Insurance, Life insurance, pensions and healthcare
In Insurance Sector: Actuarial science has become an ordinary mathematical stream in the late century of 17th due to increased demand of long-term (extended) insurance coverage such as burial, life insurance, and annuities. These lengthy term plans coverage required that money to be set aside to pay future benefits, such as annuity and death benefits as a compensation for many years into the future (in case of any mishap).
This requires estimation of future contingent events, such as the rates of mortality by age factor, similarly, the development of math’s techniques for making analysis and discounting the value of funds set aside and invested into insurance plans. This process led to the development of an important and wide spreading actuarial concept, referred as the “Present money value of a Future sum”. Certain aspects of the actuarial for discounting pension funds might have come under criticism from modern financial economics reviews.
In traditional life
insurance policies, Actuarial science focuses on the analysis of
mortality rate of a region, the manufacturing of life tables, and the
application of compound interest of paid value to produce life insurance,
annuities and endowment policies for assets as well as for humans. Contemporary
life insurance programs have been extended to include credit and mortgage/loan
insurance, key person insurance for small businesses or to accomplish personal
needs, long term care insurance and health savings accounts.
In health-related insurances,
including insurance provided directly by employers of an insurance company, and
social insurance, Actuarial science
focuses on the analysis of rate of disability, morbidity, mortality, fertility
and other plans/contingencies. The results of consumer choice and the
geographical distribution of the utilization of medical care services and
procedures, and the utilization of drugs and therapies, is also key
consideration. These factors underlay the development of the Resource-Base
Relative Value Scale (RBRVS), at Harvard in a multi-disciplined research. Actuarial science also aids in the
design of benefit structures, reimbursement standards, and proposed government
standards’ effects on the cost of healthcare system of a country.
In the pension industry,
actuarial methods are helping to measure the costs of other strategies with
regard to the design, funding, accounting, administration, and maintenance or
redesign of pension policies. The methodologies are greatly influenced by short
and long-term bond rates, the funded status of the pension and benefit
arrangements, collective bargaining; the employer's old, new and foreign
competitors; the changing demographics of the work; changes in the internal
revenue; changes in the attitude of the internal revenue service about the
calculation of surpluses; and equally weight, both the short and long term
financial and economic fashion. It is common with mergers and acquisitions that
several pension plans have to be combined or at least administered on an
equitable basis. When benefit changes occur, old and new benefit plans have to
be blended, satisfying new social demands and various government discrimination
test calculations, providing employees and retirees with understandable choices
and transition benefits. Benefit plans liabilities have to be properly valued,
reflecting both earned benefits for previous and future service. Finally, such
funding schemes need to be developed that are manageable and can satisfy the
standards of the board or regulators of the appropriate country, such as the “Financial
Accounting Standards Board” in the US.
In social welfare
programs, the Office of the Chief Actuary (OCACT), Social Security
Administration plans and directs a program of actuarial estimates and analyses
relating to SSA-administered retirement, survivors and disability insurance
programs and to proposed changes in those insurance programs. It evaluates
operations of the Federal Old-Age and Survivors Insurance Trust Fund and the
Federal Disability Insurance Trust Fund, conducts analysis of program
financing, performs actuarial and demographic study on social insurance and
related program in which issues involving mortality, morbidity, utilization,
retirement, disability, survivorship, marriage, unemployment, poverty, old age,
families with children, etc., and projects future workloads. Apart from this, the
office is charged with conducting cost analyses relating to the Supplemental
Security Income (SSI) program, a general-revenue financed, means-tested program
for low-income aged, blind and disabled people. The Office also provides technical
and consultative services to the Commissioner, to the Board of Trustees of the
Social Security Trust Funds, and its staff appears before Congressional
Committees to provide expert testimony on Insurance and the actuarial aspects
of Social Security issues.
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