According to Wikipedia, an actuary is a professional, with advanced mathematical skills, who deals with the measurement and management of risk and uncertainty. For this reason, actuaries are essential to the insurance and reinsurance industries. Based on actuarial estimates, insurance companies can calculate premium levels that can be expected to meet future claims.
Investors and consumers should understand that this not an exact science, and while insurance companies may wish to err on the side of caution, premiums are subject to regulation through the office of insurance commissioner. Insurance commissioners are public officials in the executive branch of a state or territory, who, along with their office, regulate the insurance industry. Since this is a political position, insurance commissioners tend to seek to protect consumers from rate requests deemed to be excessive.
Any forward-looking estimate, no matter how well informed, is still an inexact science, which leaves plenty of room for disagreement between commissions and insurers. Ultimately, most disputes tend to be reconciled through negotiation. However, if the granted rate relief does not sufficiently recognize the accelerating increase in the insurable value of the property and repair/replacement costs, insurance companies, faced with a perceived inability to recover costs, have sometimes chosen to stop writing new policies on specific risks in certain jurisdictions.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
