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Difference between an Actuary and an Underwriter in Insurance Industry

July 11, 2012

Actuaries

– Actuaries, in an insurance company, help design and price insurance policies for their companies, such that they remain competitive and maintain profits. They extensively use analytics, economics and mathematics skills and tools to evaluate risks. They are the ones who set guidelines for each risk class and category. The underwriter’s role comes after an actuary’s role and decision.

– An actuary’s role in a company is similar to that of a brain in a human body. If actuaries do wrong pricing for the policies, then the companies cannot make profits. If the price is very low, then the profit margin is not adequate, where as if the price is very high the customers won’t buy any policies from the company.

– Roles: Determine likelihood size of the policy holder’s losses and put a price tag. This is called ratemaking. Apart from this, they also perform reserving, risk management, reinsurance roles

Underwriters

– Underwriters, in an insurance company, decide the category in which each customer falls, based on the table/matrix created by the actuaries. They look at the data of the individual customers and decide in which risk class and category the particular customer falls in.

– Underwriters evaluate each client’s risk and decide upon how much coverage the client can be given, and for which how much premium he should pay. Sometimes they make decision as in whether certain client’s risk is coverable or not.

A perfect Analogy explanation

I remember reading a perfect analogy explaining the role of an actuary and an underwriter.
“An actuary, an underwriter, and an insurance salesperson are riding in a car. The salesperson has his foot on the gas, the underwriter has his foot on the brake, and the actuary is looking out the back window telling them where to go.”

Organizational chart for Actuaries and Underwriters

Organizational chart for actuaries and underwriters

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