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Insurance Actuary: Meaning, Role and Responsibility

Team AckoSept 15, 2022

Several critical roles come into play regarding the smooth functioning of the Indian insurance sector. One such significant role is of an Insurance Actuary. Want to know more about it? Here's an article that explains the meaning of an Insurance Actuary and highlights its roles and responsibilities.

Insurance Actuary

What is an Insurance Actuary?

An Insurance Actuary is a specialist who evaluates financial risks to calculate a suitable premium for policies. Such professionals implement financial statistics and mathematical theories to estimate appropriate premiums in order to minimise the risks for insurance companies. 

How does an Insurance Actuary work?

An Insurance Actuary works on the principle of dividing financial risks between a group of high-risk and low-risk individuals. The chances of raising claims remain higher for high-risk people than for low-risk people. Bringing them together in a group helps insurance companies to balance out their financial liabilities and stay in business. 

For example, actuaries can assess groups or individuals based on their health, demographics, lifestyle and other factors to divide them between low-risk and high-risk categories in the case of health insurance. This allows insurance companies to offer claim-related compensations whenever required and still make profits. 

Role of actuaries in insurance companies

Insurance companies rely on the assessments made by actuaries to stay in business. However, this is not limited to customer risk assessment only. The roles of actuaries may also revolve around the following.

Insurance pricing

By analysing the data associated with a group to be insured, insurance actuaries help to design policies and set up reasonable pricing. Hence, the policy premium goes higher wherever the chances of payouts are higher. 

For instance, in the case of a life insurance policy, one of the critical factors actuaries assess is the mortality risk or potential death. They analyse the age, health, and lifestyle factors to understand the chances of death. Hence, young people usually pay lower premiums for life insurance than older people. 

Investment portfolio

Insurance Actuaries may also get involved in the assessment of investments made by the company in funds, bonds, stocks, etc. They may help with the analysis of assets in collaboration with the investment team with the goal of improving income and maintaining payout capacity for potential claims at all times.

Financial reserves

Financial reserves are the sum of money set aside by insurance companies for potential policy claims. Actuaries evaluate past claims to determine an approximate amount to be saved as financial reserves. It is a key step for insurance companies to maintain customer satisfaction by offering quick payouts for claims. 

To know more about the role of actuaries, read: The Role of an Actuary in Insurance.

Types of insurance actuaries

Here are examples of a few types of insurance actuaries working in the industry. 

Health insurance actuaries: In health insurance, actuaries look into the previous and existing health factors of the policy seeker along with lifestyle factors to estimate the potential risks. 

Disability insurance actuaries: Such actuaries evaluate the risks that may cause permanent or temporary disability to individuals. 

General/property insurance actuaries: These actuaries deal with the legal and physical risks associated with individuals and their properties. They help to set up insurance rates for home, automotive, commercial property insurance policies, etc. 

How do insurance companies appoint actuaries?

Insurance companies must appoint an actuary as mandated under the Appointed Actuary Regulations stated by the IRDAI (Insurance Regulatory and Development Authority of India). 

Here are the criteria insurance companies must follow while appointing actuaries in different categories.

Universal criteria

  • They must be an Indian resident.

  • They must be a fellow member under the Actuaries Act, 2006.

  • They must be an insurance company employee.

  • They shouldn’t already be an actuary for some other insurance company.

  • They should be under 65 years of age.

  • They must hold a Certificate of Practice issued by the Institute of Actuaries in India.

  • They shouldn’t hold any charges for any misconduct or professional breach. 

Criteria for General Insurance Actuary

  • Specialisation in a subject relevant to general insurance as put forth by the Institute of Actuaries in India.

  • Minimum 1 year of post-fellowship work experience in a general insurer’s annual statutory valuation.

  • Relevant 7-year industry experience in general insurance with a minimum of 2 years being post-fellowship. 

Criteria for Life Insurance Actuary

  • Specialisation in a subject related to life insurance as established by the Institute of Actuaries in India.

  • Minimum 3 years of post-fellowship work experience in life insurers’ annual statutory valuations. 

  • Relevant 10-year life insurance industry experience with a minimum of 5 years being post-fellowship. 

Criteria for Health Insurance Actuary

  • Specialisation in a subject associated with general/health insurance as per the Institute of Actuaries in India. 

  • Minimum 1 year of post-fellowship work experience doing annual statutory valuation of a general/health insurer.

  • Relevant 7-year general/health insurance industry experience with a minimum of 2 years being post-fellowship. 

All about the Institute of Actuaries in India

The Institute of Actuaries in India (IAI) operates as the professional actuary body in the country. This actuary association was formed in 1944 as the Actuarial Society of India or ASI. This body was converted into the Institute of Actuaries in India based on the Actuaries Act, 2006. Here are the main objectives of this body.

  • Propagating actuary advancement in India.

  • Providing a common communication ground for members working as actuaries.

  • Enabling research and studies related to actuarial work.

  • Guiding individuals in studying the science of actuarial work in India.

Types of membership offered by the Institute of Actuaries in India

One can receive a membership in the Institute of Actuaries in India in the following categories. 

  • Student: Individuals can become a student of IAI by enrolling for their examination and securing admission.

  • Associate: The associates are student members who clear IAI’s Core Application Tests and Core Principal Series Test. Associates get the authority to cast their vote in Council elections.

  • Fellow: There are multiple sub-categories of fellowship based on different criteria, such as Fellowship via IAI examination, Fellowship via Mutual Recognition Agreements (MRA), and Fellowship via Affiliate to Fellow. 

Frequently Asked Questions (FAQs)

Here are some common questions and their answers about insurance actuaries in India.

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Do general and life insurance companies need actuaries?

The role of actuaries holds critical importance for both general and life insurance companies. They assist with the process of designing policies that return profits for the company. Depending on the requirements, a company can choose to appoint actuaries full-time or hire an actuarial consulting firm. 

What does the work of an Insurance Actuary include?

The major work of an actuary is to analyse potential risks related to selling policies. However, their work may also include the role of consulting and performing administrative duties. 

What kind of training is required to become an Insurance Actuary?

An Insurance Actuary must be trained in subjects like economics, finance, accounting, mathematics and/or statistics. They should hold a degree in a relevant subject related to actuarial science.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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