Health Actuarial (B) Task Force Virtual Meeting 10/1/24
Tuesday, October 01, 2024
11:00 AM CDT
Discuss adoption of the Task Force’s 2025 proposed charges.
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Role of Actuaries in Insurance
Background
Last Updated: 4/29/2024
Issue: As professional experts in risk analysis, actuaries evaluate the likelihood of future events, design ways to reduce the likelihood of undesirable events, and decrease the impact of undesirable events that occur. The actuarial profession plays an important role in the insurance industry and in social insurance programs such as Medicare and Social Security. Actuarial expertise is crucial in the insurance industry, as it ensures sound financial management, appropriate risk pricing, and compliance with regulatory requirements, and it ultimately contributes to the stability and sustainability of insurance companies.
Background: Two organizations provide credentialing and professional education for actuaries in the U.S. The Casualty Actuarial Society (CAS) focuses on property/casualty (P/C) risks, and the Society of Actuaries (SOA) focuses on health insurance, life insurance, annuities, and retirement benefits. The American Academy of Actuaries (Academy) provides overarching professionalism and public policy functions for actuaries. The Academy sets the code of professional conduct and actuarial standards of practice that all actuaries in the U.S. operate under. The public policy work of the Academy seeks to address pressing issues that would benefit from the sound application of actuarial principles. In its public policy role, the Academy works with the NAIC on the creation and refinement of sensible, effective regulation.
Beginning in 1975 with the NAIC life and accident (L&H) and health Blank, NAIC financial reporting blanks require a statement of opinion by a qualified actuary for the policy and contract reserves and other actuarial items contained in an insurance company's annual statement. Statements of actuarial opinion are required for health, life, and P/C insurance blanks.
The NAIC may develop and adopt actuarial guidelines in response to risk and solvency concerns.
Actuarial principles that relate to all types of insurance include:
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Risk pooling.
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Law of large numbers.
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Moral hazard.
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Adverse selection.
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Insurable events.
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Actuarial soundness.
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Risk classification.
Like state insurance regulators, actuaries have an obligation to serve in the public interest by considering the following:
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Insurance company solvency.
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System sustainability and stability.
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Regulatory oversight.
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Consumer protection.
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The availability of insurance options that meet the needs of customers and are transparent, affordable, and valuable, among other priorities.
Overall, a well-functioning insurance market is essential for a healthy economy.
Actions
The actuarial profession provides value to consumers and helps insurance commissioners fulfill their duties to the public in the following ways:
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Actuaries provide expert advice and relevant solutions for financial, business, and societal problems involving uncertain future events.
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They bring specialized training and knowledge to help insurance commissioners with the challenges and questions they face. For example, actuaries can explain how insurance premiums are determined, the role of actuarial principles in insurance markets, and how theoretical actuarial and economic principles can guide expectations of regulatory impacts.
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The actuarial profession plays a vital role in the solvency of insurance companies using tools such as financial models, stress testing, reserve calculation, capital adequacy, and regulatory compliance.
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The CAS, SOA, and Academy conduct and publish research on the insurance industry.
There is frequent overlap between the NAIC and U.S. actuarial organizations, with regulators and actuaries presenting at each other’s meetings, participating on each other’s committees, and collaborating to achieve shared objectives.
NAIC committees that rely on the actuarial profession include:
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The Life Insurance and Annuities (A) Committee, which considers life insurance and annuities issues and reviews new life insurance products.
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The Health Insurance and Managed Care (B) Committee, which considers health insurance issues.
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The Property and Casualty Insurance (C) Committee, which considers product, delivery, cost, and financial reporting issues in the P/C insurance and surplus lines markets.
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The Financial Condition (E) Committee, which coordinates solvency-related considerations on accounting practices and procedures, blanks, valuation of securities, financial analysis and solvency, multistate examinations, and examiner and analysis training, as well as issues concerning insurer insolvencies and insolvency guarantees.
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The Innovation, Cybersecurity, and Technology (H) Committee, which considers cybersecurity, innovation, data security, privacy protections, and emerging technology issues for all lines of business.
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Contacts
Media queries should be directed to the NAIC Communications Division at 816-783-8909 or news@naic.org.