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What is data science: an actuarial viewpoint

Data science connectionThe impact of data science on enterprise operations is everywhere to be seen. Affordable, high-performance computer power brings data science applications within reach of the commercial mainstream. Digital disciplines once regarded as rarefied specialisms are bursting onto digital transformation agendas across all vertical sectors.

Actuaries, whose professional skills are predicated on the analysis of data to assess and manipulate outcomes, occupy a unique position. Their job roles in many ways anticipate the outcome-shaping capabilities data science provides and puts them in pole position to turn disruptive change to their ultimate advantage.

Similarities between actuaries and data scientists mean that there’s been growing consideration of how – and where – the two skillsets intersect and the effect that will have on actuaries’ career journeys.

The IFoA recognises this intersection. It has already acknowledged its importance to members in a series of events, institutional initiatives and published guidance. And it has identified a need to provide a point of focus for members and actuarial affiliates who realise that data science will – to some extent – shape our profession as we move into the 2020s.

This content is designed to meet members’ information requirement with respect to data science and its resonance for actuaries and actuarial practice.

Its aim is to bring together the IFoA’s multifarious work and activities in the data science disciplines and highlight the Institute’s understanding of the opportunities data science presents for actuaries to extend their professional status and societal responsibilities.

What is data science?

For such a transformative concept, data science is often not well defined or understood. This does not seem to inhibit its influence – IFoA President John Taylor has described it as necessarily a ‘dynamic and evolving term’.

However, a working definition for data science (rather than of data science) will prove helpful as a start point.

‘Data science’ describes a broad, multidisciplinary field that uses scientific methods, processes, algorithms and systems to extract knowledge and insights from structured and unstructured data. It employs techniques drawn from many fields within the context of mathematics, statistics, computer science, and information science.

The ‘data sciences’ include, or associate with, more focused disciplines: Big Data, Data Analytics, Data Analysis, Data Mining, Artificial Intelligence, Machine Learning, Robotics, Data Visualisation, Predictive Modelling, and Deep Learning.

Data science skills combine domain expertise, programming, software tools and knowledge of mathematics and statistics, to extract desired insights from data – insights that can be translated into tangible and quantifiable business value, such as market intelligence, risk assessment, and executive decision-support.

More on data science:

John Taylor“Data science is very empowering for actuaries: it gives them a platform to move into wider fields.” 

John Taylor, President, The Institute and Faculty of Actuaries 

In February 2018, the IFoA launched a virtual conference on the topic of data science. It was open to members globally to share knowledge and discuss developments and techniques within the discipline.

The conference demonstrated how actuaries can enhance their current knowledge, or move more fully into the world of data science. It offered a platform for members and students to learn more about the subject in sessions curated by leading experts.

Topics discussed included Big Data analytics, Artificial Intelligence, Machine Learning, predictive modelling, data visualisation, neural networks, and coding.

President Taylor said: “What makes the contribution of the profession uniquely valuable to the emerging field of data science is our public interest mission, our grasp of the statistical underpinnings of data science, and our ability to interpret and construct value from data.”

President Taylor believes that the scope of the IFoA’s engagement with data science “demonstrates the way in which the actuarial profession is already taking the lead in addressing the issues that will shape our global society, while deploying our skills and knowledge to safeguard the public interest.”

These issues include ethical questions around how data science changes the way an individual’s risk profile is assessed, through to ensuring that ‘data science’ – in each of its applications* – is well used and understood wherever it’s practiced.

Data Science Q&As:

    Where does data science and actuary meet?

    Comparisons between actuarial science and data science often use the preposition ‘versus’, although the disciplines are not in necessarily in opposition to, or in contention with, each other.

    Indeed, they have much in common, and practitioner skills are increasingly transferable between the two fields.

    Usually annexed to the enterprise IT function, data science uses scientific methods, processes, algorithms, and other software tools, to derive insights and knowledge from structured and unstructured data sets.

    It brings together established disciplines like statistics, data mining, and data analytics, with emergent tech like Artificial Intelligence (AI) and Machine Learning. Its capability to process a broad range of data sets, and not be constrained to specific types or formats, is generally acknowledged as a key strength.

    Actuarial science is a more formalised discipline that categorises interrelated fields, such as computer science, economics, finance, mathematics, probability theory, and statistics.

    It’s applied to defined mathematical and statistical methods to assess risk, primarily in the BFSI (banking, financial services, insurance) sectors. Actuarial science is, however, also applied in other industries and professions.

    Experts in data science and actuarial science use many of the same techniques when analysing data to make informed forecasts about risk probabilities. These include data visualisation, pattern recognition, and statistics. Three examples of where the two disciplines align are in their approach to data, methodology, and software development.

    The primary commonality between data science and actuarial science is their respective appetites for data. The more data they have, the better their analyses turn out.

    The IFoA already provides data science collateral for members that ranges from:

    “Immersed in business context, actuaries are well-placed to utilise the insights data scientists can generate.”

    John Taylor, President, The Institute and Faculty of Actuaries

    It’s sometimes asserted that actuarial science specialises in structured data, while data science is most adept working with unstructured data. However, the insurance sector has long recognised the importance of unstructured data.

    DataSpace cites the importance of vehicle telematics for data scientists and actuaries alike. For example, telematics provides data that enables data science optimise performance of autonomous cars, while insurance providers have identified an opportunity to use telematics data to adjust premiums based on driver behaviour (‘usage-based insurance’).

    Actuarial science’s problem-solving methodology is driven by the standardisation of its analyses, while data science focuses on getting the prediction correct through a variety of methods. Mastery of actuarial methods is largely based on qualified skills and certified learning. Data science practitioners may work without mandatory qualifications or certifications, although this anomaly is changing.

    Actuarial science operates on pre-developed software development platforms, and generally uses standard commercial tools and applications. Data science differs in that it routinely develops new algorithms for specific use-cases. Data scientists are, perforce, likely more ‘programming savvy’ than the actuarial scientist.

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    Events calendar

    • Implications of 2019 IFRS 17 Exposure Draft

      Staple Inn Hall, High Holborn, London, WC1V 7QJ
      24 July 2019

      Fully booked.

      The International Accounting Standards Board (IASB) recently published an Exposure Draft (ED) of limited changes to its insurance contracts standard IFRS 17, effective date 2022.

    • Insurance Investment Roundtable with the IFoA & PRA - 25 July 2019

      EY Offices 1 More London Place London, SE1 2AF
      25 July 2019

      Spaces available

      The IFoA hosts regular roundtable meetings with the PRA on best practice in insurance investment and the application of the Prudent Person Principle, which governs insurance investment under Solvency II.

    • SIAS Event: Climate Zero to Climate Hero

      Staple Inn Hall, High Holborn, London, WC1V 7QJ
      3 September 2019 - 4 September 2019

      Spaces available

      An introductory session to help you get ahead with climate change.

      • Science, terminology and initiatives: handy facts to keep in your back pocket 
      • Getting your point across: how to influence people and avoid common traps and pitfalls
      • Taking action: what are actuaries expected to do...and what are we actually doing?
    • KSS event – The Regulatory Perspective

      Deloitte Saltire Court 20 Castle Terrace Edinburgh EH1 2EG
      5 September 2019

      Spaces available

      This KSS talk, presented by the FCA Head of Department in Scotland, will focus on the following 3 main areas:

      • FCA business plan priorities
      • The future of regulation
      • FCA Engagement in Scotland
    • Sessional Research Event - Risk Margin Working Party

      Staple Inn Hall, High Holborn London, WC1V 7QJ
      9 September 2019

      Spaces available

      For life insurers in the UK, the risk margin is one of the most controversial aspects of the Solvency II regime. Following its implementation, the risk margin came under considerable criticism for being too large and too sensitive to interest rate movements. These criticisms are particularly valid for annuity business – such business is of great significance to the national system for retirement provision. This criticism has led to political interest, and the risk margin was a major element of the Treasury Committee inquiry into Solvency II.

    • GIRO Conference 2019

      EICC, The Exchange, 150 Morrison St, Edinburgh EH3 8EE
      24-26 September 2019
      Spaces available

      GIRO is attended annually by over 800 delegates and speakers who are keen to discuss key topics such as Pricing, Reserving, Modelling and the future of the insurance industry. GIRO 2018 was a huge success and we have opened bookings early for what we hope will be another brilliant conference at the EICC in Edinburgh this year. 

       

    • The Future of the Actuarial Profession

      Staple Inn Hall, High Holborn London WC1V 7QJ
      3 October 2019

      Spaces available

      Three actuaries – and CEOs – discuss their views on how the business world is changing and what that might mean for actuaries in the future.

    • Life Conference 2019

      The Convention Centre Dublin, Spencer Dock, North Wall Quay, Dublin 1
      20-22 November 2019
      Spaces available

      The Life Conference is the premier event for professionals interested in life insurance.  Offering a wide range of workshops and plenary sessions it’s the perfect opportunity to discover what’s hot and current in life insurance ensuring you get up to date on the latest thinking and innovation whilst meeting and exchanging ideas with a broad range of professionals.

    • Autumn Lecture 2019, London - Rt Hon Nicky Morgan MP

      Lincoln's Inn The Treasury Office, London WC2A 3TL
      2 December 2019

      Fully booked.

      The IFoA is pleased to announce that this year’s Autumn Lecture will feature the Rt Hon Nicky Morgan MP as its guest speaker.  Nicky has previously served as Financial Secretary to the Treasury and Minister for Women. She now chairs the Treasury Select Committee whose remit is to examine the expenditure, administration and policy of HM Treasury, along with all of its agencies and associated bodies.

    • Autumn Lecture 2019: Live Streaming

      Webinar 
      2 December 2019

      Spaces available

      Watch the live stream of this year's Autumn Lecture with guest speaker Rt Hon Nicky Morgan MP.