Why Do Businesses Need Actuaries?

As a business manager, you’ve most certainly encountered several risks in your daily operations.

Whether you’ve managed to foresee these risks or you’ve stumbled upon them unexpectedly, they’ve probably affected your business one way or another. In this article, you’ll learn what actuaries are, what roles they cover, and how exactly they can help your business.

What are actuaries?

Actuaries are financial experts who use analytical tools to assess risks and probabilities of unknown future events.

Actuarial consultants develop models and projections which helps to understand what potential outcomes are and whether businesses need to shelter from damaging outcomes.

Given the fact that risk is inherently a part of our lives, actuaries do us the favour of quantifying risk categories so that a business can evaluate if it is able to transfer the risk in order to limit the negative impacts of risks at a fair price.

Most actuaries work in the insurance industry, ensuring their clients are aware of potential risks and implementing the proper measures to counterbalance their outcomes.

At Axxima, actuaries use stochastic financial modelling software to provide clients with financial forecasting that provides insight into the volatility, risks and the need for capital.

Actuarial consultants: roles and competencies

Actuarial consultants help leaders manage risk by employing strategic decisions based on statistical models. Actuaries need to have a strong understanding and control of mathematics and statistics, plus a proven business intelligence.

Actuaries perform a diverse range of exploratory analyses to gain a deep business understanding to assess risk and propose risk transfer approaches or capital accumulation to manage the risk. At the same time, actuarial consultants make projections and help as liaisons to ensure proposed solutions fit the needs of each client.

For example, the appointed actuaries at Axxima develop creative solutions for property and casualty insurance. Translated into specific activities, this involves:

Financial proformas and multi-year projections
Annual ratemaking and self-insured retention studies
Education session for Boards and audit committees
Modelling, simulation and financial forecasting
Monte Carlo pricing analysis or ORSA modelling
Reinsurance modelling

Benefits of hiring an actuary

For your organization to be successful, you need to rely on cause and effect rationalization and build on predictive models. An actuarial consultant will give your business the comfort of data-driven advice for decision-making.

Here are some specific benefits to consider:

Financial safety – with the help of a professional actuary, you can verify the risk associated with your investment and make the best decisions to ensure long-term stability; actuaries will help you grasp the complete picture and budget decisions by also accounting for risks.

Improved control – actuaries prepare your business to face even the worst outcomes, meaning you’ll have a complete overview of what the future might hold. With plans for various scenarios designed, you’ll be able to act quickly and to tackle any crisis smoothly.

How can actuaries help specific business areas

At Axxima, we have several actuarial teams with decades of expertise in the insurance and self-insurance arena.

Our actuaries have the skills needed to develop complex financial models and predict outcomes and the experience to empower you to understand these tools. Given our specialties, our actuaries can assist you in the following main areas:

Ratemaking
Reserving
Enterprise risk management

Our actuaries can assist you in assessing risk and finding optimal solutions.

1. Ratemaking

Ratemaking is an important role for the actuaries at Axxima, and we use our expertise to predict and calculate fair, accurate rates. To understand why ratemaking is such a big undertaking, it is important to understand why insurances, in general, are quintessentially different from any other product.

Think about a specific product, be it a perfume, a pair of shoes, or a car — these are all products you can price with high accuracy. On the other hand, insurances are products that promise to perform a specific task in the future based on unknown events.

By computing large quantities of data and using statistical methods, actuaries are able to project outcomes that follow a specific average, helping insurers price their products.

2. Reserving

In addition to ratemaking, actuaries help insurance companies financially plan their reserves to be able to pay for claims. In short, reserving refers to analyzing, assessing, and estimating as closely as possible the financial aspect of unpaid insurance, reinsurance, and self-insurance claims.

Actuaries look at past claims and their value to build models to assess how much money needs to be set aside at any given time. It’s essential for insurance businesses to employ skilled actuaries for their reserving.

3. Enterprise Risk Management

Enterprise Risk Management (ERM) is a business-specific process that includes identifying risks and setting in place management models. The main objective is to identify critical risks that are a threat to the organization and implement solutions that can limit the negative outcomes.

Actuaries help leaders address these risks based on strategic objectives, guiding their decision-making process towards the most cost-efficient coverage solution. As the business world progresses, risks also evolve, requiring a more thorough approach to enterprise risk management.

The actuaries at Axxima have experience in developing sophisticated models that address a complex network of risks.

Want to work with a professional actuary?

If you’re ready to employ the services of a professional actuarial team, Axxima is here to help you. We’re ready to understand your business inside out and come up with the correct predictive models that will work for your industry.

Reach out to us and let’s discuss how your business can benefit by working with a property and casualty insurance actuary, be it for ratemaking, reserving or enterprise risk management.