Unlike the physician, the role of the pharmacist is often relegated to a secondary slot when one has a chronic ailment. Suffice it to say that, while the former typically engages in diagnostics and prescriptions of drugs, the latter is often involved in the preparation and dispensing of drugs to cure ailments. But the two are closely related and, therefore, not mutually exclusive.
Akin to this, however, is the relationship between an actuary and an insurer. While, the actuary is involved in the design of products/policies based on such considerations as lifestyle, occupation, age, gender and health conditions, the insurer underwrites these policies in line with the actuarial parameters and with the complement of a sound marketing effort, so as to make a profit.
Who is an actuary?
An actuary is a professional who deals with the measurement and management of risks and uncertainties. Given today’s complex financial environment, the role of actuaries cannot be overestimated, as they provide businesses with financial security systems evaluation, with a focus on their complexities and financial opportunities.
Thus, they typically, apply mathematics to financial problems and evaluate their impact on businesses, both within the short and long-terms.
Relevance of actuaries in insurance
Although it has a 17th Century origin, the actuarial profession still remains relatively unknown, particularly, in most developing economies. Indeed, many countries have fewer or no qualified actuaries.
For example, there are only seven professionally qualified actuaries residing in Ghana, some of whom are now on retirement and some others hold bachelor’s to master’s degrees or are partly qualified actuaries.
Interestingly, there is a common joke that one can only become an actuary when s/he has five years or less to retire! But this only emphasises the difficulty in having certified actuaries.
Traditionally, the insurance and pensions industries are the main habitats of actuaries, but lately, their services have extended into other financial services such as mortgage and banking.
Typically, actuaries engage in forecasting in order to determine the actual minimum premiums required to keep the schemes running. This does not only help to curtail the phenomenon of ‘premium undercutting,’ but also promotes competitive pricing and product development to meet the demands of the changing business environment.
Meanwhile, beyond the few insurers with resident actuaries, there are private consulting firms which also provide such services.
Insurance risk and the actuary
Suffice it to say also that, insurance thrives on probabilities; hence most insurance policies provide protection against undesirable events such as death, fire, accidents and deepening personal financial crisis.
Individuals with similar risk profiles, therefore, may be grouped and certain outcomes for them as a group may be predicted with some certainty. This predictability, therefore, enables insurers to take on risks that are individually unpredictable, and spread the financial consequences across many policyholders with similar risk profile through the premiums charged.
Thus, actuaries would measure the insured risks (i.e., by individuals and groups) to determine their probabilities (or frequency) of occurrence in order to apply them (i.e., the probabilities) in varying calculations.
For example, the probabilities of persons dying at particular ages can be detailed in a mortality table, which may then be used in calculating life insurance premiums and liabilities to policyholders.
Actuaries and asset and liability management
Often times, insurers place much premium on investment activities that are appropriate to the nature of their obligations; hence, they take steps to actively manage the relationship between assets and liabilities on an on-going basis.
The objective of asset and liability management (ALM) is to reduce the risk exposure that exists in the investment market to the insurer, particularly, if the assets and liabilities are mismatched (e.g., where market conditions cause an increase in the value of liabilities and a decrease in the value of assets).
On a more positive note, asset and liability management can help an insurer to invest its assets more effectively and generate higher profits to ameliorate any future exposures.
Most insurers that practice ALM have established committees to oversee this activity and actuaries participate in the ALM committee together with investment managers, product line managers, and financial officers.
Actuaries are often responsible for modeling the asset and liability cash flows, and assessing the effects of various risk factors on the results. They develop techniques and measurement tools in order to track growth in investment.
Actuaries in Ghana
The few actuaries in Ghana are either engaged by the Social Security and National Insurance Trust (SSNIT), the National Insurance Commission (NIC), some insurers and other consultancy firms, and they contribute immensely to the economic development of the country.
Given the limited pool of certified actuaries in Ghana, a number of tertiary institutions, particularly the universities, have lately included actuarial science in their list of programmes.
Unfortunately, most of the organisations that require actuarial services rather engage the services of consultants, instead of engaging the actuarial science graduates churned out from these universities.