Actuary
An actuary is a professional who applies mathematics, statistics, and financial modelling to quantify and price risk. In insurance, actuaries calculate how much premium is needed to cover the expected cost of claims across a pool of policyholders, while ensuring the insurer remains financially solvent.
What actuaries do in insurance
Actuaries are responsible for the financial soundness of insurance products. Their core work includes:
- Pricing: calculating the premium needed to cover expected claims, expenses, and profit margin for a given group of policyholders
- Reserving: estimating the total liability for claims that have been reported but not yet settled, and claims that have occurred but not yet been reported (IBNR)
- Solvency: ensuring the insurer holds adequate capital to meet obligations under adverse scenarios, as required by regulators
- Product design: modelling the financial impact of new policy features, limit changes, or exclusion modifications
Actuary FAQ
Frequently asked questions
- Actuaries build the pricing models that insurers use. They analyse historical claims data, demographic factors, and economic trends to calculate the expected cost of covering a given group of policyholders. The premium you pay reflects their estimate of your share of expected claims plus the insurer's operating costs and profit margin. When claims rise across the market (for example, due to motor repair inflation), actuaries update their models and premiums rise accordingly.
- An actuary builds the statistical models and pricing frameworks that apply across large groups of policyholders. An underwriter applies those frameworks to individual applications — deciding whether to offer cover, at what price, and with what conditions. Both roles are essential: actuaries set the general rules, underwriters apply them case by case.
- Yes. Actuarial models are based on historical data and stated assumptions about future conditions. Unforeseen events — a pandemic, a sudden change in court award sizes, or rapid inflation in claims costs — can cause actual claims to significantly exceed actuarial predictions. This is part of why insurers hold regulatory capital reserves above expected claims: to absorb unexpected adverse experience. Regulatory bodies such as the FCA and APRA require insurers to demonstrate solvency under stress scenarios.