their job.