the latest in predictive modeling part 1

How Growing Data Availability is Enhancing Actuarial Opportunity

Growing data availability is enhancing actuarial opportunity for property-casualty insurance — especially for actuaries eager to experiment with various predictive models.

My Actuarial Review article, The Quest for Big Data, explains how data is presenting greaterthe latest in predictive modeling part 1 potential and challenges for actuaries. To find data gold, they must shift through available data — whether is buried in text or from the growing number of external sources catering to the insurance industry.

Actuaries have a seemingly insatiable appetite for data. While more data is available than ever in some areas, information voids remain.

This article is part 1 of a series I am writing on the latest in predictive modeling for Actuarial Review.

To explain how growing data availability is enhancing actuarial opportunity, the article discusses:

  • innovative ways insurers are using internal data;
  • data sources for developing potential proxies;
  • why all insurers will soon be able to collect telematics data;
  • differences in data needs for personal compared to commercial lines;
  • tips on selecting data vendors;
  • growing data potential, including digital breadcrumbs and the Internet of Things.

Part II of the series will cover innovations in models. Part III will explore barriers to  predictive modeling innovation, the upcoming disruption in the insurance company business model and more!

Do you agree that growing data availability is enhancing actuarial opportunity in property-casualty insurance? Please share your comments below. Thanks!

Driverless Cars: Beyond the Hype

Not long after I submitted my Actuarial Review article about driverless cars, “60 Minutes” presented a segment, “Hands off the Wheel” on the same subject.AR_Nov-Dec_2015 Cover

Since I had intensely researched the topic, I could not wait to hear what the reporter would tell the general public. Instead of investigative journalism, the segment gave the driverless car industry a boost with little mention of the many unresolved issues and potential unintended consequences.

At its beginning, the reporter said “almost all” car accidents are caused by driver error, noting the safety potential of driverless cars. The truth is, nobody really knows how safe driverless cars will be.

The often-quoted statistic by driverless car advocates is that 93 percent of car accidents are caused by human error. The logic is that by reducing the opportunities for driver mistakes, automated vehicles will be safer.

The statistic and its assumptions, which were also presented as testimony before the U.S. Congress, are very important because they guide the assumptions and expectations of driverless cars. Google also boasts that all of the accidents involving its cars were due to human error.

But when the rubber hits the road, it’s the insurance industry’s opinion that counts. Its actuaries not only have the most experience looking at the factors that lead to accidents, but the industry will be responsible for covering them.

My article, Destination Driverless: Will Vehicles – Not Drivers – Become the Center of Risk?, sets the record straight about the all-important 93 percent statistic thanks to actuarial analysis provided by the Casualty Actuarial Society’s Automated Vehicles Task Force.

The task force concluded that automated technology could only address 78, not 93 percent of accidents if it cannot overcome factors such as weather, vehicle errors and inoperable traffic control devices. Using the 93 percent statistic, the task force also asserts, is problematic for other reasons.

Stemming from a National Highway Transportation Safety Administration (NHTSA) study, the statistic had nothing to do with driverless cars. And, due to its age, the study could not anticipate the latest safety improvements to conventional vehicles.

So what do actuaries need to have a better idea of the potential costs of insuring driverless vehicles? Access to proprietary data that developers and manufacturers naturally are not quick to share.

My article also details other factors that should be considered – especially when human drivers must take the wheel of automatic vehicles. It also covers the challenges that developers must overcome to make them viable in the real world.

What does this mean to the average consumer? Driverless car excitement abounds, but nobody sees significant population of driverless cars for another 20 years.

In the meantime, drivers can expect automated vehicles to gradually join the traffic jam. That transition, in and of itself, could also lead to unintended consequences.

Data Breach Vulnerability Not Just Due to Technology

About 21.5 Americans’ social security numbers and other sensitive personal information were compromised due to the hack of the U.S. Office of Personnel Management, according to an article posted today on cnn.com.

It seems data breaches have become so common that those unaffected are undocumented workers or Amish.

How did personally identifiable information become so vulnerable? The answer isn’t limited to the technology.

Social Security Administration (public domain) via Wikimedia Commons

Social Security Administration (public domain) via Wikimedia Commons

Our vulnerability is actually the result of a combination of historical, social and economic factors. To improve protection of personal information, it is important to consider how we got here.

A Little History

Before social security numbers were assigned to Americans, identity was simply a person’s name. After spending decades on genealogical research, I can attest to the fact that before the 1900 census, the government asked very little personal information about Americans.

When President Franklin Delano Roosevelt began the Social Security program as a response to the Great Depression, social security numbers were only to be used for the program. Old social security cards indicate that the numbers are “not for identification.” Just check out the Social Security card of Lee Harvey Oswald, who purportedly assassinated President John Fitzgerald Kennedy.

Over time, corporations got away with using social security numbers as identification for multiple purposes. It’s been necessary for obtaining credit or health insurance purposes since at least the mid 1980s. When I started college in 1986, my identity number was my social security number.

I suspect that cell phone numbers will also become a necessary form of identification that will evolve into being used on a “mandatory” basis just like social security cards.

A Generational Divide

Socially, the culture of the United States has changed from one of valuing personal privacy to one of perpetual sharing. “It ain’t none of your business,” was a very common retort when I was growing up.

____________
The vulnerability of Americans’ personal information 
is not just due to technology
getting ahead of us, 
but also to changing values of privacy.
___________

Millennials and younger are less likely to believe privacy is a big deal. This group most fully embraces social media and “sharing” – including Too Much Information (TMI) sharing that was once considered socially impolite. The ramifications of Facebook’s privacy policy might also surprise them. And honestly, I don’t think the younger generations care even though nobody really knows who is “listening.” 

For Americans to begin caring about personal privacy again, enough might have to suffer the consequences of losing (or even sharing) private information. For example, if you knew anyone who suffered through the Great Depression, you might have observed how that generation saved everything “just in case.” Because of the great suffering, Roosevelt got the support necessary to start social security.

But for now, Americans seem more engrossed in Caitlyn Jenner and gender identity issues rather than the ultimate identity issue: someone stealing yours and using it for criminal activity, extortion or even terrorism.

Some of this theft comes from information Americans willingly share on the Internet. Other important data, including financial and medical information, is being breached from the government and corporations. Combine that public information once stored on paper files and the opportunities for harm are endless.

We have already seen ISIS threaten individual military members and their families because Facebook can give a clue to their home and Google Maps will point the way there. Terrorists can certainly do the same to civilians as well.

As a Gen Exer, I was most influenced by the Baby Boomers. They were my younger professors who taught me women’s studies, gay politics and civil liberties. They all stressed that American freedom includes the universal right to privacy for all Americans.

Baby boomer President William Jefferson Clinton, along with Congress, thought protecting personally identifiable health information was a big deal. He was instrumental in passing through the Health Insurance Portability and Accountability Act (HIPAA). (Interestingly, workers’ compensation was excluded from the Act.)

For the majority of Americans, HIPAA is now just part of the pile of papers they need to sign at the doctor’s office. The law was enacted before the rise of Internet commerce and when Baby Boomers and older generations were the majority of the country. Complying with HIPAA only gets ting more difficult as paper medical records are being converted to electronic files.

Then Gen Exer President Barack Obama ushered in the Affordable Care Act, which throws medical privacy out the window. Now the federal government has access to your medical records because health insurers and medical providers are required to share them.

____________

For Americans to begin caring about personal privacy again,
enough might have to suffer the consequences
of losing (or even sharing) private information.
____________

Federal agencies are hardly safe custodians. Just ask the potential 9+ million past and present federal workers and our military whose data is now vulnerable to whoever hacked it.

Further, cyber incidents, including data breaches, are on the rise according to Verizon’s 2015 Data Breach Investigations Report.” Add to that 66 percent of accountable care organizations surveyed last year by the Ponemon Institute, who believe patient privacy risk has grown and do not have great faith in data security.

Conclusion

The vulnerability of Americans’ personal information is not only just due to technology getting ahead of us, but also to changing values of privacy. Looking back to history and considering past policy and social mores provides context for developing ways to promote privacy. I have a few ideas in mind and soon I will share them in a future blog.

Cyber Coverage Complexity


Leader's Edge Cover May 2015The cyber insurance market is booming!

Customers want to either get a cyber policy for the first time or boost their coverage through higher limits and more endorsements.

And insurance companies are very eager to sell various forms of it.

But that does not mean buying and selling cyber coverage is easy. As I explain in my recent Leader’s Edge article, “Confusion Reigns,” cyber insurance is going through the growing pains of a burgeoning insurance line.

Since the policies offered by 45-plus insurers are not standardized, the market offers a myriad of potential endorsements that range from data breach coverage to reputation damage to cyber extortion.

_______________

…agents and brokers have to carefully comb through
each policy to ensure
the coverage matches the customer.
_______________

And while there is growing demand for higher limits of insurance protection, agents and brokers sometimes have to layer coverage for their customers while keeping a close eye on various exclusions.

It also means that agents and brokers have to carefully comb through each policy to ensure the coverage matches the customer. And while insurance buyers should always be well informed about the coverage they are buying, this is especially true for cyber coverage.

I hope you enjoy it! Also, if you want to read more, check out my Contingencies article, “Plugging the Data Breaches.”

Note: In July, I will be publishing a new cyber insurance article that looks closely at the actuarial challenges of cyber insurance. I’ll let you know when my article is published, as I always do. 🙂

 

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Cyber Coverage and the Actuarial Challenge

Major cyber attacks are almost becoming the flavor of the month. Sony, JP Morgan, the Home Depot, the U.S. Postal Service, the Target Corporation — the list goes on and on.

If there is anything more challenging than preventing cyber attacks, it is figuring out how to cover the growing risk.

As I cover in my recently released Contingencies article, “Plugging Data Security Breaches,” underwriting is especially difficult. Since the cyber insurance market is growing exponentially, carriers are eager to snap up market share. Meanwhile, their actuaries are concerned about carrying greater liability and pricing.

When it comes to pricing, like any emerging type of insurance, lack of historical data is a big actuarial challenge. Without historical data, actuaries cannot drive using the rear view mirror. Unfortunately, at some point, it seems there will be enough cyber breaches to address that challenge.

At the same time, actuaries will need to use future-forward data and assumptions to prepare for the unimaginable. As I cover in an Actuarial Review article, these challenges are similar for actuaries dealing with terrorism coverage. Because cyber risks and attacks are becoming more serious and hard to anticipate, I predict that the federal government will eventually offer a backstop for cyber insurance just like for terrorism coverage. Technological innovations, as outlined in a previous Contingencies article, will help actuaries rise to these challenges.

_______________
Without historical data, actuaries cannot drive using the rear view mirror.
_______________

The good news is that insurers are getting smarter on how they offer cyber coverage and pricing. To even procure cyber coverage, customers must demonstrate meaningful and defined risk management strategies. I predict that insurers will require even more risk management as best practices continue to emerge.

Cyber Terrorism Threat Continues to Emerge

As for predicting the unimaginable, cyber attacks are also rising to the level of acts of terrorism. A year ago when the Target breach was making headlines, companies were concerned about facing the liabilities for cyber attacks that usually went after the personal and financial information of their companies and customers.

The recent cyber attack on Sony however, is a different animal when hackers threaten violence at movie theaters that show a particular film. This is especially true if the CIA is right and the attack came from the North Korean government. Even if the current theory, that former Sony employees were behind the attack, is correct, this new way of threatening businesses and individuals is likely to be another factor actuaries will need to consider when pricing coverage.


The truth is, nobody knows what is next. While my new article also talks about a Cybergeddon that could cripple the U.S. economy or even worldwide, there is also grave concern that attackers will destroy utility computer systems, which has repercussions too terrible to imagine.


If the past is the best predictor of the future, I have full faith that actuaries will work through their challenges. After all, they are not just number crunchers, but creative thinkers who can use technology to its best advantage.

Brokers Must Use Their Data for Future Success

Digital UTo attract and retain customers, insurance brokers need to take advantage of data already buried in their electronic and paper files.

My Leader’s Edge article, In the Zone: Keep Your Head in the Game Retaining Clients By Using the Competitive Data Hurtling Right at You, explains why 20th century business practices and assumptions no longer work in a world of Internet purchasing and big data.

Business insurance buyers are already shopping around online for coverage that once depended solely on business relationships. Insurance companies are already using their data to target and sell products to specific customer profiles.

And since insurers also add to their data with outside data to develop models, brokers must follow suit to retain clients and expand on the insurance coverage they are already selling.

I hope you enjoy the article. Feel free to comment below as you wish.

P.S. If you want to learn more about data and analytics, you can see past blogs on the topic under the predictive modeling tag.

Thank You Tech Cast Global!!!

TechCast Global, which contributed significantly to my Contingencies article about disruptive technology and its effect on actuaries, the Screen Shot 2014-07-13 at 4.16.52 PM copyinsurance industry and the rest of us, posted my blog and article about in the news section of their website.

This is not the first time TechCast has been a good source for my forward-thinking work. Another article I wrote, Fully Exposed, for Leader’s Edge magazine, covers the future of health care and the financial, ethical and insurance implications.

For the unfamiliar, TechCast produces reports on the future of everything from agriculture to economic development around the world. The organization predicts events by a degree of possibility. The website is www.techcastglobal.com.

Meanwhile, my article continues to receive retweets from folks around the world. The article was challenging to research and write, so I am pleased by the response.

More of my articles will be published soon. The topics are: cyber coverage, terrorism reinsurance and how insurance agents can harness new technology to inspire retention. Whether for publications or websites, my goal is to produce quality content for clients who share my philosophy of publishing factual and helpful information to attract and retain readership.

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Thanks to Jim Carroll

Internationally recognized futurist Jim Carroll published his impressions of my article, Fast Forward: Emerging Technology and Actuarial Practice.  “It’s a great article,” he wrote while offering a summary of the piece. To view it, please click here. http://www.jimcarroll.com/2014/07/trend-the-future-of-insurance-and-the-actuarial- profession/#.U7qwZ_ldXTp. Thanks for the mention and for your contributions to the article. To read my posting on the article, please click here. Enjoy!

Disruptive Technology, Actuaries and the Rest of Us

Disruptive technology — defined as a new technology that unexpectedlyFAST FORWARD displaces the established one — will change most professions.

In the future, we will collaborate in the Cloud through mobile technology and intelligent interfaces while monitors track our vitals and aerobic activity. Big data will be fed into mega computers that will automate calculations and analysis. Insurance will be based more on the individual situations of people and companies.

Artificial intelligence is already disrupting the medical field when computers can more effectively diagnose than doctors. Lawyers’ efforts to find precedents are already becoming automated and (sigh) computers can produce basic news articles.

Actuaries are not immune, as I explain in my article, “Fast Forward: Emerging Technology and Actuarial Practice.”Published in the American Academy of Actuaries’ July/August issue of Contingencies, I believe it highlights disruptive technologies that will affect all of us both professionally and personally. I hope you will check out the article and enjoy seeing a glimpse into the future of the actuarial profession and the insurance industry.

In many ways, the article is a call to action for the actuarial profession, but it should also be a wake up call for the rest of us who also grow tired of the constant learning and adapting to technology that is necessary to maintain professional relevance.

_______________
“…the article is a call to action for the actuarial profession, but it should also be a wake up call for the rest of us…”
_______________

In summary, for actuaries to excel in the future, they will, both literally and symbolically, have to let go of their beloved Excel spreadsheets and other tools.

The fact is Excel is quite limited compared to what is becoming possible through technology and will likely go the way of the slide rule and calculator. Personal computers and laptops simply cannot hold the data or offer the processing power of GPGPU chips that come from the gaming graphics world, the article explains.

What do you think? Let the world know by commenting below.

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