Actuarial Science

In the process of underwriting or deciding what events or circumstances to cover with insurance policies, the insurance industry employs the methods of actuarial science. Based on formulas of mathematics and statistical computation professionals qualified in the field, known as actuaries, apply varies risk models to given events and situations.

The purpose of these computations is to determine a degree of probability with which the events or situations will come to pass. The relationship between the actuary's determination and the underwriting of the policy is straightforward - the higher the probability of the event or situation occurring, the higher the premiums or fees on the policy. Essentially all of insurance underwriting is based on risk assessment determined by actuarial science.

In relation to home insurance, in some areas the chances of fire, earthquake, or flood, for instance, are so high that traditional home policies will not cover the events and ancillary policies are required.

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