What Is an Actuary and What Do They Do in Insurance?
In plain English
An actuary is a credentialed professional who applies mathematical, statistical, and financial theories to measure and manage financial risk. In insurance, actuaries calculate the probability and cost of future events — claims, deaths, disabilities, disasters — and use those projections to set premiums, establish reserves, design insurance products, and ensure insurers remain financially solvent.
How Do Actuaries Set Insurance Premiums?
Actuaries analyze large datasets of historical claims, mortality tables, morbidity rates, and economic factors to model the likelihood and severity of future losses. They calculate the expected claims cost for a given population, add administrative expenses and a profit margin, and arrive at premium rates. This process ensures premiums are adequate to cover future claims while remaining competitive in the market.
What Types of Actuaries Work in the Insurance Industry?
Life actuaries work with life, health, and annuity products, focusing on mortality, longevity, and morbidity risk. Property and casualty actuaries handle auto, homeowners, and commercial insurance lines, modeling accident frequencies and catastrophe risk. Health actuaries specialize in healthcare cost trends and benefit design. All actuaries must pass a rigorous series of professional examinations to earn credentials from the Society of Actuaries or Casualty Actuarial Society.
Why Are Actuaries Important to Policyholders?
Actuaries help ensure that insurance companies remain financially stable and can pay claims when they arise. Accurate actuarial work means premiums are fairly priced — not so high that coverage is unaffordable, and not so low that the insurer becomes insolvent. State insurance regulators require actuarial certifications on insurance filings to protect consumers from inadequately capitalized insurers.
Frequently asked questions
How does an actuary differ from an underwriter?
Actuaries set the overall risk pricing and product design at an aggregate level using statistical modeling. Underwriters apply those guidelines to individual applicants, making case-by-case decisions on whether to insure a specific person or asset and at what rate. Actuaries work with populations; underwriters work with individuals.
What credentials does an actuary need?
Actuaries must pass a lengthy series of professional exams — typically 7 to 10 exams spanning several years — administered by the Society of Actuaries (SOA) for life and health, or the Casualty Actuarial Society (CAS) for property and casualty. The designations include Associate (ASA/ACAS) and Fellow (FSA/FCAS) levels.
Keep exploring
Related terms
Underwriting
Underwriting is the process insurers use to evaluate risk and determine whether to offer coverage, and at what price. It is how your premium and policy terms are established.
Insurance Premium
An insurance premium is the regular payment you make to keep your insurance policy active. It is typically billed monthly, quarterly, or annually.
Insurance Claim
An insurance claim is a formal request to your insurer for payment or coverage after a covered loss or event occurs. The insurer reviews the claim and pays out according to your policy terms.
Life Insurance
Life insurance pays a death benefit to your beneficiaries when you die, providing financial protection for those who depend on your income. It comes in two main forms: term and permanent.