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The Use of Predictive Analytics in the Canadian Life Insurance Industry

Background and Purpose

The increasing availability of big data and the use of predictive analytics are changing how insurers have traditionally operated. Insurers continue to explore and implement new ways of utilizing these resources in everyday practice to optimize results. While property and casualty insurers have led the way in applying predictive analytics, other insurers are beginning to introduce predictive analytics in their operations and risk management practices. The purpose of this study is to investigate how the Canadian life insurance industry is utilizing predictive analytics and examine potential areas for enhancement. In this study, the Canadian life insurance industry means all products sold by Canadian life insurers including life, accident and sickness, disability, and annuities. Property and casualty products are excluded from the study.


Research Objective

The Canadian Institute of Actuaries (CIA) and the Society of Actuaries (SOA) are seeking a researcher(s) to perform a survey of the current practice of Canadian life insurers with respect to predictive analytics and evaluate current practice in light of recent literature on the subject. The following are examples of proposed topics that may be addressed:

  • How are life insurers currently using or planning to use predictive analytics in business operations and risk mitigation and management practice? Examples include, but are not limited to, using predictive analytics (PA) in valuation and pricing such as to better understand and set policyholder behavior assumptions; using PA in underwriting or marketing to better understand policyholder/customer potential risk type and the propensity to claim; and using PA in claims management and to identify fraud.
  • What data and predictive model/methodologies are being used?
  • What are companies trying to learn through predictive analytics that cannot be obtained by traditional methods?
  • What challenges are faced by life insurers in applying predictive analytics and how are companies addressing or planning to address these issues? How have stakeholders been engaged in utilizing nontraditional methods?
  • How do the approaches and methodology differ by company characteristic (e.g., company size), line of business, or product type (e.g., life insurance vs. annuity).
  • Are companies relying on internal or external resources to perform the predictive analytics?
  • Who is performing the analytics, actuaries, data scientists, statisticians, others?

Note that the above list is not meant to be exhaustive but merely examples of proposed topics that may be researched.

The output should be in the form of a written report suitable for publication which includes at a minimum:

  • A summary of results of the survey of current practice;
  • A summary of relevant existing research into the application of predictive analytics to life insurers;
  • An evaluation of the strengths and weaknesses of current life insurers in light of the recent literature on predictive analytics and other available approaches; and
  • A summary of approaches used for predicting customer/investor behaviour in banking and other industries as well as by property and casualty insurers that could be applied to life insurers.


Proposal

To facilitate the evaluation of proposals, the following information should be submitted. Please specify the product types to be covered by the survey:

  1. Résumés of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education, and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
  2. An outline of the approach to be used (e.g., literature search, model, etc.), emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
  3. A description of the expected deliverables and any supporting data, tools, or other resources.
  4. Cost estimates for the research, including computer time, salaries, report preparation, material costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
  5. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. The CIA and the SOA are interested in completing this project in a timely manner. Suggestions in the proposal for ensuring timely delivery, such as fee adjustments, are encouraged.
  6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.


Selection Process

The CIA and the SOA have appointed a project oversight group (POG) to oversee the project. The CIA and the SOA are responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the CIA and the SOA will make the final decision. The SOA's research actuary will provide staff actuarial support.


Questions

Any questions regarding this RFP should be directed to Ronora Stryker, SOA Research Actuary (phone: +1-847-706-3614; email:  rstryker@soa.org).    

 

Notification of Intent to Submit Proposal

If you intend to submit a proposal, please e-mail written notification by June 6, 2017 to Jan Schuh, SOA senior research administrator.

 

Submission of Proposal

Please e-mail a copy of the proposal to Jan Schuh.

Proposals must be received no later than June 19, 2017. It is anticipated that all proposers will be informed of the status of their proposal by the end of July 18, 2017.

Note: Proposals are considered confidential and proprietary.


Conditions

The CIA and the SOA reserve the right not to award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The CIA and the SOA also reserve the right to redirect the project as is deemed advisable.

The CIA and the SOA plan to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).

The CIA and the SOA may choose to seek public exposure or media attention for the research. By submitting a proposal, you agree to cooperate with the CIA and the SOA in publicizing or promoting the research and responding to media requests.

The CIA and the SOA may also choose to market and promote the research to members, candidates, and other interested parties. You agree to perform promotional communication requested by the CIA and the SOA, which may include, but is not limited to, leading a webcast on the research, presenting the research at a CIA and/or SOA meeting, and/or writing an article on the research for a CIA and/or SOA newsletter.