The academic discipline of mathematics and statistics related to insurance is called actuarial science. The mathematicians and statisticians working in this field are called actuaries and their job is to calculate probability and measure risk. Most actuaries have at least a bachelor's degree in math, finance or accounting, and many who make a career in the field have advanced degrees in math, computer science, or other related technical fields. The three main branches of actuarial science are life insurance, general insurance and investment, and actuaries are employed in many areas in the financial industry.
Life Insurance
Life insurance actuaries determine premiums for life insurance rates. They use demographic statistics including life expectancy and mortality related to age, lifestyle, location of domicile, and many other factors in their work. Life insurance actuaries are also often involved in calculations regarding future funding for pensions and the like.
General Insurance
General insurance actuaries must have a strong background in probability and statistics, as most of the work involves mathematical modeling of various uncertainties. General insurance actuaries typically work in areas like health insurance, homeowners insurance, and auto insurance, as well as commercial business insurance and employer liability.
Investment
Investment actuaries tend to specialize as either quantitative investment advisers or in evaluation and monitoring of fund performance or fund management. They tend to work at businesses like investment banks or stock brokerages or in the investment or human resources departments of larger businesses.
Risk Management
From a practical perspective the common thread that runs through all three branches of actuarial science is risk: defining risk, assessing risk, and ultimately risk management. Risk management is where insurance comes into play; you choose to pay in advance for something that is likely to occur in the future to derisk (de-risk) the event. In other words, you assume the event is going to happen but take steps in advance to minimize its financial impact on you, your family, business, etc.
Using Statistics to Manage Risk
In a nutshell an actuary's job is to use statistics to determine the probability of any number of future events. That information then becomes available to those in supervisory positions so they can make decisions about future events (i.e., insuring assets against disasters or establishing the interest rate necessary for a pension fund to meet future obligations and so forth).
For more on insurance, accounting, and business see:
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Financial Statements – Non-Profit Financial Statement Analysis
Accounting Standards – US & International Accounting – GAAP & IFRS
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Clayton Browne - Clayton Browne has a BA and an MS in Anthropology, and has been writing professionally since 1994. He worked for many years in both ...
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