Risk and their main Employers

Actuaries and Risk Management
Trying to explain what an actuary does would not be easy without covering the area of risk. Every person in any business faces risk and that risk comes in many forms. Actuaries measure and manage this risk so they fill an important need in our society. If these management programmes didn't exist then our economic growth would be greatly impacted.

Their contribution to society is psychological and the other needs filled by actuaries are immense.

Some of the things that may or may not happen if it weren't for actuaries include:

• Would the cars that people drive today be considered safe if it weren't for actuaries calculating the mathematical techniques that set out how many years they would last for.
• Would people be willing to own a home today if fire insurance did not exist?
• Would people spend money and be happy about their future if there were no social security or retirement programmes in place?
• Would the banks feel safe if their assets and liabilities were not properly managed to control financial risk?
• Would parents be confident about the safety of their children involved in adventurous activities if they knew that their children were not covered for any financial disasters in the event of an accident?

There are a lot of ways in which risk can be managed. This requires well established techniques which are being developed all the time by actuaries.

Focusing on Catastrophic Risks
The theory of mathematics shows that the greatest relief from risk comes from eliminating the consequences of the events that result in those risks ending up as huge losses. Families need to consider what would happen if their breadwinner died or their business was destroyed or if they lost all their investments.

They may consider purchasing the relevant insurance policy to cover them in the event of this risk becoming a reality. There are few areas in which we live today that do not have potentially catastrophic risk and therefore will have an impact on our well being.

Why Should you Diversify?
It is better to take on many small risks than to face one big risk. That is, it is a lot easier to have small bites than one big bite. Many small risks can sometimes average out so that if one risk becomes a disaster it is not a big enough impact on the other areas of our lives.

This gives us a certain amount of confidence in our future because we know that no disaster will ever be too extreme in one direction or another due to diversification. Diversification is an important tool in managing all risks.

Where do Actuaries Manage Risk?
Most actuaries work in careers associated with the insurance industry. Many more are beginning to move in other fields. They are heavily involved in insurance because it is one of society's most important needs for managing risk.

What happens is, we reduce our own risk or loss by transferring it to an insurance company who accept the risk for a fee or price. Actuaries play a key role designing insurance plans that determine the type of risks the insurance company can accept and the amount of payment they should require for the risk.

The actuaries also calculate the funds the insurance company has to put aside in reserves in order to pay potential claims.

Actuaries are also starting to move into the financial services sector - including commercial banks, retirement funds etc. Many actuaries are starting to manage risk for consulting firms while others have moved into consultancy, or are employed by government or other state institutions.