IAI Actuarial Core Principles · Business Management · Using data, company functions, people skills, influence and clear communication
An actuary at a Chennai insurer has prepared a report recommending a product withdrawal. The data show that policies sold through bancassurance have a higher surrender rate, and a director wants to say that bancassurance causes surrenders. The actuary notes that bancassurance policies are also concentrated among younger customers with smaller premiums and shorter tenure. Which response best reflects sound analysis and the Actuaries' Code principle of communicating clearly and not misleading?
The actuary should report the association but explain that age, premium and tenure may confound it, recommend further stratified or multivariate analysis, and state the limits of the conclusion. Asserting causation, hiding the confounders, or claiming no effect would all be unsupported and potentially misleading.
- AAgree with the director because correlation in the data is sufficient proof of causation
- BRemove the age and premium information so the report is simpler
- CReport the association, explain that customer age, premium size and tenure may confound it, suggest further analysis such as stratifying or modelling these factors, and state the limits of the conclusionCorrect
- DRefuse to report any finding until a randomised experiment is run
- Report that bancassurance has no effect since other factors exist
Explanation
An observed association with plausible confounders does not establish causation. The actuary should present the finding, flag confounding, propose controlled analysis and state limits. Removing information misleads, and claiming no effect is as unsupported as claiming causation. Demanding a randomised trial is impractical.
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