For life insurers, making money is a numbers game

For Life Insurers, Making Money Is A Numbers Game

Overview

Life insurance companies are clearly making a profit from the products they are offering, but it can seem strange that anyone

could know how or when someone was going to die.

Life insurance companies use actuaries

Life insurance companies have men and women who are dedicated to both the gathering and analysis of this data. These people are referred to as actuaries, and they are the heart and soul of the life insurance industry.

The way an actuary predicts the future

It is true that no actuary can determine the exact day that person will die, but if they are given the proper data about an individual, they can construct probabilities for the length of time that a person will live.

Actuaries analyze new data to protect against financial

loss

Actuaries use past data to construct probabilities for different classifications of individuals, but they are also involved in the gathering of new data.

Actuaries analyze new data to stay competitive

A change in the other direction is also important for actuaries to discover. It would seem that this would not be a major concern. If people are living longer, but are paying the same premiums, profits will only increase.

Another key element in profits

In order for a life insurance company to make a profit, it is important to have accurate data on the individual applying for life insurance. Without the correct data, it is easy to compute the wrong premiums to charge the customer.

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