What Exactly Is an Insurance Actuary?

An insurance actuary looks at risk for a living. This is done utilizing mathematics, statistics, and financial theory.

Important Takeaways
  • An insurance actuary assesses risk using mathematical, statistical, and financial models and theories.
  • Most actuaries work in the insurance sector to help formulate and price insurance policies based on how probable it is that customers will make claims.
  • Insurance actuaries may also aid with investments and maintaining financial reserves to ensure that insurance firms have adequate money on hand to pay out claims.

Definition and Example of an Insurance Actuary

An insurance actuary assesses financial risk. They utilize mathematical, statistical, and financial modeling to assess the likelihood that something will happen. Their study helps insurance firms develop insurance plans.

While formulating policies, actuaries examine the risk of insuring various groups of individuals based on their lifestyle, their health, where they reside, and numerous other considerations. Their expertise helps a firm to provide plans that are priced in a manner that yet earns a profit.

Insurance firms depend on actuaries to estimate risk for life, property, liability, vehicle, home, and other insurance programs.
Insurance is focused on bringing a group of persons together to share risk. High-risk customers are more prone to submit claims and typically cost more for the insurance provider. Low-risk persons may never require rewards at all.

How Insurance Actuaries Operate

To generate money and continue in business, insurance firms need a mechanism to measure risk. For instance, persons who take up a life insurance policy are pooled into groups depending on their lifestyle choices, health, age, and other criteria. This makes it easy for insurers to assess the risk of making a claim before designing a new insurance plan. These firms depend on actuaries to estimate the risk involved.

Risk Assessment

Insurance actuaries assist organizations measure risk by studying data about groups of individuals. Then, they utilize that information to help create and price insurance plans. The greater the risk for a certain group, the more probable it is that the firm will have to pay out a claim if it covers someone from that group. As a consequence, persons who fall into such categories must pay higher rates.

Mortality risk is one of the key issues insurance actuaries work on. Mortality risk is the risk of death. If an actuary can establish that the risk of mortality is lower for a group based on specific criteria (such as age or health), that group can have cheaper premiums on life insurance plans.
Evaluating risk includes assessing the possibility that something will happen to cause a loss. There are several dangers that actuaries check for.


Actuaries regularly assess stocks, bonds, funds, or other assets used by insurance firms to increase their reserves and revenue while retaining the capacity to pay out any prospective claims.

Financial Reserves

Insurance firms also need to put aside enough money in reserve to pay for consumer claims that come up. Actuaries aid with this procedure by assessing how much money to put away based on prior claims. This guarantees that there is adequate money available to settle any future claims.

Having adequate money on hand implies that claims can be settled fast. It also ensures that the corporation may continue in operation after making payments.

Types of Insurance Actuaries

Actuaries who work in health insurance typically look at lifestyle variables and prior health issues. Businesses utilize this information to calculate how much to charge for a plan. Companies want to price their policies such they can pay out claims while still earning a profit.

Disability and worker’s compensation insurance are based on how probable individuals are to be injured or temporarily or permanently disabled on the job. This risk is based on the sort of job they undertake and how many historical claims a firm has filed.

Property or general insurance actuaries deal with physical and legal hazards to individuals and their property. They assist determine rates for car, homeowner’s, commercial property, and product liability insurance, and more.