Actuary
The insurance professional who uses mathematics and statistics to set premium rates, calculate reserves, and project future losses and expenses.
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An actuary tells a new agent, 'For a large group, the risk is predictable even though each individual's outcome is uncertain.' This statement is:
Correct, and it is the reason insurers can price coverage using the law of large numbers — Insurance rests on a paradox: individual outcomes are random and unknowable, but the aggregate outcome of a large group of similar exposures becomes statistically predictable. The law of large numbers lets actuaries estimate how many claims the group will produce and price premiums accordingly. This group predictability with individual uncertainty is precisely what makes insurance feasible, including for health and disability coverage.
National insurance concept
An actuary calculates that a 40-year-old applicant has a 0.3 percent chance of becoming disabled within the next year. This figure is a measure of the applicant's:
Risk of disability — The chance that a loss will occur is the definition of risk, and expressing it as a percentage quantifies that risk. Insurers use morbidity tables and similar data to measure the probability of illness or disability within a population group. This measured probability is what the law of large numbers makes predictable and what premium rates are built upon.
National insurance concept
- General InsuranceAn actuary tells a new agent, 'For a large group, the risk is predictable even though e…
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- General InsuranceAn actuary notes that expanding a disability insurance pool from 5,000 to 50,000 simila…
- General InsuranceFor the law of large numbers to improve the accuracy of loss prediction, the exposures …
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- Life InsuranceWhich three factors are used to calculate life insurance premium rates?
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