Actuaries in General Insurance
Actuaries play a critical role in the Insurance Industry. From performing and assisting in all major core functions of an Insurance Company like pricing of products, reserving for contingencies , complying with regulations set up by the regulator , maintaining solvency margins to being responsible for existence of Insurance Industry in any economy, they are always on their toes to perform mathematical calculations and forecasts for running this industry. Here we explain you the role of Actuaries in General Insurance Industry
After Detariffication of the non-life insurance industry in 2007, the role of actuaries in the general insurance industry widened manifold. This was due to the fact that The Tariff Advisory Committee no longer controlled the premium charged by general insurers and the kind of products they sold. Now insurers were required to monitor their claims experience to decide the prospective future changes that needed to take place to maintain their profitability, for e.g., cutting on the expenses, increasing the premium rates or changing the policy conditions. Currently, IRDAI mandates it for every general insurer to appoint a full-time actuary.
Also, with the exponential leap in information technology and availability of massive amounts of data, role of actuaries substantially increased, with their final calculations being very close to the actual ones.
Areas in which Actuary in General Insurance can work:
- Risk & Reinsurance
- Regulatory Requirements
Let us now understand the role of Actuaries in General Insurance in each of the below mentioned areas in a general insurance company in detail:
PRICING as Role of Actuaries in General Insurance
- Actuaries in General Insurance are responsible for pricing of new products that insurance companies come up with. This is to ensure a win-win situation for both the insured and the insurance company.
- Actuaries closely monitor claims experience of the existing products to identify the unprofitable segments and suggest corrective action to be taken regarding the pricing policy.
- Actuaries can identify patterns from raw data which can help improve the rating factors used for underwriting the policy.
- Actuaries develop pricing models for complex products whose data availability is sparse.
RESERVING as Role of Actuaries in General Insurance
- This is an important role of Actuaries in General Insurance which directly affects solvency and profitability of the insurer.
- Actuaries calculate prudent estimates for reserves to balance the interests of various stakeholders such as regulator (for checking solvency of the insurer), shareholders (to give them maximum profits) etc.
- They are required to calculate IBNR claim reserves (Incurred But Not Reported or IBNR reserves are a part of claims reserves estimated by insurers for reporting on their financial statements. Claims reserves are estimates of claims that have occurred on or before the financial statement report date but which have yet to be paid. This a current lia... claims reserves) so that the insurers don’t face a hard time paying out most of the claims during uncertain events.
RISK AND REINSURANCE as Role of Actuaries in General Insurance
- An Actuary has a good understanding of balance sheet of the company based on which he comments on the amount of claims that an insurer can bear to cede and what part of it goes to the reinsurer and at what conditions.
- An Actuary also plays a key role in setting up the Reinsurance Program of a company.
INVESTMENT as Role of Actuaries in General Insurance
- Investment of funds in a right way is very important for any insurance company to earn profits in today’s era wherein it is very difficult to have underwriting gains due to competitiveness of the industry.
- Actuaries help in the management with asset liability management to provide inputs on strategic asset allocation.
- Actuaries are required to submit the Financial Condition Report, Economic Capital Report periodically to IRDAI to support the fact that general insurers are competent enough to continue their business and accept new risks.
However, even after playing such a crucial role, the General Insurance Industry is facing acute shortage of qualified and skilled General Insurance Actuaries.
Hence, there is a great need(scope) to increase the participation of actuarial students towards the general insurance industry without compromising the quality standards.
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