June 2017

General Insurance Research Update

By Scott Lennox


The General Insurance Research Committee continues to meet monthly to identify relevant research topics and potential partnering organizations with the goal of furthering the SOA’s activities in general insurance. As well, the committee is dedicated to providing members with results that will help them in their day-to-day activities. The committee welcomes ideas for consideration and is seeking additional members. If you are interested in either submitting ideas or becoming a member, please contact Scott Lennox, SOA staff fellow at slennox@soa.org.

The SOA has the following two general insurance research projects that have been completed and are published on the SOA general insurance research page:

  • Delta Boosting Machine with Application to General Insurance—This report was sponsored by the General Insurance Research Committee and authored by Simon Lee and Sheldon Lin. This report introduces delta boosting (DB) as a new member of the boosting family. Similar to the popular gradient boosting (GB), this new member is presented as a forward stage-wise additive model that attempts to reduce the loss at each iteration by sequentially fitting a simple base learner to complement the running predictions. Instead of relying on the negative gradient, as is the case for GB, DB adopts a new measure called delta as the basis. Simulation studies and the real data application conducted in this paper suggest that DB is a significant improvement over GB. Like GB, DB provides a high transparency to users, and this report reviews the marginal influence of variables through relative importance charts and the partial dependence plots. This report also assesses the overall model performance through evaluating the losses, lifts and double lifts on a holdout sample.
  • Cybersecurity Insurance: Modeling and Pricing—This report was sponsored by the General Insurance Research Committee and authored by Maochao Xu and Lei Hua. This paper develops a framework for modeling and pricing cybersecurity risk. The paper proposes a cybersecurity insurance model that models not only the general infection and recovery processes, but also the related losses. The proposed model consists of three components: epidemic models, loss functions and premium strategies. The paper studies the dynamic upper bounds for the infection probabilities based on both Markov and non-Markov models. A simulation approach is proposed to compute the premium for the cybersecurity risk for practical use. The effects of different infection distributions and dependence among infection processes on the losses are studied as well.

    The SOA has the following research project relating to general insurance currently in progress:

  • International Catastrophe Pooling—This project will analyze the main catastrophe pooling structures in place in and outside the U.S., summarize their strengths and weaknesses and suggest possible diversification, other improvements and expansions to better address small nations’ growing insurance needs. The primary risk question is catastrophe property damage triggered by flood and drought.

In addition to the project currently in progress, the committee is evaluating proposals for research on developing a primer on Takaful. The objective of the primer is to promote a better understanding of how a Takaful market is expected to evolve in a North American context.

Once a submission is chosen, the SOA will be seeking individuals to join the volunteer project oversight group (POG) to help guide and oversee the project. The POG seeks four to seven volunteers who may be FSAs, ASAs, or non-members with backgrounds in the topic. Volunteers are expected to participate in periodic, hour-long conference calls (a total of five to 10 calls expected over the course of a project) to review material and provide guidance. Research projects provide a way for volunteers to network, build upon their experience in the field, and help support the SOA’s research efforts. If you have questions about the research projects listed above, contact Scott Lennox, SOA staff fellow at slennox@soa.org. When we begin to actively recruit volunteers for this POG we will announce this volunteer opportunity on the GI Community on SOA Engage.  You can visit the Volunteer Opportunities Database at any time to view all open SOA volunteer opportunities by visiting engage.soa.org and clicking on volunteer in the navigation bar.

Scott Lennox, FSA, FCIA, FCAS, is a staff fellow for the Society of Actuaries. He can be contacted at slennox@soa.org.