Expert suggests AI ‘broadening’ actuarial mindset in insurance

Advancements in artificial intelligence and big data are gradually changing the traditional actuarial practice, according to an industry expert with nearly 40 years of actuarial experience.

“It has accelerated what I’ll call the broadening of the actuarial mindset or toolkit to say, ‘How do I have richer conversations with data scientists? How do I have richer conversations with regulators?’… We’re starting to have a richer dialogue with what I’ll call our ‘intellectual cousins,’ and it’s not just in insurtech,” David Sandberg, senior consultant, Insurance Economics Practice, Charles River Associates, said.

Sandberg told InsuranceNewsNet that AI is driving three major actuarial trends:

1. Increased efficiency
2. More focus on transparency and credibility
3. Increased interest in insurtech opportunities

“About six years ago, I realized that the new buzzword was big data artificial intelligence. A lot of actuaries started saying, ‘Hey, if there’s a way I could get better underwriting decisions, get better pricing information, be more efficient in handling claims, then that would be a real boon to my company or to my employer in order to be able to use and apply those techniques,” Sandberg said.

AI-driven trends

One of the key trends driven by AI advancements has been increased efficiency, Sandberg said. Much like other areas of insurance, using big data is enabling actuaries to work faster and save time on tedious tasks.

But professional focus has also shifted to creating sustainable credibility for AI or big data modeling, he said. These models, or “black boxes,” could be used by insurtechs and other companies who are increasingly automating parts of the insurance process.

“The professional perspective that the actuaries have taken is that it’s our responsibility to make sure that any black box that we might be using is transparent to both the users and the public… In all of this black box of predictive analytics and big data and language learning models, how do you make sure that it’s verifiable or that the shortcomings are transparent to the users?” Sandberg said.

Another major trend is that more actuaries are exploring insurtech careers over traditional ones, Sandberg explained.

“For the profession as a whole, what I have seen is actuaries who ordinarily would have a bright future at a senior management, executive level or working in a consulting firm in a high-profile situation, feeling drawn to move into startup insurtech opportunities,” he said.

In his opinion, this could reflect a “generational difference” where younger professionals are more drawn to innovative companies. Or, it could indicate more mid-career professionals are seeking challenging opportunities to do something different.

Industry standards face revision

Current standards for using AI and big data in actuarial practice could be revised as developments continue.

“What’s happening is the actuarial profession is coming into this new area and asking, ‘What’s the process for responsibly managing big data and artificial intelligence?’ There are already standards that are applicable, that are helpful. My guess is, over the next few years, we’ll probably develop some specific ones as well,” Sandberg said.

He added that industry professionals do not need “a whole new formula,” but a responsible process for managing big data. This could also help actuaries stay abreast of emerging AI risks.

Addressing the AI ‘blind spot’

Sandberg, who serves as vice chair of the American Academy of Actuaries’ Data Science and Analytics Committee and served as past chair of the Society of Actuaries in Insurtech, described big data as both an “opportunity and a risk” for industry professionals.

This is one of the reasons why he said the American Academy of Actuaries has released “a slew of educational papers” on the subject.

“That’s one way in which they’ve been involved. They’ve also been very involved in responding to the NAIC H Committee bulletins and discussing key regulator concerns — how we can provide some information for them so they can obtain ‘prudent regulation’ to get to the things that are needed without hampering the innovation that can come out of it as well,” he said.

Not just from the perspective of insurtech startup companies or more traditional providers who are starting to use AI but also for public policy applications, actuaries can help put focus on adequately assessing the risk surrounding AI and big data.

Sandberg said this includes the “whole issue about systemic bias or information that may be leading you to wrong conclusions.”

“Through the Academy, there’s at least 20 actuaries on our committee that are focused on how [to] audit big data for bias. ‘How would I understand if there is bias or not? How can I communicate to a regulator?’ There are ways to get good answers, and there are ways that are just where the company itself may not even realize the blind spots that are in the data,” he said.

Charles River Associates is an international consulting firm that services private businesses and government entities. It was founded in 1965 and is headquartered in Boston.

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