You may never meet one—but actuaries influence your finances, health care, workplace benefits, and retirement through the systems that support Americans from birth to old age.
By Irina Ivanova
The actuarial profession, despite having over 250 years’ worth of history, remains little known to most Americans. Even those aware of the job title “actuary” frequently don’t know what the work entails, believing actuaries to be accountants, as one member of the Academy recently wrote on LinkedIn.
In truth, actuaries—professionals who measure and price risk—are central to people’s lives, shaping key moments from birth to death. Actuaries’ work touches your job, your health decisions, your financial choices, and makes possible the social safety net underlying the modern state.
“An actuary can be thought of as a financial futurist,” says Matt Mize, president and CEO of Make Learning Matter, a health and actuarial consultancy. “An accountant looks at events that have happened, whereas an actuary uses data and human behavior to model and predict future outcomes.”
Throughout the course of a typical life, an American is likely to encounter no less than seven actuaries whether they know it or not. Here are the key moments their influence is felt.
Social Security: At Birth and Retirement
The moment you’re born, you join a group of everyone else born in the United States that same year. A Social Security actuary then looks at the size of that class and plugs it into a series of complex formulas accounting for life expectancy, immigration, the strength of the economy, and many other factors. These formulas project the future of Social Security, the U.S.’ longest-lived safety-net program. Years later, when you enter your sixties and have paid into this program yourself through decades of work, you begin receiving payments that these calculations helped make possible.
“Nearly everyone in the U.S. is or will be affected [by Social Security] in one way or another, either as a recipient or a payee,” says Sam Gutterman, chairperson of the Social Security Committee and member of the Retirement Practice Council.
“The program in many respects is just like any other financial system. It’s got inputs and outputs, income and outgo. Taxes paid to Social Security are its primary source of income, while on the other hand, it pays a lot of benefits,” he says. “Partly because of the time lag between its income and outgo, it has been able to accumulate a pot of money that has been invested.”
The actuary’s job is to monitor the Social Security trust fund and communicate projected shortfalls. Actuaries were also instrumental in reforms made to the program in the early 1980s intended to keep Social Security solvent well into the 21st century.
Today, three-quarters of retired workers receive Social Security benefits, while one in four seniors relies on Social Security as their only form of income, according to the Pew Research Center. The program, which just turned 90 years old, offers a bedrock of financial stability to workers.
“Social Security is based on a set of rules that can help people plan their financial future and incorporate in their savings program, providing regular, dependable benefits,” Gutterman says.
Health Insurance: At Birth, and Through Life
Your birth likely happened in a medical setting, and for the first months and years of your young life, you’ll have frequent visits with the doctor. Those visits are very likely to be paid for through some form of health insurance—a product that involves actuaries at every stage, from conception to sale.
Actuaries use past data to project what kinds of care a patient will seek, and what it will cost. A health insurance plan will then use that data to set prices for insurance premiums and cost-sharing, making sure they have enough to pay the claims they expect to have while meeting reserve and other requirements set by regulators.
“Every little benefit you have: this copay for a primary care physician, this copay for a specialist; this if you go to the ER; that if you go in the hospital, an actuary is looking at all of that data and projecting what we think those costs will be in the future based on what’s happened historically,” Mize says. “Every aspect of health insurance, except the customer service part, an actuary is involved with.”
A version of this process also occurs in Medicare and Medicaid. Even though the payments are set by government actors, actuaries help commercial insurers creating Medicare or Medicaid plans design other aspects of the plan to remain solvent and encourage or discourage certain behaviors.
Actuaries’ work keeps health insurance affordable and, often, predictable. Compared to other types of insurance, health insurance is used with high frequency, meaning there is ample data for modeling and fewer surprises in the outcomes.
“With health care, we have so much data, we’re able to put a fairly narrow bound around the possible outcomes, and therefore our risk charge is significantly smaller than you would see in one of those more volatile insurance industries,” Mize says. “And that helps keep insurance prices down.”
Property and Casualty Insurance: Young Adulthood
You’re no longer a child—you’re now a teenager and thinking about getting your driver’s license. If your family owns their home, you’re benefiting from homeowner’s insurance; and if you have a job outside of school, your employer could have business liability insurance.
All these sectors have been touched by a property/casualty actuary. This type of insurance, which protects assets from freak accidents or natural disasters, allows for the smooth flow of commerce in many sectors.
“If you can’t buy insurance for your home, or if you’re starting a business and you can’t buy insurance, that’s a problem,” says Norman Niami, a member of various Academy committees and task forces, including the Research Committee.
Setting prices for this type of insurance requires considering a myriad factors. For home insurance, the actuary takes account of the home’s size, condition, and location, as well as weather patterns in the area. For auto insurance, they consider, among other things, the vehicle’s and driver’s characteristics, and the geography, which affects the driving conditions, including types of roads and weather. Evaluating the broader environment is also crucial, since the past may not reflect the present.
“What has happened over the last few years? That’s the starting point for a calculation; then, we analyze that in terms of exposure risk and claim costs and losses,” says Niami. Actuaries also need to consider how today’s conditions may be different from those reflected in the historical data. For instance, COVID saw the emergence of new and dangerous driving behaviors, while extreme weather is straining old models of homeowners’ insurance.
Then there’s business liability insurance. Because enterprises come in a wide range and may need a wide range of insurance types, an actuary may consider “the profile of the business, what type of operation they have, how experienced the management is, how they compare to other companies with that type of operation, the loss profile, and what kind of claims experience and data they have,” Niami says.
The field of P/C insurance is vast. “You can get anything and everything insured,” says Niami, recalling that his first job after college—before he became an actuary—he came across a company that was selling life insurance for llamas.
But even a quirky-sounding product has solid backing. “There are specific professional obligations and standards involved throughout the whole process, so that it’s not just somebody that says, ‘let me come up with some numbers,’” he says. “There are specific standards that you’re supposed to follow, as well as actuarial standards of practice.”
Pension Actuary: Defining Benefits at Work
Now a young adult, you’re starting your first job. Your employer may offer a pension plan. While pensions are far less common today than they were several decades ago, about 1 in 10 Fortune 500 companies still offer a pension plan to new entrants, according to Tristan Christ, a retirement actuary at WTW. However, pensions are more common in public-sector jobs, and many smaller businesses continue to establish new pension plans.
“Some companies still see pensions as a strategic tool to help with recruiting and retaining people,” says Christ.
A traditional pension offers an employee a monthly check upon retirement, paid in perpetuity. Because the employer is controlling and investing a pool of money from which to draw these payments, they must rely on actuarial advice to ensure the plan is able to pay out promised benefits.
“Every time a pension check is received, or an insurance benefit is paid, an actuary had an important role in making sure that adequate funds were available to make those payments,” says Christ.
“Professional actuaries are trying to advise their clients to make the best educated decisions that they can. We’re supposed to give unbiased advice; it’s part of what’s in our standards of practice,” he says. “While quants and other data scientists use similar mathematical techniques, actuaries have professional standards which ensure a specified level of skill and competence.”
Employee Benefits Actuary: Protection in the Workplace
At your workplace, retirement is just one of many benefits you’ll likely have to consider. Many employers offer a full range of income-replacement benefits for you and your family—short- and long-term disability coverage, group life insurance, or accidental death and dismemberment, for little to no cost to the employee. Most employers also carry workers’ compensation, which offers medical care or cash if you become injured on the job.
This workplace safety net is popular: Roughly half of Americans report carrying life insurance through their employer, according to LIMRA, while approximately 40 percent have access to short-term or long-term disability, the Bureau of Labor Statistics reports. Creating it falls under the purview of an employee benefits actuary.
The actuary helps design and price a set of policies, taking into account the characteristics of the employee group. By combining many employees in one pool of insured people, these benefits can spread out risk and create an affordable product. For the worker, these programs can provide a crucial income floor in the case of an injury or other setback.
Life Insurance: Protecting Your Life’s Work
You’ve been working now for years, and you’ve started a family. Congratulations! If you are the main provider, you will likely consider life insurance to create income for your spouse or children should anything happen to you. A life insurance actuary helps ensure the company that issues the policy has enough money to pay out all its claims and invests it in a way that keeps it financially solvent.
When single-earner households were more common in the United States, the earner typically bought permanent life insurance. These policies pay out when the insured person dies, regardless of the time or cause of death, and include a cash component that accumulates tax-free. These days, with dual-earner families the norm, term life insurance is more common. There policies typically last for a preset time period, such as 20 years.
Life insurance products can also play a broader financial planning role beyond income protection. Some permanent policies build cash value that policyholders may access during their lifetime or convert into an annuity to help provide retirement income. In addition, certain policies offer riders for long-term care, which can help cover expenses associated with chronic illness or extended health care needs, further extending the protection these products provide.
On average, term life policies last 12 years, which means some consumers will drop the policy early on while others last all 20 years, explains David Hippen, an actuary in the Office of the Insurance Commissioner in the state of Washington. Over that period, an actuary must determine, “how much premium are we going to have to collect in order to not only pay the claims each year, but to build up a reserve?” he says.
That premium will be determined by an individual’s age, health, hobbies, and lifestyle factors. Sometimes, health-promoting behavior can pay off for a policyholder. In the early 1980s, Hippen recalls seeing statistics comparing mortality rates for smokers and non-smokers. “I took the early statistics, decided I only believed half of the difference, okay, and came up with the biggest discount in the life insurance industry for non-smokers,” of about 10%, he says. “At that time, it was unheard of.”
It may seem dry and a little morbid, but Hippen recalls an inspiring quote he heard at his first job. “A church leader came to dedicate a new building, and one thing he said stuck with me: ‘Insurance is a free enterprise method of preserving the dignity of man.’ I don’t have to go into social work—I can do math and help people preserve their dignity that way.”
Medicare: Health Care You’ve Paid Into
As you approach retirement and look forward to receiving Social Security payments, you can also count on joining Medicare, the United States’ universal health insurance for everyone aged over 65.
Medicare, just like Social Security, relies on actuaries to monitor its financial health and make recommendations, including evaluating the effects of potential policy changes and calculating how long benefits can be funded at current levels. That is especially crucial for a program that covers 66 million Americans and is projected to run out of funds within a decade.
“Health care, especially as you get older, becomes a central part of life. Helping policymakers and other stakeholders think through the tradeoffs and make Medicare more sustainable is work that matters,” says Derek Skoog, an actuary with expertise in Medicare.
As policymakers consider changes, actuaries can help quantify how proposals may affect beneficiaries, providers, and public spending, and identify possible downstream effects. For example, one lever is to reduce how much Medicare covers. If out-of-pocket costs rise, more beneficiaries may struggle to pay their medical bills. That can increase providers’ bad debt and may reduce participation in the program. If some seniors exhaust their savings, it can increase pressure on other programs, potentially leading to greater reliance on Social Security and, for some, Medicaid.
Making policy is ultimately lawmakers’ job, Skoog notes. “Our role as actuaries is to make sure stakeholders understand the issues, the plausible range of outcomes, and the risks we all face as Americans with a stake in Medicare’s long-term success.”
A Throughline for a Risk-Filled World
As you can see, your life is impacted in many meaningful ways by actuaries. Their work turns the risks that are ever-present in life into something quantifiable, making it more manageable and responsive to the many life events we experience over a lifetime.
“Actuaries help people make decisions when the future is uncertain, especially when the stakes are high,” says Skoog.
So when you think “risk,” think “actuaries”— and think about the American Academy of Actuaries. As actuaries help people through their life, often in unseen ways, the Academy in turn, stands behind actuaries at every stage of theirs by advancing professionalism, informing public policy, and advancing their service to the public.
Academy Resources for You
Be sure to explore the Academy’s resources across practice areas. You’ll find materials on Social Security, employee benefits, and pensions in the Retirement section, Medicaid and other health care topics in the Health section; casualty insurance topics in the Casualty section; and life insurance in the Life section. Resources include issue briefs, infographics, the Social Security Challenge, presentations, policy papers, and more.
IRINA IVANOVA is a freelance writer for Contingencies.