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Why do young drivers pay more for automobile insurance than older drivers? How much should an insurance policy cost? How much should an organization contribute each year to its pension fund? Answers to these and similar questions are provided by actuaries, who design insurance and pension plans and keep informed on their operation to make sure that they are maintained on a sound financial basis.

Actuaries assemble and analyze statistics to calculate probabilities of death, sickness, injury, disability, unemployment, retirement, and property loss from accident, theft, fire, and other hazards. They use this information to determine the expected insured loss. For example, they may calculate how many persons who are 21 years old today can be expected to die before age 65 -- the probability that an insured person might die during this period is a risk to the company. They must make sure that the price charged for the insurance will enable to company to pay all claims and expenses as they occur. Finally, this price must be profitable and yet be competitive with other insurance companies. In a similar manner, the actuary calculates premium rates and determines policy contract provisions for each type of insurance offered. Most actuaries specialize in either life and health insurance or property and liability (casualty) insurance; others specialize in pension plans. The increasing use of computers has enabled actuaries to develop more comprehensive policies.

To perform their duties effectively, actuaries must keep informed about general economic and social trends and legislative, health, and other developments that may affect insurance practices. Because of their road knowledge of insurance, company actuaries may work in investment, group underwriting, or pension planning departments. Actuaries in executive positions help determine company policy. In that role, they may be called upon to explain complex technical matters to company executives, government officials, policyholders, and the public. They may testify before agencies on proposed legislation affecting the insurance business, for example, or explain intended changes in premium rates or contract provisions. They also may help companies develop plans to enter new lines of business.

The small number of actuaries who work for the Federal Government usually deal with a particular insurance or pension program, such as Social Security or life insurance for veterans and members of the Armed Forces. Actuaries in State government are usually employed by State insurance departments that regulate insurance companies, oversee the operations of State retirement or pension systems, handle unemployment insurance or workers' compensation problems and assess the impact of proposed legislation. They might determine whether the rates charged by an insurance company are proper or whether an employee benefit plan is financially sound.

Consulting actuaries provide advice for a fee to various clients including insurance companies, corporations, hospitals, labor unions, government agencies, and attorneys. Consulting actuaries set up pension and welfare plans, calculate future benefits, and determine the amount of employer contributions. They may be called upon to testify in court regarding the value of potential lifeline earnings lost by a person who has been disabled or killed in an accident, the current value of future pension benefits in divorce cases, or the calculation of automobile insurance rates. Actuaries who are enrolled under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) evaluate these pension plans and report on their financial soundness.

Working Conditions

Actuaries have desk jobs that require no unusual physical activity; their offices generally are comfortable and pleasant. They generally work at least 40 hours a week. Some actuaries, particularly consulting actuaries, often travel to meet with clients.

Many actuaries worked in insurance headquarters in cities such as New York, Hartford, Chicago, Philadelphia, and Boston. Most worked for life insurance companies; others worked for property and liability (casualty) companies. The number of actuaries employed by an insurance company depends on its volume of business and the types of insurance policies it offers. Large companies may employ over 100 actuaries; others, generally smaller companies, may rely instead on consulting firms or rating bureaus (associations that supply actuarial data to member companies). Other actuaries work for private organizations administering health benefits and welfare plans, accounting firms, or government agencies.

Training, Other Qualifications, and Advancement

A good educational background for a beginning job in a large life or casualty company is a bachelor's degree with a major in mathematics or statistics; a degree in actuarial science is even better. Some companies hire applicants with a major in engineering, economics, or business administration, provided the applicant has a working knowledge of mathematics, including calculus, probability, and statistics. Courses in accounting, computer science, and insurance also are useful. Companies increasingly prefer well-rounded individuals who, in addition to a strong technical background, have training in liberal arts and business and good communication skills. Although only about 30 colleges and universities offer a degree in actuarial science, hundreds of schools offer a degree in mathematics or statistics.

A strong background in mathematics is essential for persons interested in a career as an actuary. It is an advantage to pass, while still in school, one or more of the examinations offered by professional actuarial societies. Three societies sponsor programs leading to full professional status in their specialty. The Society of Actuaries gives 10 actuarial examinations for life and health insurance and pension field. the Casualty Actuarial Society gives 10 examinations for the property and liability field. Because the first parts of the examination series of each society cover similar materials, students need not commit themselves to a specialty until they have taken three examinations. These test competence in subjects such as linear algebra, probability, calculus, statistics, numerical methods, and operations research. These first few examinations help students evaluate their potential as actuaries, and those who pass usually have better opportunities for employment and higher starting salaries.

The American Society of Pension Actuaries gives seven examinations covering the pension field. Membership status requires the passage of two actuarial exams. Fellowship status requires the passage of three additional actuarial and two advanced consulting exams.

Actuaries are encouraged to complete the entire series of examinations as soon as possible; completion generally takes form 5 to 10 years. Many students pass two or more actuarial examinations before graduating from college. Examinations are given twice each year. Extensive home study is required to pass the advanced examinations; many actuaries study for several months to prepare for an examination. Actuaries who complete five examinations in either the life insurance series or the pension series or seven examinations in the casualty series are awarded "associate" membership in their society. Those who pass an entire series receive full membership and the title "fellow."

Consulting pension actuaries who service private pension plans and certify their solvency must be enrolled and licensed by the Joint Board for the Enrollment of Actuaries. Applicants for enrollment must meet certain experience, education, and examination requirements as stipulated by the Joint Board.

Beginning actuaries often rotate among jobs to learn various actuarial operations and different phases of insurance work. At first, they prepare tabulations for actuarial tables or perform other simple tasks. As they gain experience, they may supervise clerks, prepare correspondence and reports, and do research.

Advancement to more responsible work as assistant, associate, and chief actuary depends largely on job performance and the number of actuarial examinations passed. Actuaries with a broad knowledge of the insurance, pension, and employee benefits often advance to administrative and executive positions in underwriting, accounting, or data processing departments. Actuaries with a business background and supervisory ability may advance to management positions involving marketing, advertising, or planning.

Employment of actuaries is expected to grow much faster than the average for all occupations through the year 2000. In addition to growth in the demand for actuarial services, job openings are expected to arise each year to replace actuaries who transfer to other occupations, retire, or stop working for other reasons. Job Opportunities should be favorable for college graduates who have passed at least two actuarial examinations while still in school and have a strong mathematical and statistical background.

Employment growth will be spurred by the increasing volume and complexity of insurance policies and pension plans. Shifts in the age distribution of the population will result in a large increase in the number of people with established careers and family responsibilities. This is the group that traditionally has accounted for the bulk of private insurance sales.

As people live longer, they draw health and pension benefits for a longer period, and more actuaries are needed to recalculate the probabilities of such factors as death, sickness, and length of retirement. As insurance companies branch out into several types of insurance coverage -- for example, dental, legal, and kidnap insurance -- more actuaries will be needed to establish rates. The increase in the number of mergers and acquisitions and the passage of legislation on tax reform should spur demand for actuaries to evaluate the financial condition and investment portfolios of firms. Continuing amendments to the Employee Retirement Income Security Act of 1974 should also add to the demand for actuarial services. In addition, many companies that previously relied on rating bureaus for actuarial data are now creating their own actuarial departments or using the services of consulting actuaries.

The liability of companies for damage resulting from their products has received much attention in recent years. Actuaries will continue to be involved in the development of product liability insurance, medical malpractice and workers' compensation coverage, and self-insurance -- internal trust funds being established by some large corporations.

Insurance coverage is considered a necessity by most individuals and businesses, regardless of economic conditions. Therefore, actuaries are unlikely to be laid off during a recession.

Insurance companies and consulting firms give merit increases to actuaries as they gain experience and pass examinations. Actuaries typically receive various fringe benefits including vacation and sick leave, health and life insurance, and pension plans, among others.

Actuaries determine the probability of income or loss from various risk factors. Other workers whose jobs involve related skills include accountants, economists, financial analysts, mathematicians, rate analysts, rate engineers, risk managers, statisticians, and value engineers.