Actuarial Science

Insurance Actuary : A Complete Guide


If you’re interested in a career in math, no doubt you’ve come across something telling you that being an insurance actuary is one of the best jobs you can get.

What is an insurance actuary? An insurance actuary is a professional that specializes one of the following:

  • Figuring out the cost of insurance.
  • Figuring out how much cash to set aside for potential claims.
  • Assessing more risk categories in insurance firms.

First, let’s explore each of these jobs a bit further.

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Roles of an Insurance Actuary

So, like I said above there are three primary types of jobs that insurance actuaries do.

First is that they calculate the appropriate premium to charge for insurance products.  A premium is the price that someone will have to pay to the insurance company in order to obtain an insurance policy.  These are called pricing actuaries.

Another possible role is to calculate how much money an insurance company needs to save so that they can afford to pay a policyholder  if they make a claim in the future. These are called valuation actuaries.

An actuary for enterprise risk management, or ERM, is the final category of insurance actuaries. These actuaries are in charge of identifying, assessing, and minimizing risks that aren’t directly connected to insurance.

Pricing Actuaries

A pricing actuarie calculates the probability and predicted amount of a future claim from policyholders using mathematical and statistical ideas. Personal attributes of the individual, such as age, gender, and smoking status, must be taken into account as they all affect the likelihoods.

They then calculate the right amount to charge based on that information. The amount that a person must pay the insurance company in order to receive an insurance coverage is known as the premium.

However, an actuary cannot ascertain these probabilities for a specific person. They can only reliably ascertain them for sizable cohorts of individuals. For this reason, thousands of policyholders are required by insurance firms.

Actuaries apply the large-number law. Thus, it is easy to estimate (very correctly) how much an insurance company will have to pay out in claims each month when there are thousands and thousands of customers. They can split the cost equally among all policy holders once they are aware of the total amount that would need to be paid in claims for the group.

However, the actuary takes into account other factors as well when determining a premium. They will also need to take into account the insurance company’s running costs, which include profit and staffing levels and facility upkeep.

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Valuation Actuaries

An insurance firm is required to set aside funds if a new policy is sold in order to cover potential future claims from the policyholder.

When an insurance first starts, the policyholder pays a large sum of money (called a premium). However, since the new insurance contract obligates them to pay for any future claims filed by the policyholder, an insurance company cannot spend all that money as soon as it is received.Insurance claims may cover things like paying for prescription drugs (health insurance) or the price of repairing a policyholder’s vehicle after an accident (auto insurance).

Therefore, the insurance company sets aside some money to make sure it has enough cash on hand to cover these claims when they occur. It’s similar to a savings account, except an actuary would refer to it as a reserve.

Numerous data points from multiple sources are used by valuation actuaries to determine the reserve.

ERM Actuaries

In an insurance firm, recognizing, assessing, and managing risk is usually the responsibility of an ERM actuary. While most actuaries only handle insurance-related risk, ERM actuaries also handle other types of hazards.

An ERM actuary might examine reputation risk, for instance. Reputation risk is the chance that income will be lower than anticipated as a result of bad press. Unfavorable press can occasionally drastically lower sales or lead to policyholders canceling their insurance contracts.

The insurance firm may experience difficulties if sales are significantly lower than anticipated or if a higher number of policyholders cancel than anticipated.

Is an actuarial career right for you?

Becoming an actuary requires a very special kind of person.

You must first have a deep affinity for numbers! On a daily basis, actuaries work with numerous mathematical and statistical ideas. It would be challenging to be a competent actuary without a thorough comprehension and a certain amount of mathematical intuition.

The second thing to think about is whether you’ll like the workplace. Actuaries spend the most of their workdays on computers in an office environment. Most jobs don’t need you to go very far.

While team members often collaborate quite a bit (generating ideas together), most work is done alone. However, this can change depending on the position. 

Thirdly, insurance must pique your attention. It will be difficult to stay motivated if the type of job and the ideas behind insurance don’t appeal to you because becoming an actuary is a lengthy process (which I’ll discuss below).

Having said that, you might not be as fond of some items. It could take six to ten years to complete the actuarial tests required to become fully qualified.

Thankfully, you can work as an actuary before obtaining full certification, but you must still be prepared to devote a significant amount of your personal time to studying for the tests.

Insurance Actuary Career Insight

So now let’s get to the real question here. Is an actuary a good career?

You’ll hear people talk about the high salary, low stress, good work-life balance, etc. Is it true?

Well, sorta.

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High Salary

Actuaries are highly compensated. An actuary’s compensation alone would most likely provide a very comfortable existence for your family.

To get there, though, will take a few years as you’ll need to pass multiple tests and acquire some experience first.

I’ve covered a lot more ground on pay here.

Since studying for actuarial tests takes thousands of hours, there are many different careers available these days that may not require as much time commitment but yet provide a really nice compensation.

However, this shouldn’t deter you from becoming one! It’s a wise decision if the career sounds like something you would find really intriguing. Just remember there are alternative options, so don’t go into it for the money alone.

Low Stress

Actuarial work is generally low stress.

Particularly consulting actuaries frequently have to work long hours because of the pressure to meet deadlines. I’ve never held a consulting actuary position, but I can see how difficult this might be.

Time constraints are a problem sometimes, even in occupations that don’t include consulting. But most workplaces presumably experience something similar to this.

Work-Life Balance

After earning your full actuarial license, work and life can coexist peacefully. You would put in your typical eight-hour workdays, with the possibility of a little overtime, and be done.

The balance isn’t as excellent for someone who is still taking examinations because they aren’t quite qualified. You need to dedicate a significant amount of your personal time to exam preparation after work.

The final one to two months prior to the exam are particularly detrimental for this.

An entry-level insurance actuary with 2 exams passed will likely make somewhere between $46,000 and $71,000. Once fully-qualified with 6-7 years of experience, $125,000 to $190,000 would be reasonable. With 20+ years of experience, a salary of $500,000 or more is possible.

An insurance actuary is usually involved in either the calculation of insurance premium or the calculation of reserves. Both require the use of tons of historical data and statistical concepts in order to predict the timing and cost of future events.

A bachelor’s degree is required of insurance actuaries, albeit the subject is not important. The fact that they have passed actuarial examinations and possess superior technical abilities, like as programming and Excel skills, is more significant.