Application of Actuarial Modelling in Insurance Industry (Part-1)
The insurance industry working on assumptions, no one can predict the future but actuaries have taken a responsibility to predict the future based on past experiences.
For every insurance company, financial stability is crucial, actuaries help insurance companies to maintain minimum regulatory requirement by applying Actuarial Modelling.
History of Actuarial Modelling
Insurance companies were facing uncertainty issues two decades back, to solve these issues actuaries used their skills with mathematics to estimate the uncertainty and developed a new framework to solve real-life problems.
They used integrated, realistic and flexible approaches.
Till the time these methodology developed, the extent of the problem which can be solved using this effectively was extended. That's the reason for frequent changes in the nature of Actuarial Modelling depending upon the complexity of the problem.
Insurance is the type of business, which is affected by many unknown variables like nobody knows if and when a certain size of claims insurer must have to pay. Actuarial Modelling uses different possible variables, which may affect the insurer to manage the risk.
Actuarial Modelling is basically the risk management tool, and that's the reason that nowadays usage of Actuarial Modelling being expanded in other areas also, apart from mainly used in the Insurance industry.
Written by: Kalpesh Agrawal (Actuarial Intern- IIB)