Difference Between Actuary and Underwriter

Edited by Diffzy | Updated on: October 06, 2022

       

Difference Between Actuary and Underwriter Difference Between Actuary and Underwriter

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Introduction

When it comes to the world of finance, there are plenty of terms that are thrown around daily that most people don’t understand, let alone know how to properly use in everyday conversation. In this post, we will take an in-depth look at two terms that many people confuse with one another and clear up the mystery once and for all! An actuary and an underwriter are both critical to the success of any business, from large corporations to local mom-and-pop shops, but they each play different roles in the industry, and they each receive their training in different ways.

Both actuary and underwriters have a significant role in preventing bad things from happening; however, they're quite different in what they do. The main difference between them is that actuary calculates risk while underwriters look at policies to determine which risks are worth writing. It’s hard to discuss one without talking about both, so we’ll cover these two terms side by side for comparison purposes. In addition, we'll also explore why people sometimes use these words interchangeably. First up: Actuaries. Let's get started!

What does an actuary do? Although actuaries may be involved in many aspects of insurance coverage, their work generally falls into one of three categories. The first is developing pricing models – figuring out how much money each type of customer will need to pay into a pool based on his or her circumstances. This can include taking into account factors such as gender, age, and occupation as well as financial considerations like debt ratios and monthly expenses – all to arrive at a target premium per customer type.

Those premiums are then compared with current premiums charged by competing firms and used to figure out how much money should be set aside in reserves for future claims, thus determining rates that allow a company to operate profitably while meeting its obligations going forward. In addition, actuaries also help determine which risks insurers should accept or reject.

For example, they might calculate that a particular type of policy would result in more expensive claims than it would bring in revenue. By rejecting those policies, companies can save money over time. Lastly, they also help manage risk by identifying changes to existing policies (such as raising deductibles) that could reduce expected losses while keeping costs low enough to attract customers who want affordable coverage. In short: Actuaries help determine how much it costs to provide insurance coverage and what types of policies insurers should offer so they stay profitable without leaving themselves open to too much risk down the road (which could lead them to go out of business).

Actuary vs Underwriter

The most notable difference between these two professions is that actuaries aim to minimize financial risk while underwriters aim to minimize legal risk. Put more simply, while actuaries are responsible for assessing how much an insurance company needs to charge its customers to ensure profitability, underwriters set guidelines by which insurance companies will determine whether or not they want to offer coverage. Ultimately, both actuaries and underwriters are involved in evaluating risks associated with taking out a policy. The biggest difference, then, is that actuaries do so from a financial perspective while underwriters do so from a legal one.

Difference Between Actuary and Underwriter in Tabular Form

Table: Actuary vs Underwriter
Actuary
Underwriter
An actuary is a financial professional who specializes in applying advanced statistical analysis to assess risk.
Insurance underwriters are in charge of deciding which insurance policies receive approval, as well as pricing, placement, and premium guarantees
Actuary use math and statistics to assess and manage risk on behalf of an organization
Underwriters assess the risk of lending money to another party on behalf of an organization
Actuary uses advanced statistical data, mathematics, and financial theories to build a financial model and perform a risk analysis
Underwriters use several screening tools followed by research to help assess whether applicants meet the loan requirements
Actuary create different categories of risk analysis
Underwriters analyze which of these categories a potential customer fails

What is Actuary?

An actuary is a financial professional who specializes in applying advanced statistical analysis to assess risk. Actuaries analyze financial statements, the model projected earnings, and identify investment risks. They may also work with groups of insurers on pricing strategies. Job growth for actuaries is forecasted to be faster than average through 2018; however, demand for actuaries has grown rapidly as businesses become more complex and government regulations increase.

These professionals should have strong problem-solving skills, math aptitude, and good communication skills. A bachelor’s degree in business or mathematics is required for entry-level jobs, but a master’s or Ph.D. degree will likely be necessary to advance into management positions. Most employers require candidates to pass exams before they can practice as insurance actuaries.

For example, an actuary might develop a model to predict how many people will file injury claims in any given year based on historical data. The actuarial model would then be used to determine how much money should be set aside in reserves to pay those claims.

What is Underwriter?

Insurance underwriters are in charge of deciding which insurance policies receive approval, as well as pricing, placement, and premium guarantees. They may be employed by a life insurance company or work for a separate organization that sells all types of insurance. Their primary responsibility is to determine how much risk each policy poses to the insurance company.

As such, underwriters must have extensive knowledge about existing laws, regulations, trends, payouts, and claims history to make their decisions. In addition to assessing risk (both quantitatively and qualitatively), they also ensure that all policies follow state laws. Most often, actuaries are brought on board after underwriters create basic parameters for new or existing policies based on claim data from previous years.

There are two main types of underwriters: life underwriters and property/casualty underwriters.

Life underwriters review applications for health, disability, and long-term care insurance policies.

Property/casualty underwriters review commercial property and casualty (auto) insurance applications.

Both professions require extensive training, but they have different educational requirements—actuaries typically need at least a bachelor’s degree in mathematics or statistics while underwriters generally need at least a bachelor’s degree in business administration with some sort of focus on finance or economics

The Main Difference Between Actuary and Underwriter in Points

  • An actuary is a financial professional who works with insurance companies in determining their risk for potential payouts by studying statistics.
  • Actuaries use mathematics to measure risk. An underwriter, on the other hand, is also a financial professional that works in insurance but does not have any actuarial training.
  • The underwriter reviews applications for coverage and evaluates them based on company standards.
  • In short, if you are interested in being a part of making decisions on whether or not to cover certain policies, actuary might be your job title of choice whereas if you would like to determine premiums and help process applications underwriter might be better suited to your skillset.
  • A lot of people ask me what I do for a living, when I tell them I’m an actuary they always ask what’s that? It can be difficult to explain exactly what it is without having to go into a lot of detail. When someone asks me what I do all day, my response usually sounds something like: I solve problems using math and data science (if they don't look at me blankly).
  • This post will attempt to explain what it means to be an actuary without going into too much detail. Hopefully, it will give you some insight into what actuaries do! What Do Actuaries Do? To put it simply, actuaries use statistics to study and predict future events. Most commonly these events deal with things such as life expectancy, mortality rates, and investment performance.
  • They often utilize probability theory as well as various models and computer programs to aid in predicting these outcomes. Because insurance companies must set prices for policies so that they make money over time, having accurate predictions about how many claims they'll receive from different types of customers is very important to them (and us!).
  • Without enough high-risk customers paying higher premiums than low-risk ones, there wouldn't be enough money coming in from premiums to cover losses from those same high-risk customers when/if they need claims paid out later on down the road.
  • The more accurately we can predict customer behavior, the more accurately we can price our products and provide our customers with good value.

Here are just a few examples of questions actuaries answer every day: How likely is it that a 20-year-old male will die before he turns 60? How likely is it that someone born today will live to 100 years old? Will investments made today grow faster than inflation over time? If I invest $10,000 now, how much should I expect to have after 30 years assuming 8% annual returns compounded monthly? We're doing research right now on one particular question regarding car insurance. We want to know which factors affect car theft rates most significantly. Does it matter where a person lives? Does it matter what kind of car they drive? Does it matter what type of security system is installed in that car? All of these factors and more affect theft rates. And insurance companies want to know which factors are most significant because they impact how much they need to charge for auto insurance. I could go on and on, but hopefully, you get a general idea of what actuaries do.

Read more

An actuary is a risk management professional, like a financial planner or consultant. An actuary does not write insurance policies; instead, he or she develops financial models for insurance companies that help determine premiums for various kinds of insurance policies.

An underwriter reviews policy applications and decides whether or not to accept them. He or she also determines what kind of premium rate should be charged for each type of policy. They also have different career paths—actuaries tend to work as consultants while underwriters tend to work as employees at insurance companies. Finally, both professions are competitive—there aren't enough jobs out there for everyone who wants one! But if you're interested in either field, check out your local university's programs. Some schools offer undergraduate degrees in actuarial science or underwriting and postgraduate degrees in these fields as well. If you're interested in working for an insurance company right after college, look into internships with local firms during your senior year to get your foot in the door. And keep up-to-date on industry news through trade journals such as Insurance & Technology Magazine.

In addition to valuable information about new products and services available to consumers, these publications often include job listings from leading insurers looking for qualified candidates. Whether you want to pursue a job in consulting or within an insurance company, doing something related to math is usually a good idea—you'll be able to solve problems more quickly than someone without that background. Make sure you practice using Excel because it's crucial for solving actuarial problems.

You'll also need solid communication skills since your boss will probably rely on you for explanations about complicated issues and numbers. Most importantly, always do what you can to make sure your work is accurate because it could have huge implications for thousands of people around the world! You never know when a simple mistake could end up costing someone their home, their livelihood, or even their life...it doesn't sound very fun now does it?

Conclusion

Both actuaries and underwriters ensure that insurance companies take sufficient precautions against financial loss. But because they work within different fields, their jobs have many differences that set them apart. As you can see, there are some notable differences between actuaries and underwriters. The next time you're shopping for health insurance, these two positions may help give you more of a clear picture of what makes up your coverage costs--and what doesn't. If you've decided to make a career out of one of these professions, it may be worth going into further detail about what your job entails. For instance, becoming a certified public accountant will enable you to handle tax preparation in addition to everything else discussed above.


Category

Law


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"Difference Between Actuary and Underwriter." Diffzy.com, 2022. Fri. 09 Dec. 2022. <https://www.diffzy.com/article/difference-between-actuary-and-underwriter-375>.



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