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IAI Actuarial Core Principles · Actuarial Statistics · Purpose and function of data analysis

An actuary at a Mumbai life insurer builds a model to estimate the probability that a policyholder lapses next year, using policy and customer characteristics, and applies it to new policies. Which description fits this exercise best?

This is predictive analysis. The model is built from existing policy and customer data to estimate the probability of lapse for new policies. It goes beyond summarising past data, which would be descriptive, and it uses a fitted model rather than only exploring the data.

  1. ADescriptive analysis, since it summarises the existing policy data
  2. BInferential analysis about a population mean only
  3. CPredictive analysis, since it estimates outcomes for new casesCorrect
  4. DData cleaning, since it concerns policy records
  5. Exploratory analysis with no model, since no hypothesis is tested

Explanation

The model is fitted to existing data in order to estimate the outcome (lapse) for new policies. That is the aim of predictive analysis. Descriptive work would only summarise the past data, and the exercise involves a fitted model, so it is not purely exploratory.

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