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.
Actuarial Engineering?
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
Hello,
Is there a typo in this article?
At one point the author refers to “casual” analysis, and later at another he refers to “causal” analysis. I do not believe this is intentional.
Can we please review this?
Thanks,
Mike
Hi Mike,
Thanks for catching that. Yes you were correct about the typo and we have updated the post accordingly.
Best,
Arnulfo Moreno
Hi Don
I definitely think that you are on to something. The kinds of challenges that companies will be facing going forward do actually require this kind of innovation in how professions deliver value to their clients. Actuaries have their strengths and Engineers have their strengths and I guess it took you some effort to understand and appreciate the value that Engineers bring to the table. Actuaries do need to be trained to be innovative on how they get the best out of other professions for the sake of their clients.
I think this is something that will receive more attention going forward. I am involved in Healthcare and we work mostly with Doctors and Pharmacists in creating solutions for our clients. Although we have some converted engineers in our company, I don’t think I have endeavoured to use engineering methodology in solving a problem because I am not very exposed to engineers and how they work. I do however realise that I could be missing an opportunity here.
You have identified an area of possible collaboration and the development of a framework that can help actuaries to help their clients. So, my contribution to your questions above is, yes the Internet of things provides a very good platform as many companies will be coming to grips with this in the coming years, yes we can make a contribution in causal analysis and yes we need to collaborate with engineers and other professionals that have some competence in this field.
Actuaries can add tremendous value because they have an ability to understand the entire eco-system. The actuarial control cycle sort of forces this kind of thinking (we took this from the civil engineers apparently).
Regards
This is an intriguing post, and so was your article in Actuarial Review. I totally believe the IoT will have an important place, and I am excited about the role actuaries may have in it in insurance, industry, and infrastructure.
The IoT is an exciting emerging technology, but I take cynical pleasure in pointing out the hype too. I recently read about how the IoT is now being called the Internet of Everything (IoE) by some people. Even light bulbs will soon have their own IP addresses and will talk to every other light bulb in the world. But, what will they say to each other? Probably not much.
A lot of our expectations about science and technology still come from a narrative written in the 17th century by Francis Bacon. A criticism of Bacon is how much emphasis he put on data instead of hypotheses. Bacon felt that any scientific principle could be found just by the orderly arrangement of data to make the right hypotheses obvious. But this is hardly ever how science works. Framing of good hypotheses is the hardest part. We may be very good at creating the platforms for acquiring, storing, and processing lots of data, but I think the gap between the expectations for the IoT and the reality will be explained by a dearth of portfolio theories for operating fleets of machines in a coordinated way that will actually result in greater efficiencies and the trillions of dollars this is supposed to add to global GDP. I believe that this is where actuaries can help engineers.
I think actuaries can help engineers usher in the next industrial revolution. Actuaries are great at thinking about portfolios of things that span across multiple enterprises, and they will be needed to build the foundation of a new theoretical tradition to extract the cash value of the IoT.