Role of Actuaries in General Insurance Industry

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:

  • Pricing
  • Reserving
  • Risk & Reinsurance
  • Investment
  • 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:

Role of Actuaries in General Insurance from The Actuarial Club

PRICING as Role of Actuaries in General Insurance

  1. 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.
  2. 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.
  3. Actuaries can identify patterns from raw data which can help improve the rating factors used for underwriting the policy.
  4. Actuaries develop pricing models for complex products whose data availability is sparse.

RESERVING as Role of Actuaries in General Insurance

  1. This is an important role of Actuaries in General Insurance which directly affects solvency and profitability of the insurer.
  2. Actuaries calculate prudent estimates for reserves to balance the interests of various stakeholders such as regulators (for checking the solvency of the insurer), shareholders (to give them maximum profits) etc.
  3. They are required to calculate IBNR claim reserves (incurred but not reported claims reserves) so that the insurers don’t face a hard time paying out most of the claims during uncertain events.

IFRS 17

Actuaries play a crucial role in the implementation and application of IFRS 17 within the property and casualty (P&C) insurance sector. In this context, actuaries are responsible for various key tasks that contribute to the successful adoption of the new accounting standard.

One significant aspect of actuaries’ involvement in IFRS 17 for P&C insurance is data analysis and interpretation. Actuaries are skilled at analyzing large datasets and interpreting complex information to assess the financial implications of insurance contracts under the new standard. This involves examining historical data, forecasting future trends, and estimating the financial impact of various risk factors.

Additionally, actuaries are involved in the development of models and methodologies for calculating insurance liabilities under IFRS 17. They work closely with other professionals, such as accountants and risk managers, to design robust frameworks that accurately reflect the financial position of P&C insurers. This may include developing stochastic models to simulate future cash flows and scenario testing to evaluate the sensitivity of results to different assumptions.

Furthermore, actuaries play a vital role in communication and collaboration within P&C insurance companies. They often serve as liaisons between different departments, translating technical actuarial concepts into understandable language for non-actuarial stakeholders. Actuaries also provide valuable insights and recommendations to senior management regarding the financial implications of strategic decisions and regulatory requirements.

Overall, actuaries bring their expertise in data analysis, modeling, and communication to bear on the implementation of IFRS 17 within the P&C insurance industry. By working collaboratively with other professionals, they help ensure compliance with the new accounting standard while also providing valuable insights into the financial health and risk profile of insurance companies.

RISK AND REINSURANCE as Role of Actuaries in General Insurance

In the domain of general insurance, actuaries are pivotal for managing risks and optimizing reinsurance strategies. Their expertise ensures accurate pricing of policies and effective risk transfer through reinsurance. By continuously monitoring and adapting strategies, actuaries help insurance companies navigate uncertainties and maintain financial stability.

  1. 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.
  2. An Actuary also plays a key role in setting up the Reinsurance Program of a company
  3. Commutation Programmes

INVESTMENT as Role of Actuaries in General Insurance

  1. 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. They analyze various investment options to maximize returns while managing risk.
  2. Actuaries help in the management with asset liability management to provide inputs on strategic asset allocation.
  3. Actuaries help design investment portfolios aligned with the insurer’s risk tolerance and financial objectives.
  4. They monitor investment performance and adjust strategies to meet changing market conditions.
  5. Actuaries provide insights to senior management on investment decisions, ensuring alignment with company goals.
  6. Their expertise contributes to maintaining financial stability and achieving long-term profitability for insurance companies.

REGULATORY REQUIREMENTS

  • 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.

Head over to our forums to know more about the workings of an Actuary. Where would you want to go? Let us know in comments below!

About the Author

Anmol Kaur

Anmol Kaur is an actuarial graduate working as a Business Analyst(Actuarial) in a leading MNC. With a quest to learn more, she is looking forward to become a fellow of both The UK Actuarial Society (IFoA) and Insurance Institute of India (III) which she believes will provide her an edge over her actuarial career in India.

Comments 3

  1. What are the exams required for a candidate to be selected in a general insurance company?
    Does The Actuarial Club members help other students/candidates for placements?

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