Actuarial Science deals with analyzing the financial risk of a business operation. This business operation can be an insurance policy or an investment or an uncertain event that might cause financial harm to the company.
To put this in simple words, how a business or individual can retain and grow their capital by using mathematical tools to predict future trends by using data from the past.
Traditionally Actuarial science is concerned with mortality and production of life and the application of compound interest. Actuarial science course deals with various subjects like mathematics, probability, finance, economics, statistics, and computer science.
Actuaries or actuarial scientists help organizations and individuals by calculating financial risks. How? Let’s understand.
Assume you have own an health insurance company. How would you frame your policy? Would you take the same amount of premium from everyone? Let’s say you do. Your taking the same amount of money from all age groups. But eventually you get a lot of insurance claims from the older demographic of your policy holders who have to go through extremely expensive procedures. But you get no claims from the teenager demographic of your policy holders. Before you know it, you’ve used the money which everyone paid and now you have nothing for yourself.
That doesn’t sound like a very successful business plan does it?
This is where actuaries come in. An actuary will come in and collect data about the people that live around you and analyze their lifestyles, habits, common health problems, and so on. Now, they’ll help you frame different sets of policies for different groups of people. This way, not only will all your policy holders stay happy and tension-free, but you will generate profits that help your company grow.
Now, the actuary will use this data to help you set up a plan that will maintain the smooth functioning of your company, regular payouts, profits, and an emergency fund that will keep your company running in the event of a totally unpredictable event.
But how does one actuary build a plan that keeps a multi-million dollar company afloat?
Data. While time travel is yet to be discovered, it is an actuary’s duty to know the future. They have to constantly analyse everything that could affect your company and build an efficient strategy that helps you save your capital.