Have you ever wondered how insurance companies determine the rates for their policies? Well, I have. One day I had nothing better to do, so I decided to find out the secret behind the determination of insurance rates. What was I thinking? Let me just tell you that it is not the simplest equation in the world. If fact, it is so complicated that they have a person called an actuary to carry out this task. Just gaining an underst anding of what an actuary is can be complicated.
It’s like anything associated with actuaries is kept in top secret files by the CIA. After some consistent and diligent research, I came up with nothing. This is what I can tell you about an actuary. They are the people who get paid to make a whole lot of numbers make sense so that insurance companies can assume risks in a manner that allows them to effectively cover legitimate claims while remaining financially viable. That’s the simplified version.
I know what you are thinking right now; I have not told you much. That is because I did not find out much. The job of an actuary is obviously very complicated and very stressful. I know this because that what everyone keeps telling me to avoid telling me what an actuary does. So, since I can’t make any progress in this area, I will simply express my opinion on the matter.
Whether you purchase home owner’s insurance or life insurance, whether you insure your car or your boat, there is some guy in a bow tie (nothing against bow ties) on the 66th floor of a skyscraper in some metropolitan location, with a pencil with no eraser. Why does he not have an eraser on his pencil you ask? It is not because he used it, it is because he doesn’t need it. Yes, he is that good.
I was not able to learn much about actuaries, but the one thing I did learn was that they are exceptionally good with numbers. The actuary is the guy in your calculus class that never took out his calculator; he was never shaken by the most astronomical algebraic equation. The actuary is the guy that looks at structural engineers with an aura of superiority. This guy is never late anywhere because is able to take into account all variables including unknown possibilities and risks and accurately calculate to the second his arrival time. He synchronizes his watch three times a day.
Why am I going on and on about this guy who no one ever meets. Honestly, I don’t like the fact of not being able to learn what I set out to learn; just kidding. Actually, an actuary is a highly skilled person who uses a very strict formula that considers numerous variables that are associated with the assumed risk that is taken when an insurance company issues a policy. Risk factors are considered from a number of different angles. The key is to create a situation in which the insured receives a policy that will meet their specific needs with a premium that is fair, and hopefully, affordable. This all has to be done while insuring that the company is taking in enough money to pay out any claims.
I tip my hat to the actuaries that get it right, because the world would be in one big mess if you forgot to carry the 1.