Actuarial Rate

What Does Actuarial Rate Mean?

An actuarial rate is an estimate of the projected value of a future loss. Insurance companies calculate actuarial rates to anticipate and prepare for their financial obligations. However, since these estimates are based on past losses, they may not be entirely accurate.

Insuranceopedia Explains Actuarial Rate

Insurance companies rely on their actuaries to determine how much to charge for the risks they underwrite in their policies. The actuarial rate also forecasts the amount of money a company will need to allocate for risk coverage over a specific period.

This is why two drivers with the same car can pay very different premiums, and why pages explaining what factors affect car insurance rates tend to list things like age, driving history, and credit, all of which feed into the actuary’s calculations.

Since these estimates are not 100% accurate, they can result in either a profit or a loss for the company. The same logic applies in life insurance, where actuaries study mortality data to set prices, so the factors that impact the cost of a life insurance premium tend to include age, health, smoking status, and family medical history.