31 Dec What is an Actuary and What do They do for Insurance Companies?

An actuary is a business professional who analyzes the financial consequences of risk, especially those of concern to insurance and pension programs. They then use their knowledge to design and manage programs that control the cost of that uncertainty. Their work is essential to the insurance industry and helps keep premiums affordable for policyholders.

As an insurance company, one of the most important pieces of your business is finding ways to minimize risk and manage costs. This is where an actuary comes in.

An actuary is a business professional who uses data analysis to assess risk and help companies make informed decisions about how to manage that risk. In other words, actuaries help insurance companies stay afloat by keeping premiums affordable and managing the financial consequences of risk.

How Do Actuaries Help Insurance Companies?

Actuaries use their skills in mathematics, statistics, and financial theory to study uncertain future events and improve diligence. This includes everything from natural disasters to stock market crashes.

By understanding how likely these events are to occur and how much they would cost if they did occur, actuaries are able to help insurance companies set rates that will cover claims while still turning a profit. In addition, actuaries help insurance companies develop policies that will minimize payouts in the event of a covered loss.

For example, let’s say an actuary is studying the possibility of a hurricane hitting Florida. They would begin by looking at data from past hurricanes to see how often they occur and how much damage they tend to cause.

They would also look at data on Florida’s:

• Economy
• Population density
• Building construction standards
• Coastal development patterns
• Insurance coverage concentration

To determine how much damage a hurricane would likely cause if it did hit the state. Armed with this information, the actuary could then help the insurance company set rates that would cover payouts in the event of a hurricane while still allowing the company to turn a profit.

Managing Portfolios

In addition to helping insurance companies set rates and develop policies, actuaries also help them manage their investment portfolios. Because actuaries have a deep understanding of financial markets and risk management, they are uniquely positioned to help insurance companies make wise investments that will grow their assets while minimizing risk.

Actuaries analyze how different asset classes may perform under various economic conditions and how those outcomes interact with insurance liabilities. Their work helps insurers balance growth and stability by considering factors such as interest rate movements, inflation, market volatility, and liquidity needs.

Rather than focusing only on returns, actuaries evaluate how investments behave during stress scenarios, when claims may rise, and access to cash becomes critical.

This portfolio oversight also supports asset-liability management, a core discipline in insurance. Actuaries assess whether investment durations, cash flows, and risk profiles match the expected pattern of claims payments.

When assets and liabilities are aligned, insurers are better positioned to meet commitments without taking on unnecessary financial strain.

Long-Term Strategy

Actuaries play a central role in shaping the long-term strategy of insurance companies by helping leadership plan for uncertainty far in advance.

Their work focuses on understanding how current decisions may affect future financial health, policyholder obligations, and competitive positioning. Through scenario modeling and trend analysis, actuaries evaluate how:

• Economic cycles
• Demographic shifts
• Regulatory changes
• Emerging risks

Could influence results over extended periods.

These long-range insights support decisions about capital allocation, product mix, and market expansion. Actuaries help insurers determine how much risk the organization can responsibly assume while maintaining financial strength and regulatory compliance.

This guidance allows companies to pursue growth opportunities with a clear understanding of potential tradeoffs, rather than reacting to change after it occurs.

FAQs

How Long Does It Take to Become an Actuary?

Becoming an actuary typically takes several years because the profession combines formal education with a demanding professional exam process. Most candidates complete a bachelor’s degree in:

• Mathematics
• Statistics
• Actuarial science
• Economics
• A related field

Before entering the profession. After graduation, aspiring actuaries usually begin working in entry-level roles while progressing through a series of exams.

Reaching an associate-level credential often takes about four to six years, depending on exam pace and work experience. Achieving full fellowship status can extend the timeline to seven to ten years, as later exams become more specialized and require deeper industry knowledge.

Which Is Better, CPA or Actuary?

Neither a CPA nor an actuary is universally better, since each profession serves a different purpose and attracts different strengths. A CPA focuses on accounting, auditing, taxation, and financial reporting, often working with historical financial data to ensure accuracy and compliance.

Actuaries, by contrast, concentrate on forecasting future risk and uncertainty using probability, statistics, and financial modeling, most commonly within insurance, pensions, and risk-focused financial roles.

The better choice depends on career goals and interests. Actuaries tend to work on:

• Long-term projections
• Pricing
• Solvency analysis
• Risk modeling
• Scenario forecasting

CPAs are more involved in audits and financial controls across a wide range of industries.

Do Actuaries Use a Lot of Math?

Yes, actuaries use a significant amount of math, though the type of math evolves. Early in an actuarial career, mathematical concepts such as:

• Probability
• Statistics
• Calculus
• Financial mathematics

Are used frequently to build models, analyze data, and validate assumptions. This foundation is essential for understanding how risk behaves and how future outcomes can be projected with reasonable accuracy.

As actuaries gain experience, the work often shifts from performing raw calculations to interpreting results and guiding decisions. Software and modeling tools handle much of the computation, but a strong math background remains critical for:

• Evaluating whether results make sense
• Adjusting assumptions
• Explaining findings clearly to non-technical stakeholders

Hire an Actuary Today

Actuaries play a vital role in the insurance industry by helping companies manage risk and keep premiums affordable. If you’re looking for ways to minimize your company’s exposure to risk, consider hiring an actuary today.

When actuarial assumptions sit at the center of an insurance dispute, precision matters. Insurance Expert Network connects attorneys with seasoned actuaries who understand pricing models, reserve calculations, and risk frameworks through a litigation-ready lens.

Request an expert and get matched quickly with the right actuarial specialist, with no obligation and no wasted time.