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AI and Actuaries

Everyone by now has heard of Chat GPT, CoPilot, Gemini, etc…  The water cooler talk frequently centers around how the “machines” will eventually take all our jobs. More sober and realistic analysis indicates AI is another efficiency tool to be used much like the wheel, the conveyor belt or a spreadsheet.

Artificial intelligence (AI) is the ability of machines to perform tasks that normally require human intelligence, such as reasoning, learning, and problem-solving. AI may eventually prove invaluable to actuaries much like the common spreadsheet.  What makes AI scary to some people is a boon to actuaries. “AI systems excel at processing vast amounts of data rapidly, identifying patterns, and extracting insights that might be challenging or impossible for humans to discern manually.  Quickly” (Quora)

AI and actuaries seem very much like a natural fit. We will discuss the ways that AI can assist, enhance, and transform the actuarial profession.

ChatGPT is a generative AI tool that can assist actuaries in a number of ways. Some quick examples include being used as an aid for exam preparation, it can create baseline code and ChatGPt can outline reports.

Much like how the Git Repository is now a commonplace tool for programmers, TensorFlow is a tool and libraries for building, training, and deploying machine learning models. Much like This tool can help actuaries with calculations, identifying patterns, and ultimately aid with improved forecasting via improved workflow.

What?  AI improves forecasting? Artificial intelligence is great at scanning large groups of data and when combined with machine learning it able to identify patterns. It is these patterns that the AI algorithms are able to identify in the large sets of data that can assist actuaries with forecasting.  Machine learning techniques that are relevant to actuaries include:

Supervised learning: This type of machine learning starts from a known data set with known patterns, outcomes. and results. Once the machine “learns” the pattern, it can use this to be applied to new sets of data to make predictions.

This is when the machine learns from labeled data, such as historical data with known outcomes or targets. The machine can then apply the learned patterns to new or unseen data, and make predictions or classifications. For example, supervised learning can help actuaries to predict the probability of claims, losses, or mortality based on various factors, such as age, gender, health, or lifestyle.

Unsupervised learning: This is when the machine learns from unlabeled data, without any predefined targets or outcomes. The machine can then discover hidden structures, clusters, or anomalies in the data, and generate insights or summaries. For example, unsupervised learning can help actuaries to identify segments of customers, products, or markets based on their similarities or differences, and tailor their services or strategies accordingly.

Reinforcement learning: This is when the machine learns from its own actions and feedback, without any explicit guidance or supervision. The machine can then optimize its behavior or policy based on the rewards or penalties it receives. For example, reinforcement learning can help actuaries to design optimal pricing when the greater environment is uncertain.

With this improved forecasting and assistance speed AI brings to the table, it opens up time for actuaries to analyze and innovate new more reliable products and service’s. With the ability of AI to quickly examine large sets of data and to “learn” its possible actuaries can use this information to make more individualized products or to develop forecasting models into new areas. It was only about 30 years ago forecasting and risk was applied to sports and players future potential. This was only possible with the accumulation of large amounts of data gathered over a long period of time. AI speeds up the data collection and analysis. Its fair to say we have come a long way since the spreadsheet.

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(1) The AI Revolution Is Coming – The Actuary Magazine. https://www.theactuarymagazine.org/the-ai-revolution-is-coming/.

(2) The Future of Actuaries: The Exponential Actuary™| Deloitte US. https://www2.deloitte.com/us/en/pages/human-capital/solutions/future-of-actuarial-profession.html.