As technological advancements allow business entities, both public and private, to capture, manage and process information in ever-expanding ways, those endeavors enter the realm of “big data.” Big data is widely described in terms of the three V’s: 1) volume, 2) velocity, and 3) variety of information.
Data is, of course, the lifeblood of our industry, so imagining the possible underwriting applications of this movement is exciting. This article describes the use of big data in developing a credit-based model in the United States. There are many differences between the U.S. and Europe, but this summary presents an interesting example of how big data can be used and correlated with insurance experience.
Credit scoring has long been used to simplify the process of buying a car, insuring a house, or applying for a credit card. In 2014, RGA began working with TransUnion, one of the largest credit bureaus in the United States, to explore ways in which the big data from TransUnion could be used to develop a study of mortality that would reveal possible applications within the life insurance industry.
As can be seen in Figure 1, we scored the individual lives using our credit-based scoring system to better understand and quantify the mortality segmentation, that is, the amount by which actual-to-expected (A/E) mortality could differ among categories. The overall mortality of those with the lowest score (best 5% of the population) was five times better than that of the worst 5%. We also analyzed additional splits by age, calendar year and gender, among others.
- See also: Taking Credit
Read More +