Predictive Analytics – A forward
looking perspective on Actuarial
Risks
By
Shepherd Fungura, BCom, FASSA, FIA
President of Actuarial Society of Zimbabwe
Group Chief Risk Officer at Old Mutual Zimbabwe
@ Insurance Institute of Zimbabwe Winter School – Monday 22 August 2016
Disclaimer
• Views expressed in the presentation are
those of the presenter and are not
representative their professional
membership organisations as well as
employer; therefore no liability arising
from the presentation should be directed
to the said organisations.
• The internet was used as a main source
of information in this presentation
Agenda
• Data and information
• Predictive Analytics
• Actuarial Philosophy, Risks and Methods
• Application of Results
• Importance of Business Predictions
• From Predictive to Prescriptive
Data and Information
A. Definitions
• Data definition
▫ facts and statistics collected together for reference
or analysis
▫ Information in raw or unorganized form (such as
alphabets, numbers, or symbols) that refer to, or
represent, conditions, ideas, or objects
• Information definition
▫ facts provided or learned about something or
someone
▫ The result of applying data processing to data,
giving it context and meaning
Data and Information
B. Sources
• Internal
▫ Hardcopy files
▫ Customer database on IT platform
• External
▫ Published Financial Statements
▫ Media – print or digital
▫ Government/Regulatory publications
Data and Information
C. Importance in Insurance
• Absence of data/information crumbles an insurance
company
• Complete and accurate data/information may give an
insurance company competitive edge when correctly
put to appropriate plus good use
D. Uses in Insurance
• Pricing
• Profit testing
• Liability Reserving or Provisioning
• Solvency Assessment – or Financial Soundness
• Decision Making
Data and Information
Predictive Analytics
A. Definition
Predictive analytics is the branch of the
advanced analytics which is used to make
predictions about unknown future events.
Predictive analytics uses many techniques
from data mining, statistics, modelling,
machine learning, and artificial intelligence
to analyze current data to make predictions
about future.
Predictive Analytics
B. Key Predictive Analytics blocks:
▫ Data mine
▫ Statistics or data analysis e.g. average,
minimum, maximum, mode, median,
standard deviation
▫ Modelling or data manipulations/calculations
▫ Machine learning & Artificial Intelligence or
use of technology i.e. computers
▫ Future predictions or estimations or
projections
Predictive Analytics
C. Use of History to Predict Future
Predictive Analytics uses technology to
predict the future and influence it.
Organizations can use historical
performance data to extrapolate and
make predictions about the future and take
actions that would affect those results.
Predictive Analytics
Actuarial Philosophy, Risks and
Methods
A. Actuarial Philosophy
• Making sense of the future using history
and present experience
• Encompasses:
▫ Descriptive analytics – data collection &
analysis
▫ Diagnostic analytics – assumptions setting
▫ Predictive analytics –
modelling/calculations
▫ Prescriptive analytics – recommendations
Actuarial Philosophy, Risks and
Methods
B. Actuarial Risks
• Those risks with complexities e.g. uncertainty
of when event will take place (insurance – both
life & short term) or due to length of time
(pensions) or matrix of severity and frequency
(short-term insurance) e.t.c.
▫ Mortality risk in life insurance
▫ Longevity risk in pensions or employee benefits
▫ Disability risk in health and care
▫ Reserving/Provisioning risk in short term
insurance
Actuarial Philosophy, Risks and
Methods
C. Actuarial Methods
• Well established – tried and tested
• However there’s development and growth
in methods used
• Common methods are:
▫ Deterministic (statistical, probabilistic and
mathematical)
▫ Stochastic (random events modelling)
Application of Results
Application of Results
Importance of Business
Predictions
• Business Planning
• Financial Forecasting
• Risk Management and Efficiency
• Success or Value
• Competitive edge
• Sustainability or Going Concern
• Decision making
Importance of Business
Predictions
Importance of Business
Predictions
From Predictive to Prescriptive
Predictive analytics shouldn’t be seen as the end
goal for your organization, but as a single step in a
longer journey. Most companies use descriptive
analytics to help them process immediate, incoming
data. Predictive analytics can be seen as the next
logical step, allowing you to apply that data to
make predictions about when something might go
wrong and why. Of course, the job isn’t over once
you’ve made this forecast — by building the
predictive data into concrete solutions for future
problems, your predictive analytics become
prescriptive
