Should property-casualty actuarial science be considered an engineering specialty? Thanks to the Internet of Things (IoT) revolution, there are compelling reasons to consider aligning ourselves with engineers. According to Wikipedia, the Internet of Things is “the network of physical objects or ‘things’ embedded with electronics, software, sensors and network connectivity, which enables these objects to collect and exchange data.” People, places and things are increasingly using these connections to exchange an exploding amount of digital information and data, which can then be used to analyze, understand, forecast and control activities.
According to a report from Celent, the three interconnected components of the IoT are: things with networked sensors, data stores and analytic engines. Sensors transmit information on the internal state of things and the external status of their environment, providing a richer picture of the hazards of what is being insured. The networked sensors feed structured and unstructured data text, videos and other digital images to data stores. This will not just be big data, but new data, unlike anything ever seen or used before. Insurers and actuaries are focused on the ways to use the new data and analytics to improve pricing, underwriting, segmentation and claim management.
A troubling threat – and potential opportunity – is the quantum increase in the insured companies’ understanding and control of their operations made possible by IoT.
Perhaps the more focused problem (opportunity) statement is: Which quantitative professionals will the world turn to for expertise, insight and solutions in causal analysis? We can make the case for actuaries as leading candidates because of our expertise in evaluating the financial impacts of contingent incidents. In order for manufacturers to internalize this risk management capability, they will need both causal and financial analysis.
The ideal candidate seems to be a hybrid of actuary and engineer, which is not too farfetched an idea. Both actuaries and engineers are applied scientists, focused on solutions and finding what works. Also, actuarial university programs share many foundational courses with financial engineering.
Questions to Explore
I’d would like to hear your thoughts about the Internet-of-Things and Actuarial Engineering in the comments below.
- Do you believe the Internet of Things will facilitate the evolution to causal analysis?
- Can actuaries adapt and expand our brand to include causal analysis?
- Should we explore partnership with the engineers?
This blog post is culled from the Explorations – The Internet-of-Things and Actuarial Engineering, printed in the November/December 2015 Issue of the Actuarial Review