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New Product Development in Insurance: The Actuary

4 minutes, 30 seconds read

Ratemaking, or insurance pricing, is the process of fixing the rates or premiums that insurers charge for their policies. In insurance parlance, a unit of insurance represents a certain monetary value of coverage. Insurance companies usually base these on risk factors such as gender, age, etc. The Rate is simply the price per ‘unit of insurance’ for each unit exposed to liability. 

Typically, a unit of insurance (both in life and non-life) is equal to $1,000 worth of liability coverage. By that token, for 200 units of insurance purchased the liability coverage is $200,000. This value is the insurance ‘premium’. (This example is only to demonstrate the logic behind units of exposure, and is not an exact method for calculating premium value)

The cost of providing insurance coverage is actually unknown, which is why insurance rates are based on the predictions of future risk.  

Actuaries work wherever risk is present

Actuarial skills help measure the probability and risk of future events by understanding the past. They accomplish this by using probability theory, statistical analysis, and financial mathematics to predict future financial scenarios. 

Insurers rely on them, among other reasons, to