What is an actuary?
Actuaries are business professionals who manage and mitigate risks by
using statistics, mathematics, and general principles of economics and
finance such as probability theory, theory of interest and derivative
pricing. They have a combination of strong analytical skill, business
knowledge, and understanding of human behavior to that enables them to
design creative programs that control risks.
Actuaries are the brains
behind the financial safeguards we have implemented in our personal lives,
so we can go about our daily lives without worrying too much about what
the future may hold for us. The insight into risk that actuaries have
also helps to ensure that our savings are working hard for us, so that
everything we love and treasure can grow and do well. The work of actuaries
benefits all of us.
Why
do we need actuaries and what do they do?
Risk is the possibility that an undesirable event will occur. Every person,
business, and organization faces risk and it comes in many forms in this
fast-changing world. The impact of an undesirable event can be both emotional
and financial. Reducing the likelihood of undesirable events helps relieve
emotional pain. However, some events, such as death, can’t be avoided.
Therefore, reducing financial impact is very important for all, especially
companies, if we don’t want our businesses to collapse like Enron and
Arthur Anderson. We need to find out how to reduce our risk or find a
person who can help us. That means we need actuaries because they are
experts in the evaluation of financial risk.
One of the main functions of actuaries is to help businesses assess the risk of certain events occurring and formulate policies that minimize the cost of that risk. For this reason, actuaries are essential to the insurance industry. Actuaries assemble and analyze data to estimate the probability and likely cost of the occurrence of an event such as sickness, injury, disability, or loss of property. Actuaries also address financial questions such as the way in which a company should invest resources to maximize return on investments in light of potential risk. Using their broad knowledge of statistics, finance, and business, actuaries help design insurance policies, pension plans, and other financial strategies in a manner that will help ensure that the plans are maintained on a sound financial basis.
The actuaries also are important for other businesses too. For example, when other businesses that do not have actuaries on staff need certain financial advice, they hire actuarial consultants. Consultants help companies evaluate assets and liabilities. By delving into the financial complexities of corporations, they help companies calculate the cost of a variety of business risks. Consulting actuaries provide advice to chief financial officers, operating and human resource executives, and often chief executive officers.
In addition, actuaries work for the government too by helping manage social insurance programs. Since the government regulates the insurance industry and administers laws on pensions and financial liabilities, it also needs actuaries to determine whether companies are complying with the law.