Why do young drivers pay more for automobile insurance than older drivers? How much should an insurance policy cost? How much should an organization contribute each year to its pension fund? Answers to these and similar questions are provided by actuaries, who design insurance and pension plans and ensure that they are maintained on a sound financial basis.
Actuaries assemble and analyze statistics to calculate probabilities of death, sickness, injury, disability, unemployment, retirement, and property loss. They use this information to determine the expected insured loss. For example, they may calculate the probability of claims due to automobile accidents, which can vary depending on the insured's driving history, type of car, and many other factors. They must make sure that the price charged for the insurance will enable the company to pay all claims and expenses as they occur. Finally, this price must be profitable and yet be competitive with other insurance companies. In a similar manner, the actuary calculates premium rates and determines policy contract provisions for each type of insurance offered. Most actuaries specialize in either life, health, or property and casualty insurance; others specialize in pension plans or in financial planning and investment.
To perform their duties effectively, actuaries must keep informed about general economic and social trends and legislative, health, and other developments that may affect insurance practices. Because of their broad knowledge of insurance, company actuaries may work in investment, underwriting, or pension planning departments. Actuaries in executive positions help determine company policy. In that role, they may be called upon to explain complex technical matters to other company executives, government officials, policyholders, and the public. They may testify before public agencies on proposed legislation affecting the insurance business, for example, or explain changes in premium rates or contract provisions. They also may help companies develop plans to enter new lines of business, such as environmental risk, or long-term health care.
The small number of actuaries who work for the Federal Government usually deal with a particular insurance or pension program, such as Social Security or life insurance for veterans and members of the Armed Forces. Actuaries in State government are usually employed by State insurance departments that regulate insurance companies, oversee the operations of State retirement or pension systems, handle unemployment insurance or workers' compensation problems, and assess the impact of proposed legislation. They might determine whether the rates charged by an insurance company are proper or whether an employee benefit plan is financially sound.
Consulting actuaries provide advice for a fee to various clients including insurance companies, corporations, hospitals, labor unions, government agencies, and attorneys. Some consulting actuaries set up pension and welfare plans, calculate future benefits, and determine the amount of employer contributions. They also provide advice to health care and financial services firms. Consultants may be called upon to testify in court regarding the value of potential lifetime earnings lost by a person who has been disabled or killed in an accident, the current value of future pension benefits in divorce cases, or the calculation of automobile insurance rates. Actuaries who are enrolled under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) evaluate the pension plans covered by that act and report on their financial soundness.
Although few in number, actuaries provide essential services to insurance companies.
Actuaries have desk jobs that require no unusual physical activity; their offices generally are comfortable and pleasant. They usually work at least 40 hours a week. Some actuaries, particularly consulting actuaries, often travel to meet with clients. Consulting actuaries may also be expected to work more than 40 hours per week.
Actuaries held about 15,000 jobs in 1992. Some actuaries were self-employed.
Well over one-half of wage and salary actuaries worked in the insurance industry. Most worked for life insurance companies; others worked for property, casualty, and health insurance companies, and insurance agents and brokers. Most of the remaining actuaries worked for firms providing services, especially consulting actuarial services. A small number of actuaries worked for government agencies.
A good educational background for a beginning job in a large life or casualty company is a bachelor's degree in a mathematics- or business-related discipline, such as actuarial science, mathematics, statistics, economics, finance, or accounting. Some companies hire applicants with a liberal arts major, provided the applicant has a working knowledge of mathematics, including calculus, probability, and statistics, and has demonstrated this ability by passing at least the beginning actuarial exams required for professional designation. Courses in accounting, computer science, and insurance also are useful. Companies increasingly prefer well-rounded individuals who, in addition to a strong technical background, have some training in liberal arts and business. Good communication and interpersonal skills are important, particularly for prospective consulting actuaries. Although only about 55 colleges and universities offer an actuarial science program, hundreds of schools offer a degree in mathematics or statistics.
A strong background in mathematics is essential for persons interested in a career as an actuary. It is an advantage to pass, while still in school, two or more of the examinations offered by professional actuarial societies. Three societies sponsor programs leading to full professional status in their specialty. The Society of Actuaries gives a series of actuarial examinations for the life and health insurance, pension, and finance and investment fields and the Casualty Actuarial Society gives a series of examinations for the property and casualty field. Because the first parts of the examination series of each society are jointly sponsored and cover the same material, students need not commit themselves to a specialty until they have taken the initial examinations. These examinations test competence in subjects such as linear algebra, probability, calculus, statistics, risk theory, and actuarial mathematics. The first few examinations help students evaluate their potential as actuaries. Those who pass usually have better opportunities for employment and higher starting salaries.
Actuaries are encouraged to complete the entire series of examinations as soon as possible; completion generally takes from 5 to 10 years. Examinations are given twice each year. Extensive home study is required to pass the advanced examinations; many actuaries study for several months to prepare for an examination. Actuaries who complete approximately half of the total examinations in either the life insurance series or the pension series or seven examinations in the casualty series are awarded associate membership in their society. Those who pass an entire series receive the title fellow.
The American Society of Pension Actuaries confers several designations, both actuarial and nonactuarial, for which requirements vary. However, membership status generally requires the passage of some actuarial exams, as well as some pension experience.
Pension actuaries who attest to the Federal Government as to the financial status of defined benefit plans must be enrolled by the Joint Board for the Enrollment of Actuaries. Applicants for enrollment must meet certain experience, education, and examination requirements as stipulated by the Joint Board.
Beginning actuaries often rotate among jobs to learn various actuarial operations and different phases of insurance work, such as marketing, underwriting, or product development. At first, they prepare data for actuarial tables or perform other simple tasks. As they gain experience, they may supervise clerks, prepare correspondence and reports, and do research.
Advancement to more responsible work as assistant, associate, and chief actuary depends largely on job performance and the number of actuarial examinations passed. Actuaries with a broad knowledge of the insurance, pension, and employee benefits fields often advance to administrative and executive positions in underwriting, accounting, or data processing departments. Actuaries with a business background and supervisory ability may advance to management positions in other areas, such as marketing, advertising, or planning.
Employment of actuaries is expected to grow faster than the average for all occupations through the year 2005. College graduates who have passed at least two actuarial examinations while still in school, have a strong mathematical and statistical background and strong communication and problem-solving skills, and have gained some practical experience by completing an internship should have the best prospects.
Employment growth of consulting actuaries is expected to be faster than growth in life insurance companies, traditionally the major employer of actuaries. As companies seek to boost profitability by streamlining operations, some actuarial departments may be cut back or eliminated completely. Insurance companies may increasingly turn to consultants to provide actuarial services formerly performed in-house.
The need to assess the financial effects of prospective changes in the health care system and health problems such as AIDS or heart disease on insurance companies or government will result in continued overall employment growth. Also, shifts in the age distribution of the population will result in a large increase in the number of people with established careers and family responsibilities. This is the group that traditionally has accounted for the bulk of private insurance sales. As people live and work longer, they draw health and pension benefits for a longer period, and actuaries are needed to re-estimate the probabilities of such events as death, sickness, and length of retirement.
The liability of companies for damage resulting from their products has received much attention in recent years. Casualty actuaries will continue to be involved in the development of product liability insurance, medical malpractice and workers' compensation coverage, and self-insurance, which may involve internal reserve funds established by some large corporations. The growing need to evaluate environmental risks and calculate prices for insuring facilities which carry such risks, such as underground storage tanks, will contribute to the demand for actuaries.
Despite expected employment growth, actuaries may face competition for jobs. Due to favorable publicity about the actuarial profession, the number of workers entering this small occupation has increased substantially in recent years, while at the same time, demand is expected to slow due to slower growth in the insurance industry.
In 1992, starting salaries for actuaries averaged about $31,800 for those with a bachelor's degree, according to the College Placement Council. New college graduates entering the actuarial field without having passed any actuarial exams averaged slightly lower salaries.
Insurance companies and consulting firms give merit increases to actuaries as they gain experience and pass examinations. Some companies also offer cash bonuses for each exam passed. A 1992 salary survey of insurance and financial services companies, conducted by the Life Office Management Association, Inc., indicated that actuarial students who have been designated Associate, Society of Actuaries, received an average salary of about $46,000. Newly designated Fellows, Society of Actuaries, received an average salary of nearly $65,500. Fellows with additional years of experience can earn substantially more.
Actuaries typically receive other benefits including vacation and sick leave, health and life insurance, and pension plans.
Actuaries determine the probability of income or loss from various risk factors. Other workers whose jobs involve related skills include accountants, economists, financial analysts, mathematicians, rate analysts, rate engineers, risk managers, statisticians, and value engineers.
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Reprinted with Permission of U. S. Department of Labor