by Stacy T. | Apr 19, 2018 | CPCU 520
In addition to calculating insurance rates, actuaries are responsible for estimating loss reserves. Using various statistical tools, their goal is to predict how much the insurance company will pay out in claims so that the company can set aside enough money to pay for those claims. This job duty is extremely important because if an insurance carrier does a poor job of estimating and sets aside too little money, they run the risk of having to unexpectedly sell their investment assets at a major loss or even going bankrupt if they don’t have the cash available to pay for the claims that arise. Today’s tip will start with an analogy to help illustrate how actuaries try to tackle the challenge of making a future prediction. We will also include a discussion of the three methods covered in CPCU® 520 that are used to estimate loss reserves.
UPDATE: Two of these three methods are not longer covered in the CPCU 520 as of the third edition textbook.
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