Actuarial is a job that still sounds foreign to some people, because this work is still rare and is done conventionally, and is still classified as a new job in Indonesia.
However, did you know? Actually actuarial has a very important role in the business world. This is because actuarial science is often used for business management and measuring risks that may occur.
Then, what exactly does Actuarial mean? What does this have to do with actuaries? And what are the benefits and functions in the business world? Check out the presentation below until it’s finished.
Definition of Actuarial
In simple terms, actuarial is a science that is based on mathematical methods, and also uses precise statistics to measure risks that will occur in a financial company and also the insurance industry. Then, the subject or someone who works in this field is called an actuary .
In order to be able to measure risks related to the financial condition of a company or a person, actuaries usually use various risk management methods commonly used in the insurance industry, for example, Annuity Tables, Mortality Tables, Morbidity Tables, and all models that use statistics.
What Risks Does the Actuary Calculate?
Risk has the definition of an outcome that must be borne with respect to the bad consequences of an ongoing process that will be experienced in the future.
This is because both the financial business and the insurance industry are essentially profit- oriented businesses and the risks that will be experienced can cause the company to suffer losses. Therefore, usually in the world of insurance, a risk is associated with all circumstances or objects insured.
Then, in the banking sector, this risk is associated with the possibility of credit arrears by customers. This is because these risks are difficult to predict or are uncertain . Therefore, financial companies and the insurance industry must have experts who can manage future risks scientifically using various mathematical calculation methods.
In our own country, many actuaries work in the insurance industry, but some also work in pension funds. Based on the Decree of the Minister of Finance of the Republic of Indonesia No. 426/KMK.06/2003 Article 16, life insurance companies are required to appoint actuaries who have qualifications as actuaries and are members of PAI, or other similar institutions and are registered as full members of the International Association of Actuaries.
Actuarial Functions in Insurance Management
Perhaps not many people know about the actuarial function in insurance management, its main function is as a risk estimator, risk interpreter, risk assessment, and calculating the likelihood that a risk will occur.
There are several things that need to be done in the actuarial system, namely:
- Must ensure that customers pay insurance premiums according to their risk.
- Then, it is mandatory to ensure that the premium that has been paid is sufficient to be able to pay claims that will occur, and is sufficient for all operational costs that have been used.
- And also ensure that the premiums that enter or collect are competitive and of reasonable value.
Quoted from Macquarie University Sydney , actuarial is a matter or process related to investment. Actuarial is often associated with asset valuation and the investment sector, pension funds, risk management and the insurance industry.
So more precisely, an actuary must be able to analyze using statistical and systematic methods, and the results can be accounted for by the numbers and risks involved. So, this work is not something mystical, is it?
For those of you who work in the insurance sector, maybe this book can help you understand insurance law, so you can find out through the book Principles of Insurance Law.
So, after being explained in the discussion above, the actuary’s job is to make and determine insurance premiums or prices using the mortality rate, investment level, cost scale, risk classification, morbidity level, and sales scale.
An actuary must be able to estimate costs and manage or manage risk, so that the company’s finances are guaranteed to be safe and sufficient.
In addition, actuaries must also be able to make analysis and projections regarding the technical development of a business or company, such as making financial analysis, income, reviewing investment levels, reviewing risk management, and reviewing morbidity and mortality rates, reviewing estimated costs required, and review on sales according not to sales volume.
So, basically an actuary has a very important task, to analyze and measure risk based on statistical data and an actuary has two main tasks, namely:
1. Analyzing and Risk Management
The main task of an actuary is to be able to analyze the level of risk, using certain methods or patterns to minimize risk in an economic process. An actuary must also master and understand various patterns or methods for measuring a risk, such as morbidity tables, mortality tables, and also annuity tables.
2. Projecting Company Development
Apart from analyzing and managing risk, the main task of an actuary is also to make projections or an overview of the development of a business or company.
In the process, the actuary uses data related to existing risks in order to accurately project developments. The higher the risk to be faced, the more difficult development can be carried out.
Those are some explanations about the actuarial world. Even though this profession has a crucial role and is much needed in the world of insurance or business, unfortunately this profession is still rare and unattractive for Indonesians. So, are you interested in this profession?
How to Become an Actuary
Now, there are several universities that provide undergraduate majors for actuarial majors, including UI or the University of Indonesia. And at other universities, actuarial is included in the Statistics and Mathematical Sciences section
Becoming an actuary requires higher education and additional professions that provide a graduation requirement for courses in accordance with IAI (Indonesian Actuary Association) requirements. At the exam stage, it covers basic accounting, economic theory, statistics and probability, risk theory, life insurance, insurance mathematics, and so on.
Salary of an Actuary
As we know, the work or profession of an actuary still sounds foreign and is still quite rare, so there are still very few actuary titles and as the business develops, the need for actuaries is increasing.
For more details, the levels of an actuary.
Starting a career as an actuary starts as an Actuarial Analyst, with a salary ranging from four to seven million per month.
If you have been certified as having passed five exams, you will change from an Actuarial Analyst to an Associate who has met the requirements of the Associate Societies Actuary Indonesia (ASAI), and at this stage you can get a salary of ten to twenty five million per month.
- If it’s already underway, later the Associate will level up to become an Actuary Manager, at which level, an Actuary gets a Salary of thirty-eight million per month.
- After that, they will level up again to become Fellow Appointed Actuary positions and at this stage will be given the title Fellow Societies Actuary Indonesia, with a salary of fifty million per month.
- Then, they will level up again to become Chief Actuary, at this level they get a salary equivalent to a director in a large company.
For those of you who intend to become actuaries and want to learn more about financial statement analysis, maybe you can read the book Brief Lecture Series: Financial Statement Analysis
Business Risk Management
An actuary must also be able to manage risk, so that the company can minimize risks that will occur in the future. As explained above, risk is a bad result of an ongoing business, which may occur in the future.
Business risk is unpredictable or uncertain, so most companies suffer losses. In Abas Salim’s opinion, there are three main factors that influence uncertainty, causing losses.
This uncertainty is influenced by several factors, namely:
- Economic uncertainty caused or economic uncertainty.
- Nature uncertainty caused or uncertainty caused by nature.
- Human uncertainty caused or uncertainty caused by human error.
In addition, business companies that implement risk management will receive benefits, including:
1. As Evaluation and Making Decisions
Review or evaluation is a process of assessing and measuring the effectiveness of a strategy that has been implemented in a business or company to achieve certain targets.
The results of this evaluation can analyze risks that will occur and as material to find out whether the methods so far have been appropriate and correct to achieve business targets.
Therefore, so that the same risks or mistakes are not repeated, which may have been experienced in the past, so that the targets or goals of the business are hampered. Now, with an evaluation, it will make it easier for you to decide on the right course of action for the future.
2. Productivity and Profit Achievement
The productivity process is a production process which is a reference or measure of how existing resources are utilized and regulated to achieve optimal targets.
With risk management that has been done, it will make you more careful in making business decisions and avoid making the same mistakes.
Of course this will help increase productivity in the business that is being undertaken, and profits will definitely increase, compared to if there is none or where it is a business risk.
3. Set Estimates
Setting estimates is a process of calculating the cost requirements needed to complete a business or job. Estimating the price or cost required is important for managing the finances of a company or a business.
If the estimate is inaccurate, it can have a negative impact on the company or business involved in the ongoing production process, and can even hinder the entire production process.
So, with this risk analysis and management, it will make it easier for you to calculate and manage the estimated costs needed, such as estimated costs in work and business. What risk management can you do?
Risk management can start from:
- Internal Environment or the internal environment of the company/business.
- Objective Setting or target setting
- Identify events or incidents
- Risk Assessment or risk assessment
- Risk Response or response to risk
- Control Activities or control activities
- Information and Communication or information and communication
- Routine monitoring or monitoring
That’s risk management that you can do. Then, how to do risk management?
Tips for Overcoming Risk Management
Here are four risk management tips that can be done.
1. Identify Possible Risks
The first thing you can do is try to identify risks, which are about what risks will occur, whether in terms of marketing, production, finance, and so on.
Identifying this risk aims to recognize the possibility of existing or ongoing risks, as well as risks that will occur in the future. The results of this risk identification are in the form of a list or list of risks that are likely to occur.
2. Rating Based on Losses
Then, after having a list or list of various types of risks that have been estimated, then you can analyze and sort the risks with the worst possible impact.
When you have finished analyzing, focus on the risks that will result in large losses or the risks that most often arise or are experienced in various businesses.
3. Controlling Risk
The list or list of risks that have been made is useless if no action is taken to mitigate or control these risks.
There are several things you need to do to address or control risk. There are four forms of action that you can take, namely:
- Avoiding Risk (Risk Avoidance)
- Reducing Risk (Risk Reduction)
- Transferring Risk (Risk Transfer)
- Accepting Risk (Risk Retention)
4. Monitoring and Review
After you have successfully found a risk, then choose the right strategy to deal with each risk, and always be aware of issues that might arise.
This is because issues are a symptom of an existing risk or even the worst impact, such as experiencing a crisis.
Indeed issues do not always give signs or symptoms, but at least if you are familiar with all types of risks, it will help you focus more on the risks that will occur.
If the issue has developed into a real risk and caused a crisis, then you need to evaluate or resolve whether the actions taken so far have been according to plan or not.
If you manage to review or evaluate this risk, you can make the existing problems as experiences and lessons so that they don’t happen again in the future.
If you want to know and understand how to manage risk properly, especially those related to the insurance industry, you can read the book Risk Management and Insurance.
So, that’s a brief explanation of the actuarial world and its relation to an actuary. If anyone wants to use the services of an actuary, of course they have to prepare a large amount of funds, because this service is relatively rare and indeed they are paid dearly. Hopefully all the discussion above is useful for you, Sinaumed’s.
If you want to find original books about business or actuarial matters, then you can get them at sinaumedia.com . To support Sinaumed’s in adding insight, sinaumedia always provides quality and original books so that Sinaumed’s has #MoreWithReading information.
Author: Veronika Novi
- https://accurate.id/lifestyle/aktuaria-Jadi/#:~:text=In%20actually%20%2C%20actuary%20is%20something,this%20is%20generally%20%20with%20actuary .
- https://www.jurnal.id/id/blog/2018-untung-manajemen-risiko-dan-tips-cerdas-doing it/