Definition - What does Actuarial Equity mean?
Actuarial equity is the method an insurance company uses to establish a premium. This is calculated based on several factors, including age, health profile, sex, family medical history, and the type of insurance the applicant wants to buy.
Insuranceopedia explains Actuarial Equity
Actuarial science is a field that combines mathematics and statistics with the aim of determining the financial risk involved in issuing a policy. It's practiced by actuaries, whose role is to ensure that insurance companies stay afloat financially.
Take the hypothetical example of Justin, a 21-year-old male who considers drag racing a hobby and is applying for auto insurance. The actuary evaluating Justin's application will look at the statistics for male drivers regarding road accidents and also consider whether Justin's hobby (drag racing) is a potential risk. Young males are prone to accidents. statistically speaking. Drag racing raises that risk even further. So, based on these factors, Justin might be charged with a higher premium compared to those offered to some of his peers, especially if they have tamer hobbies.