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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

  • Current Issues in Life Assurance (CILA) Webinar series

    Webinar Series
    15 July 2020 - 3 August 2020

    Spaces available

    CILA is one of the pre-eminent events in the annual 'Life' calendar. Due to COVID-19 we are running the programme as a series of webinars covering topics aimed at practicing life actuaries from life offices, consulting firms and other employers of actuaries and those who work in or advise on, the life assurance market in the UK and Europe.

  • Spaces available

    Current Issues in Life Assurance - For annuity writers, a key challenge is the need to fund capital-consumptive new business strain (NBS) as a consequence of writing the business intended to fund future distributions. Reinsurance, investment strategy and capital provision all have roles to play which we will investigate in this webinar

  • Spaces available

    Current Issues in Life Assurance – Mortality in 2020 is now dominated by one thing, although – in our future-focused world – the pandemic is just one of many mortality considerations.  In this session, three well-regarded mortality/longevity specialists provide an overview of implications and impacts of COVID-19, recent and imminent CMI developments and more 'future focused' work in the MRSC

  • Spaces available

    Because of Covid-19, forecasters predict a severe recession in 2020, followed by a V or U-shaped recovery. This impacts both individuals and companies. However, compared to previous recessions, the impact on banks of higher credit losses should be mitigated to some extent by government actions. 

  • Spaces available

    Part of the Protection, Health and Care Conference 2020 webinar series

    This session will provide an overview of the Population Health Management Working Party's research including defining impactability and impactability modelling, discussing some examples of specific modelling approaches, considering the practical challenges across the NHS as well as wider public perception and ethical issues.

  • Spaces available

    Many actuaries consider career opportunities in the Finance and Investment practice area after having started off in more traditional actuarial roles such as valuations, capital management or pricing. This session is aimed at helping actuaries to better understand roles in Finance and Investment and how they can fine tune their skills to pursue such careers.

  • Mortality and Longevity Webinar Series 2020

    Webinar Series
    22 July 2020 - 10 August 2020

    Spaces available

    Due to COVID-19, we are running this programme via a series of webinars commencing 22nd July.

    This webinar series will provide topical and practical updates and discussion on the latest thinking and innovations in mortality and longevity, and is designed to be very accessible to a broad range of experience.

     

  • Spaces available

    Insurers are making increasing use of medical research to help with assumption, models and underwriting. Experienced mortality/ longevity specialists discuss the issues in the interpretation of  medical research papers, using a range of case studies. The case studies will include COVID-19 points of current importance. Many of the concepts discussed (data bias, inference of causation) are also applicable to equivalent questions in 'big data' and advanced analytics.

  • Spaces available

    Members of the Mortality Working Group of the IAA have analysed changes in mortality for about 30 causes of death  and will discuss how causes of death are classified, and the problems of long-term data, appropriate metrics, including "years of life lost" (YLL), causes of death - a "measure of cohortness", the changes in dominant causes of death at older ages, and how can these types of studies enhance mortality forecasting.

  • Spaces available

    Predictive risk assessment and risk stratification models based on postcode-level consumer classification are widely used for life insurance underwriting. However, these are socio-economic models not directly related to health information. Similar to precision medicine, precision life insurance should aim to tailor policy pricing/reserving to the individual health characteristics of each client.

  • Spaces available

    This discussion, the fourth in the Extreme Mortality Events webinar series, will look at what poor model selection and calibration could look like – using inappropriate historical data; using incorrect 2020 mortality data; and inappropriate stochastic model recalibration (or lack thereof). Presented by Chair of the Life Board of the Institute and Faculty of Actuaries, Colin Dutkiewicz. 

  • Spaces available

    This webinar has been re-scheduled from its original date of the 1st July. Although ESG has many buyers across the asset allocation community, from pension funds to sovereign wealth funds, it still hasn’t found its place within the core asset management strategy desks where the money is actually invested. The problem as well as the opportunity is Fixed Income. Plenty of strategies exist for incorporating ESG within Equities, from screening, integration to a combination. ESG has picked up relatively quickly within Equities with rating,indices created using ESG factors. This talk will discuss how we price a quantifiable ESG credit risk premium and make it alpha worthy in a strategy. 

  • Spaces available

    Part of the Protection, Health and Care Conference 2020 webinar series

    With the rising prevalence of dementia, how can we manage this risk effectively and can insurance do more? Matt Singleton, Ageing Lead at Swiss Re, will cover these topics and demonstrate how insurance could help people address their concerns.

  • Spaces available

    Current Issues in Life Assurance – Join us for an exploration session on the use of data science in insurance companies today including how insurers are making sense of and using new data sources and technologies, exploration of practical applications of data science within actuarial work, benefits of data-driven decisions to solve business problems using the power of data and technology, and the role that actuaries can play to harness the benefits of data science.

     

  • Spaces available

    Current Issues in Life Assurance

    This talk will look at a range of such techniques (e.g. mass lapse risk transfer, contract boundaries, risk margin relief, non-standard longevity risk transfer) that have been applied or considered by UK and EU insurers, and the pros and cons of each.

     

  • Spaces available

    Current Issues in Life Assurance.

    The International Association of Insurance Supervisors announced on 14 November 2019 the adoption of v2.0 of the global Insurance Capital Standard (ICS) which will undergo confidential reporting for 5 years starting from 2020. This session will include specific experiences from Legal and General (L&G) as well as global industry perspectives from EY.

  • Spaces available

    Current Issues in Life Assurance

    This session will cover the PRA supervisory statement on financial impacts related to climate change, industry insights into PRA climate risk business plans, examples climate risk strategy setting out key workstreams and activity steps for successful execution, an overview of a climate risk strategy execution timeline and the future.     

  • Spaces available

    Part of the Protection, Health and Care Conference 2020 webinar series. Using new and unique research and data from the UK, US, Sweden and China, this presentation investigates how consumers use the internet through their insurance journey and analyzes the role culture and generation plays in their online behaviour. We use this research to show the online landscape for insurance sales in the UK and suggest ways to shape new products and effectively engage with the consumer who is buying them.

  • Spaces available

    Chief Medical Officer (CMO) for Gen Re Life/Health Research and Development, Dr John O'Brien, will discuss the impacts of Gene Modification for life/health insurance. 

  • Spaces available

    As an industry, it has been important to be able to look to the future to identify the next quantifiable risk. In this session, I will explore some of the less tangible, but none-the-less concerning risks to future health, such as the health risks associated with exposure to pesticides, ingestion of plastic in the food chain, and the hazards of indoor air pollution through exposure to volatile organic compounds.

  • Spaces available

    The working party will help the industry to update and enhance how potential risk from diabetes and excess mortality is considered, including the need to understand the underwriting implications as treatments improve, and potentially to develop new products that are tailored to those with diabetes.

  • Spaces available

    Part of the Protection, Health and Care Conference 2020 webinar series. Modelling the structure and trends of cancer morbidity risk is important for pricing and reserving in related health insurance fields such as critical illness insurance and care provision. We model the dynamics of cancer incidence over time in different regions in England, using 1981-2016 ONS data. The modelling allows estimation of cancer rates at various age, year, gender and region levels, following a Bayesian setting to account for statistical uncertainty. Our analysis indicates significant regional variation in cancer incidence rates. 

  • Spaces available

    Part of the Protection, Health and Care Conference 2020 webinar series. In this talk we will outline the steps Aviva took in pulling together our first large-scale disclosures on the exposure of our business to climate change published in March 2019; in line with the recommendations of the Taskforce on Climate-related Financial Disclosures. After touching on why insurers have such an important role in climate change, we'll cover a brief “how-to” guide for those who have not yet embarked on thinking about these topics before giving a case study of how the learnings from a TCFD disclosure exercise can be applied to investment portfolios.

  • Spaces available

    Part of the Protection, Health and Care Conference 2020 webinar series. 

    The insurance industry currently underwrites customers with diabetes based on a range of factors, medical expertise and various medical studies. The work undertaken by the Diabetes Working Party would help the industry to approach this using current research findings to update and enhance how potential risk from diabetes is considered. This includes the need to understand the underwriting implications as treatments improve, and potentially to develop new products that are tailored to those with diabetes. This webinar will present our latest findings in the management of this important chronic condition which will include research in collaboration with the ARC.