From previous articles, we know that insurance companies are accepting certain levels of risk when extending coverage to a client, so certain parameters are put in place to ensure they can cover the costs of any potential claim payments. We’ve learned that underwriters help determine if clients fall within these parameters, but how do insurance companies determine what these parameters should be? This is where the role of an actuary becomes important!
An actuary is responsible for analyzing data, estimating probabilities, and crunching numbers. They use statistical analysis to determine the likelihood of claim events happening and calculate the potential financial impacts those claims would have on the company. By making these determinations, actuaries are able to determine how the company can offer insurance to as many clients as possible while still having the funds to cover potential claims and stay profitable.
Actuaries are also able to calculate the proper premium costs based on the level of risk to the company. As an example, Property & Casualty actuaries will calculate the number of claims expected as a result of auto accidents. They might look at different factors such as age, driving history, and type of vehicle to determine what amount of premium would cover any potential claim costs.
You can rest easy knowing that there are many skilled professionals working behind the scenes to make insurance work for you. Have questions about this or anything insurance-related? Make sure to let us know!