Page 240 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 14: Trends in Insurance Sector

Actuarial services include the analysis of rates of disability, morbidity, mortality, retirement, Notes
survivorship and other contingencies. By using mathematical and statistical modelling, actuaries
are able to provide estimates regarding particular events, such as the life span of a life insurance
applicant, or the likelihood of a catastrophic, weather-related event for a property and casualty
insurance firm. Actuarial services forecast risk and uncertainty and help firms plan for future
probabilities and possibilities.

Did u know? An actuary is a business professional, similar to an accountant or an attorney.
But unlike those professionals, the actuary’s job is to place dollar values on future contingent
life events, such as death, disability, longevity, or retirement.
Actuaries study probability and statistics, and obtain education and licensing credentials from
several sources, including the federal government.
Here are some of the many things actuaries do:

Calculate the amount your employer must contribute to the pension plan each year.
Actuarial consulting firms are retained by employers for this purpose.

Calculate the price you should be charged for an insurance premium, for all types of
insurance. Actuaries who work for life, health, and casualty companies perform these
calculations.

Determine the amount of risk an insurance company can take on, and reinsure the rest.
Actuaries who do this work in the reinsurance business.

Calculate the amount of lump sum benefit payable to someone terminating from a pension
plan. Consulting actuaries perform these calculations.

Separate the spousal benefit from a pension benefit in a divorce settlement. Suppose one
party worked for Boeing for 10 years while married. The other spouse has a 50% interest
in the benefit from the Boeing pension plan.

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Caution An actuary is needed to place a value on the spouse portion in order to carve the
benefit out of the estate.
Compute the equivalent amount of an estate trust that will be inherited by a series of heirs
to the estate.

Example: Suppose a trust pays $1,000 per month to an heir, with the proviso that any
amount remaining upon the death of the heir goes to a second heir. The actuarial value of the
second heir’s interest can be determined actuarially and sold out of the estate.

Perform an actuarial balance forecast for a Continuing Care Retirement Community
(CCRC). A CCRC is a full-time resident facility for retired people, with additional health
services provided. Since most residents will live at such a facility for the rest of their lives,
an actuary is required to determine the expected future revenues and expenses.
Assistance with retirement planning and investment education. If you are wondering
about which pension option to take upon retirement, or whether to retire now or later, an
actuary can help you decide.

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