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Actuaries help a business manage its risks. Bankrate explains.
What is an actuary?
An actuary is a professional who assesses and manages risks that businesses may encounter, like typically financial investments and insurance policies. Using numbers and statistics, actuaries can determine the likelihood of future events and help businesses predict and plan for potentially adverse events.
Actuaries use probability, computer science, financial theory, human behavior, and business trends to help predict, manage, or prevent undesirable events from occurring. By analyzing statistics related to a threat or risk and coming up with ways to deal with them, actuaries reduce or prevent the negative aftermath of any undesirable events that do occur.
Most actuaries work for and with insurance companies. Here, actuaries use mortality tables and analyze lifestyle factors to help predict the cost of insuring someone over a period of time. Additionally, actuaries can help identify and encourage certain behaviors that might lower their risk, thus reducing insurance premiums paid by the insured as well.
Financial companies also are likely to employ actuaries because they can help predict fluctuations in the market.
Because actuarial science is a study in which many people can obtain a degree, actuaries can come from several different backgrounds, including mathematics, statistics, and finance. To become an actuary, people must pass an exam to obtain certification.
Actuaries help businesses manage risk. You can manage your own risk by refinancing your mortgage and getting a better rate.
Madison Steel is major manufacturer of steel in the U.S. It wants to give its employees a pension so they can buy into it for their retirement. Madison hires an actuary, who crunches the numbers to figure out how much each employee will have to invest to insure an income in retirement. The actuary reports back a figure, and soon each employee of the steel plant is paying into the fund. Over the years, the actuary has to adjust the contribution amount to account for cost-of-living increases as well as the slowly dwindling workforce.
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