Parallel 15 - Pragmatic Overview of Predictive Analytics Applications

A Pragmatic Overview of Predictive Analytics Applications
Lee Sarkin (South Africa)

Gavin Maistry (Singapore)
Agenda
External Trends Driving Analytics
Analytics Concepts for Actuaries

Philosophies and key concepts
Analytics Ecosystem
Use Cases and Pitfalls

Application Triage
Experience Analysis and Pricing Models
What does this mean for

the pragmatic actuary?
Lapse / churn
Know your business model!
Cross Selling and Targeted Sales
Feedback loops
Claims Rules Engine and Fraud
Post model development
Unstructured Text Mining
Unintended consequences
Predictive return to work for DI claimants
Blind spots
Non-Life
And more
Types of Errors
The Gap between a model and basis
Who wins in an arms race?
External Trends
We have an interface to visualise ourselves as a collective
Visualising Ourselves by Aaron Koblin

A Pragmatic Overview of Predictive Analytics
What's really going to make big data go mainstream is

the ability to connect not just with data scientists and technologists butbusiness people.
And absolutely one of the keys to that is visualization, is being able to show people
not just tell people, not just show numbers or charts
but to have those visualizations come alive.
CHRIS SELLAND, VICE PRESIDENT OF MARKETING AND BUSINESS DEVELOPMENT, TABLEAU
A Pragmatic Overview of Predictive

Analytics
External Trends
How are the trends related?
Big Data
Augmented and virtual worlds

3D Printing
Loc-based services
Telematics
Smart Home
Computing
Everywhere
Industrialization 4.0
Digitalization
Wearable Devices
Predictive
Analytics
Robotics/Drones
Internet
of Things
Open Data
Collaborative
Consumption
Big Data
Citizen Development
Mobile Health
Services
User Centered Design
Crowdsourcing
Virtual
Assistant
Systems
On-Demand-Everything
Context-aware
Computing
Integrated
Systems
Digital
Identity
Cybersecurity
Autonomous Systems
and Devices
Automated
Decision
Taking
27. Oktober 2016
Digitization
Risk-based
Security
Web 4.0
Web-Scale IT
Internet of Things
Software-defined
Anything
Haptic
Technologies
New Payment
Models
Cloud/Client
Architecture
Big Data Analytics @ Munich Re / Wolfgang Hauner
External Trends
So what is Predictive Analytics?
The study and application of statistical / mathematical models to help predict future behaviour.
It utilizes technology and data to uncover relationships and patterns that can be used to
predict behaviour or events, forecasting probabilities and trends.
- Harvard Business Review, October 2012

Analytics
Data Analytics is a Combination of Methods,

Technology, Data and People
Technology
Data
Hardware
(Compute power)
Internal Data
Software
(SAS, R, Spark, )
External Data
Structured Data
Unstructured Data
Methods
People
Regression Models
Data Scientists
Machine Learning
Models
Data Engineers
Text Mining
Data
Analytics
Business People
When does it become BIG Data?
40,000,000,000,000,000,000,000
Zettabyte
Exabyte
Petabyte
Terabyte
Gigabyte
Megabyte
Kilobyte
Byte
Yes or No
43 zettabytes of data will probably be generated by 2020
4 KB Commodore VC 20
3.5 inch floppy disk
300 times the volume in 2005
Data contained in a library floor
4 TB in Memory Big Data Platforms
Petabyte Storage Big Data Plattform
All words ever spoken by humans
Google, Facebook, Microsoft
Source: IBM
How much data is generated every minute?
Source: www.domo.com and SAS
External Trends
Brief History of Statistical Learning

Analytics
The Opportunity Set Examples for Life Insurers

Pricing and product
development
Sales &
marketing
Are current best

estimate assumptions
adequate?
Where do I have
concrete up-selling
opportunities in my
existing book?
What would be an
accurate pricing basis
for a promising new
product?
Which clients are most

likely to take up crossselling offers?
What are relevant risk

drivers and how are
they affecting my
current portfolio?
Do I have the right

target groups in focus
for sales campaigns?
Which features make

my products most
appealing for certain
target groups?
Which of my
distribution channels /
offices are really
performing best?
Inforce
management
Underwriting
For which client
groups can I simplify
the underwriting
process to improve
the customer
experience?
How can I reduce the
need for medical
exams to lower the
cost of underwriting?
How profitable is my
business?
Which customers are
at risk to lapse their
policy? Which should I
try to retain and how?
Does my portfolio
composition meet my
pricing assumptions?
How can I use my

underwriting
resources more
efficiently?
Claims
How good is my risk
selection process? Am
I attracting poor risks?
How can I streamline
the claims process
The Opportunity Set Examples for Life Insurers

Applications of predictive analytics can significantly improve a wide variety of core operations for life insurance companies
Example: why streamline the UW process?
Integrating Analytics in our Business

Retention
Claims
Business
quality
Lead
generation
Media spend
Analytics enables the most value when embedded in broader processes
Our Customers Experiences and Journeys!
14
Survey of Current and Future Applications by Insurers

% of responses: To which function do you apply Predictive Analytics?
70 insurers
surveyed for Bains
benchmarking database
in 2015
External Trends
Unprecedented coverage of machine learning algorithms

Analytics
Reasons to advance predictive analytics in

actuarial science
Identifying the most significant variables and quantifying their effect and
interactions, particularly for large numbers (>50!) of variables
Automating variable selection
Quantifying and optimizing the predictive power of models
A method for knowing when youre over-fitting the data
Reducing operational risk through statistical code that can be applied consistently
Easy-to-maintain models
Facilitates audit trails
External Trends
Charting a new course
External Trends
Where to start?
Data modelling -> statistical learning paradigm
Advanced analytics has a steep learning curve

Analytics
External Trends
Powerful IT Infrastructure and Software
Multi-core processing with large in-memory analytics software

Analytics
Agenda

Philosophies and the basics
Analytics Ecosystem

Application Triage

Lapse / churn
Feedback loops
Blind spots
Non-Life
And more
Types of Errors
22

Modelling objectives
Optimise the models ability to predict unseen test data

Understand which predictors and interactions are most significant and be able
to interpret their effects on the target variable
Post-development considerations: how will the model be integrated in
practice?

Analytics

Predictive Modellers have Culture!
Natural
Complexity
Known
Data Modelling
Culture
Unknown
Algorithmic Modelling
Culture
Analytics

Types of Advanced analytics methods
Supervised
methods
Unsupervised
methods
Regression
(Numeric)
Classification
(Categorical)
Risk rate
Frequency
Severity
Loss Cost
Underwriting decision
Does the customer have life
assurance?
Do

Advanced analytics (AA) methods can be divided in two groups

Types of models
Linear models (Y is a linear function of X)

Generalised Linear Models (g(Y) is a linear function of X)
Mixed Effects Models (fixed and random effects))
Linear Model Selection and Regularisation
Non-linearity (GAM, GAMM, etc.)
Tree-based methods
Other machine learning methods
Unsupervised methods

The honest predictive power
Training and Testing Errors train the model on the blue and test on the red
1

Analytics

Bias-Variance Tradeoff

Bias-Variance Tradeoff
The test-set error

never drops
below the
irreducible error
Basics
Automating variable selection: regularisation

Analytics
External Trends
The Rise of the Use Case, Prototypes and Design Thinking

Analytics
Agenda
Key Analytics Concepts

Types of modelling and models
Basics

Application Triage
Lapse / churn
Our Pilot and Partnership Offering

Global analytics innovation pilots in life, non-life
and health
State-of-the-art analytics IT Infrastructure and
Software
Extensive global analytics expert community with

applied experience
Our strategic business partners

Non-Life
And more
Examples of Use Cases - Pilots
Life
Non-Life
Predictive underwriting
Early loss detection
Experience Analysis / Pricing and Lapse Models
Cross selling, Up selling
Textmining
GeoAnalytics
Targeted sales
Telematics
Mobile, Wearable and medical 3rd party

Data
AI
Claims resource optimization
Churn Prediction

Analytics
Predictive Underwriting with Machine Learning

Which factors explain the underwriting outcome, which are not significant?
Remarks
Only 20 from 58 fields are required to predict the underwriting result

0
10
20
30
40
50
60
70
80
90
100
Occupation Code
Q: Sports
Subsidiary
BMI
The set of explaining variables

differs based on the covers
included (as expected)
Top 10 factors are mainly linked
to accidental risk (occupation,
activity, job position, free time
activity). Explained by the high
percentage of cases with
accidental covers included
Job activity
Covers included
Job position
Q: Under treatment
Free time activity
Age
Q: Systemdis./addict./scelet.
Gender
Q: Bike
Entry year
Diff. Age to partner
Sum_insured_Life
Sum_insured_TRANS
Relationship to benef. 1
Relationship to benef. 2
Insurance cover code
27. Oktober 2016
35
Streamlining the Application Process

Visualising the interactions between questions on the App Form!

Analytics
Predictive Underwriting with Machine Learning

Which application questions impact the underwriting outcome, which do not?
Impact on probability for standard or loaded/rejected decision

Currently doing dangerous sports?
There are no questions which

are always answered with
YES or NO
Currently under treatment or advised surgery?

Internal disease, skeletal condition, addition?
Cancer or neuro-psychol. condition in last 10y?
Motorbike as competition?
Some questions did not have any

impact in the model (the data could
not explain why)
HIV/AIDS?
Motorcross?
Taken drugs in last 10y?
Daily use of motorbike?
Currently pregnant?
Had treatment or medical exams in last 3y?
Motorbike?
Hospitalization in last 3y?
Family history?
Legend:
Smoked in previous 12 months?
High
Higher
Low
Lower
No
Previous or advised rehabilitation for addition?

Pregnancy complication?
Stopped usual tasks in previous year?
Plan to visit/reside abroad?
Remarks
Just because factors did not have

any impact in the model didnt
mean the relating questions could
be waived (impact on selection
given, i.e., HIV question,
rehabilitation for addiction)
careful consideration required
37
Cross-Selling with Machine Learning

Analysis of different product portfolios for product development and targeted sales
Organisation
Separation
Testing
Random Forest (RF)
Validation
Clients who are not active

anymore are removed. The
remaining data is split into
INSURANCE and no
INSURANCE
Now the data is randomly

split into 5 even boxes. Each
box contains both
INSURANCE and no
INSURANCE. However, the
portion within each box
varies.
For testing the first so called

set of training data the first
4 boxes are aggregated again.
Now they are used for
sampling the first buying
characteristics.
Using machine learning

methods, 300 decision trees
will be generated simulating
customer characteristics.
Simulations show chains of
combination for INSURANCE
and no INSURANCE
The just created random

forest will now be used to
back-test the remaining 5th
box: How accurate can we
forecast who bought
INSURANCE and who not?
27. Oktober 2016
38
Big Data Analytics @ Munich Re /

Wolfgang Hauner
Pricing/Lapse Models from Experience Data

Predictive Analytics Liberates Complex Relationships
In every block of marble I see a statue as

plain as though it stood before me,
shaped and perfect in attitude and action.
I have only to hew away the rough walls
that imprison the lovely apparition to
reveal it to the other eyes as mine see
it.Michelangelo

Predicting the data or the future?
Traditional A v. E ratios are calculated with the full experience dataset

Over fitting creates the risk of fitting random variation (noise)
Potentially leads to a false sense of predictive power
Build the model with the training data and test the model with the remainder of the data
Develop predictive power metrics that are meaningful and dont mislead!
Provides an indicator of the models ability to predict independent data at a granular level
1
2
3
4
5

Analytics

Why use a predictive model?
Interpretable standardised effects

Higher predictive power
Easier to maintain
Base
Gender
M
F
Smoker Status
NS
S
Duration
0
1
2
3+
0.00100
1
0.50
1
2.00
0.70
0.81
0.94
1

Analytics

Are our performance metrics reasonable?
10000
104%
AvE per candidate model
103%
8000
102%
Predictive power of each

candidate model
6000
101%
100%
5000
Predictive power of
existing rates
4000
3000
99%
Testing AvE
Models to the left outperform

the existing rates!
7000
98%
97%
2000
49
47
45
43
41
39
37
35
33
31
29
27
25
23
21
19
17
15
13
11
95%
7
0
5
96%
1000
1
Predictive Power Metric
9000
Model number
09.09.2016
42
Applications of Predictive Analytics

Get better performance + applicable to Big Data
Compare different Machine

Learning algorithms (Support
Vector Machines, Random
Forests, Boosted Trees,
Regression Boosting, Lassoregularized Regression) with
classical GLMs
Applied to Mortality data
Additionally: Clear visualization
of main and interaction effects
Machine Learning helps in understanding and selecting the most relevant influential factors
43
Analysis of tweets by location, time period

Search for key words
Text clensing
Sentiment clouds
Triggers of emerging risks
Insurability of impaired lives

Deriving Underwriting Guidelines for Medical Impairments

Analytics
AI
Neural Network Insurance specific Visual Intelligence

Insurance
specific Vision
Intelligence
Insurance
Companies, e.g.,
Munich Re,
General Object
Vision
Intelligence
Images left: used under license from shutterstock.com

Image right: Getty Images
27. Oktober 2016
AI Community,
e.g., Google,
Facebook,
46
AI
Neural Network
Input
Hidden
Output
No pothole identified
Image: Getty Images
Image: Getty Images
Pothole identified
Image: used under license from shutterstock.com
No pothole identified
27. Oktober 2016
System of interconnected
nodes, exchanging
information
Weights of connections can
be adjusted by supervised/
unsupervised learning
Pros: Accuracy usually high,
prediction fast
Cons: Black box
acquired knowledge not
easily comprehensible,
training effort high,
appropriate data needed
Application areas, e.g.,
speech recognition,
computer vision, medical
diagnosis, automated
trading, game-playing
(AlphaGo)
47
AI
Potential use-cases of Neural Network Infrastructure Insurance
Detect road
damage
27. Oktober 2016
Categorize damage
Estimate
claim
Trigger repair
action
48
Geospatial Analytics
New data sets are triggering new business ideas
Digital analytics and transformations in insurance
Digital analytics Tools
Agenda

Philosophies and key concepts
Analytics Ecosystem

Application Triage

Lapse / churn
Feedback loops
Blind spots
Non-Life
And more
Types of Errors
52
What does this mean for the pragmatic actuary?

Feedback loops
Blind spots
Types of Errors
Arms
Manufacturers
Any questions or comments?

Lee Sarkin (Lsarkin@munichre.com)
Gavin Maistry (GMaistry@munichre.com)

Parallel 15 - Pragmatic Overview of Predictive Analytics Applications

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A Pragmatic Overview of Predictive Analytics Applications

Lee Sarkin (South Africa)

External Trends Driving Analytics

Analytics Concepts for Actuaries

Use Cases and Pitfalls

What does this mean for

Know your business model!

Cross Selling and Targeted Sales

Claims Rules Engine and Fraud

Post model development

Unstructured Text Mining

Predictive return to work for DI claimants

Visualising Ourselves by Aaron Koblin

What's really going to make big data go mainstream is

CHRIS SELLAND, VICE PRESIDENT OF MARKETING AND BUSINESS DEVELOPMENT, TABLEAU

A Pragmatic Overview of Predictive

Augmented and virtual worlds

User Centered Design

27. Oktober 2016

- Harvard Business Review, October 2012

A Pragmatic Overview of Predictive

Data Analytics is a Combination of Methods,

When does it become BIG Data?

How much data is generated every minute?

Source: www.domo.com and SAS

A Pragmatic Overview of Predictive Analytics

A Pragmatic Overview of Predictive

The Opportunity Set Examples for Life Insurers

Are current best

Which clients are most

What are relevant risk

Do I have the right

Which features make

How can I use my

A Pragmatic Overview of Predictive Analytics

The Opportunity Set Examples for Life Insurers

A Pragmatic Overview of Predictive Analytics

Example: why streamline the UW process?

A Pragmatic Overview of Predictive Analytics

Integrating Analytics in our Business

Survey of Current and Future Applications by Insurers

A Pragmatic Overview of Predictive Analytics

A Pragmatic Overview of Predictive

Reasons to advance predictive analytics in

A Pragmatic Overview of Predictive Analytics

A Pragmatic Overview of Predictive Analytics

Advanced analytics has a steep learning curve

A Pragmatic Overview of Predictive

Multi-core processing with large in-memory analytics software

A Pragmatic Overview of Predictive

External Trends Driving Analytics

Analytics Concepts for Actuaries

Use Cases and Pitfalls

What does this mean for

Know your business model!

Cross Selling and Targeted Sales

Claims Rules Engine and Fraud

Post model development

Unstructured Text Mining

Predictive return to work for DI claimants

Analytics Concepts for Actuaries

Optimise the models ability to predict unseen test data

A Pragmatic Overview of Predictive