What is a Property and Casualty Actuary?

What is a Property and Casualty Actuary?

The CAS credentials its members to be risk professionals who work primarily in the property and casualty insurance industry, which may include areas such as auto, home, malpractice, workers compensation, and reinsurance. CAS members also use their skill sets to analyze emerging risks that are relevant to the public interest, such as climate change, automated vehicles, ridesharing and cyber liability. Outside of the insurance industry, actuaries and their skills are increasingly in-demand and serving in risk management roles at organizations such as Uber, Google, Hertz, Expedia, Tesla and Lowe’s.

CAS members have a broad range of job responsibilities, including pricing, reserving, predictive modeling, strategic and financial planning, risk and capital management, catastrophe modeling, underwriting and marketing, research and teaching, and regulation. No matter their specific function, CAS members serve as critical internal advisors on risk management issues and are key players in working with other disciplines due to their advanced analytical skills, extensive training, thorough knowledge of insurance operations, and high professional standards. Many CAS members have progressed their careers beyond actuarial functions to executive management and C-Suite positions.

Enterprise Risk Management

Enterprise Risk Management (ERM) is a process for identifying and prioritizing critical risks facing an organization, quantifying their impact on financial and strategic objectives, and implementing financial and organizational solutions to address them. New and larger risks, new risk financing and hedging techniques, and increased management accountability have produced an emerging need for the broad approach of ERM. Whereas traditional risk management had been traditionally applied in silos, ERM focuses on a holistic view of risk, considering hazard, financial, operational, and strategic risk in combination, in the interest of optimizing shareholder value. [i]
Over the last decade, insurers have increasingly been embracing ERM practices. With this has come a move to develop more sophisticated models for quantifying a company’s key risks.[ii]

Ratemaking

Insurance is different from most products as it is a promise to do something in the future if certain events take place during a specified time period. For example, insurance may be a promise to pay for the rebuilding of a home if it burns to the ground or to pay for medical treatment for a worker injured on the job. Unlike a can of soup, a pair of shoes, or a car, the ultimate cost of an insurance policy is not known at the time of the sale. This places the classic pricing equation (Price=Cost+Profit) in a somewhat different context and introduces additional complexity into the process of price setting for an insurance company.[iii]
Setting insurance prices, which is referred to as ratemaking in the property and casualty (P&C) insurance industry, requires a high level of technical training and skill. Actuaries working in this area use different sets of variables, historical data, and other relevant factors to determine the most accurate and fair pricing for each insurance product.

Predictive Modeling

Predictive modeling involves the use of data to forecast future events. From the first predictive model in 1880 to predicting life expectancy to current applications, actuaries have been in the predictive modeling game since the profession was created, and the CAS is the most advanced actuarial organization in North America, and one of the leading actuarial organizations in the world, in the field of predictive modeling and predictive analytics.[iv]
CAS members have successfully applied predictive modeling to personal lines and are now applying it to commercial lines, such as workers compensation. It is increasingly being used by actuaries to solve a wide range of problems, such as designing plans, predicting loss development, and analyzing customer retention. Businesses outside the direct insurance industry (such as Google and Tesla) are increasingly hiring actuaries for their ability to apply technical and analytical skills to solve complex business problems in the “Big Data” era. The CAS is committed to providing its members with extensive opportunities for predictive modeling continuing education to enable them to be leaders in predictive modeling and analytics. [v]

Reserving

Reserving is the process of evaluating, reviewing, and estimating unpaid claims within insurance, reinsurance and self-insurance.[vi] Accuracy in estimating unpaid claims is critical to insurers. Unlike manufacturers, insurers may not know the true cost of goods sold during a financial reporting period until several years later. An insurer sells its promise to pay the policyholder or an injured party on behalf of the policyholder in the event of an occurrence covered by the insurance policy. For some insured events, the insurer is able to quantify the exact costs of settlement quickly and with great precision. For other insured events, the insurer may not know the ultimate cost for years, and possibly decades. Nevertheless, the insurer must report its financial results on a regular basis. Claim reserves (also known as technical provisions in some parts of the world) represent the insurer’s estimate of its current liabilities for claims that occurred on or prior to the financial statement reporting date but that have not yet been paid. Actuaries around the world work with insurers and self-insurers to quantify, evaluate, and monitor estimates of unpaid claims.[vii]

Nontraditional

Most members of the Casualty Actuarial Society work for property-casualty insurers or serve as actuarial consultants; however, actuaries are also increasingly in-demand outside of the insurance industry, as CAS members are being employed in risk management roles in non-insurance organizations such as Uber, Google, Hertz, Expedia, Tesla and Lowe’s. Here are some examples:

[i]  https://www.casact.org/media/index.cfm?fa=erm

[ii] https://www.casact.org/education/caserm/2016/16_ERM_Sem_Onsite.pdf

[iii] https://www.casact.org/library/studynotes/Werner_Modlin_Ratemaking.pdf

[iv] https://ar.casact.org/1309-2/

[v} CAS key messages on predictive modeling / other marketing materials

[vi]  https://www.casact.org/area/

[vii]  https://www.casact.org/library/studynotes/Friedland_estimating.pdf