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IAI Actuarial Core Principles · Business Management · Using data, company functions, people skills, influence and clear communication

A Pune-based general insurer's pricing actuary finds that the claims dataset for motor policies has about 12% of records with a missing vehicle age. The pricing model is due to be used for a rate filing next week. What is the most professionally appropriate course of action?

The actuary should investigate why vehicle age is missing, adopt and document a justified treatment, test how sensitive results are to it, and communicate the limitation to users. Silent zero-filling, hiding the field, or claiming completeness is misleading, and indefinite delay is unnecessary.

  1. ADelete the field from the report so that nobody notices the gap
  2. BReplace every missing value with zero vehicle age and proceed without mention
  3. CAssess the pattern and likely cause of the missing values, choose and document a reasoned treatment, test sensitivity, and tell users of the limitationCorrect
  4. DPostpone the filing indefinitely until a perfect dataset is available
  5. Use only the 88% complete records and state that the data is fully complete

Explanation

Missing data should be investigated, treated with a justified method, tested for sensitivity and disclosed. Zero-filling or hiding the issue misleads users, while claiming completeness after dropping records is untrue. Indefinite delay is impractical when a reasoned approach exists.

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