Actuarial science and insurance can work hand in hand to protect companies and individuals in unforeseen circumstances. Actuaries have historically been employed by insurance companies and have now diversified to be able to work in a variety of industries all over the world such as in pensions and benefits, risk management and finance and investment. Actuarial skills have been recognised to work in personal finance planning, damages and healthcare as well as in some more traditional areas such as pensions, insurance and investment. So, let’s first understand what exactly actuaries do to see how they use their skills in the insurance industry. Actuaries use their expertise in finance and statistics to asses risk in insurance, finance and other industries. They then advise businesses and individuals of the amount they would need to set aside to tackle risks and costly events that may happen in the future.
Find out more about the actuarial profession and the skills needed to be an actuary on our careers advice page.
History of actuarial science in Insurance
As mentioned previously, actuaries traditionally work in Insurance and this all started back in the day when basic requirements for interests in communities rose the need to be protected against risk. So, if a community was at risk to losing elderly members of their family due to a virus, they wouldn’t be financially protected if they rely on the older person for money and food. After bartering came into existence the type of risks then became more complex with individuals possibly losing goods or even their lives when they embark on trade journeys. The earliest form of insurance can technically be in the 3rd century when the first forms of charity were provided to people in need. There was a social stigma to receiving charity at the time, so mutual aid agreements and pensions arose where in the Roman empire, associations were created to help with expenses for burials and cremations. This was done by every member of the association paying a small monthly sum and then if a member dies that money would cover the expenses. Many societies were then created in a similar fashion with non-life insurance events eventually rising to protect those who lose their cargo in sea travel. Fast forward to the 17th century, a more scientific method for risk management was developed where in 1662, John Graunt, the founder of demography, showed that you can predict longevity and death in certain groups of people. This provided the basis for the original life table which led to what life insurance is today.
In 1762, mathematician James Dodson’s work on the level premium system (which is life insurance that will insure for the whole life of the person who took it out) helped form what is now known as Equitable Life, the first life insurance company to use premiums. This was then passed on to Edward Rowe Mores after Dodson’s death where he made sure that the chief official should be called an actuary.
Many companies that didn’t use mathematical methods either failed or had to use the same methods pioneered by Equitable Life. This built the need for actuaries in insurance and their skillset is now traditionally used in the insurance industry.
Training for actuaries working in Insurance
Many insurance companies hire potential actuaries straight from school either on school leaver programmes and apprenticeships. With this, the candidates will go through training and work experience to gain the right skills to be an actuary. You can also become an actuary starting with a degree in accounting, economics, maths, finance etc… and then joining a graduate programme at an insurance company.
Find actuarial school leaver and graduate roles on our jobs board.
What do actuaries do in…
Actuaries have worked with companies that provide life insurance, pensions etc… from the start and it’s more of the traditional area actuaries build a career in. In this field, actuaries are involved in all stages of the produce development, pricing, risk assessment and marketing of the products. They also can work in financial management by developing plans from their analysis to ensure customers get a good return.
Actuaries normally are found working withing insurance companies and consultancies and in some instances can work in general insurance also. General insurance includes providing cover for personal insurance such as home and motor insurance, as well as insurance for large commercial risks such as a natural disaster. Actuaries are employed by insurance companies to work in reinsurance and broking operations as well as assist with their financial management this is done by analysing statistics about claims severity and frequency to help insurance companies invest wisely to ensure they maximise income and pay out potential claims. Actuaries also analyse different types of risk depending on the different groups of people and circumstances to help design and price policies correctly.
This is done where actuaries use statistical techniques to create a statistical model which will then be used extensively in the analysis of large amounts of data. This analysis is then used to understand the risks and to make sure that the amount paid for insurance are adequate to meet the eventual settlement of insurance claims. Actuaries have been integrally involved in estimating ultimate costs for unforeseen circumstances such as terrorist attacks, natural disasters and industrial diseases.
Risk management is a great career path for actuaries as it is well suited with their skills and expertise. Another key skill that actuaries need is to explain their findings to businesses to understand so they can implement the actuary’s findings in their future decisions. As well as analysing specific risks from this they develop models for businesses to help minimise their own future risks.
If you are interested in becoming an actuary, read here for more information on why you should become an actuary.