Act sci undergrad students investigate how COVID-19 impacts life insurance

April 28, 2021 by Eran Vijayakumar

Four students from the Department of Statistical Sciences achieved a second-place finish at the Munich Re Cup case competition for their unique solution. The students were selected to participate out of more than a hundred students, and the competition attracted participants from a number of schools across Canada and the United States. Congratulations to Daisy Ding, Prinsa Gandhi, Rachel Yang and JiaQi Zhao!

Students were tasked with investigating and modelling the operations of a life insurance company just as the global pandemic interrupted its normal procedures. As the team travelled back in time to March 2020, their objective was to determine the pandemic’s effect on the company’s life insurance sales and develop a solution to price their insurance plans accordingly.
As sales volumes changed, so did traditional customer processes that needed to be adapted for pandemic-related restrictions. The team needed to think through the same real-world challenges that many insurance companies continue to face.

To begin their investigation of the data, Rachel conducted mortality experience analysis on the dataset to predict mortality resulting from COVID-19. Recent studies on COVID-19 mortality and past data helped the team model and predict mortality. With these results, the team created a model to change premiums based on COVID-19-related deaths. JiaQi explains, “We came up with a small model on how to change premiums according to mortality based on COVID.”

The team predicted an annual decrease in insurance sales, based on studies of the great recession and consumer attitudes. Their data analysis predicted the greatest sales decrease in the first two quarters when the pandemic was at its height. These sales projections led to the next part of the case: developing a solution to address the sales decrease.

To address the projected decrease in sales, they proposed the insurance company invest in digital sales channels that would allow customers to remotely buy insurance. They noted that many people are unaware of the ability to buy insurance online. Part of their digitization strategy included making the insurance-buying experience personalized to each customer.

To address their second challenge, they created a predictive model to understand smoking risk based on demographic data. As smoking risk is crucial to pricing premiums, their predictive model could replace smoking status tests when they are inaccessible during pandemic restrictions. The model was able to predict a customer’s smoking status by analyzing the dataset with machine learning techniques.

The significance of addressing these challenges and pricing insurance plans is that accurate pricing results in more customers and higher sales. “In an unprecedented time of COVID-19 we're trying to accelerate what we call the underwriting process to make sure we can correctly assess the client's risk, but at a really fast speed. So that's the ultimate goal. And then in that way, we can lower the cost and also increase the customer satisfaction,” says Rachel.

The team explains that the unique nature of the COVID-19 pandemic forced them to think just as insurance companies did during this pandemic to understand its effects and allowed them to apply their skills – and learn new ones.

The competition provided an opportunity for the team to learn from each other and expand their knowledge in actuarial science. By trying to solve a real-world problem, they were able to apply their knowledge from the classroom to solve real problems. A highlight of the competition was the unique chance to give a thirty-five-minute presentation explaining their results. “The competition was a step forward compared to my other peers in the second year because I get to see these harder technical techniques I would never see in your second year. That really means a lot to me,” says Daisy.

“Everyone at Munich Re was friendly and welcoming and created a positive atmosphere where you wanted to learn,  I really liked the opportunity to learn throughout the case,” says Prinsa. And her teammate Rachel adds: “I am more clear on how COVID-19 will impact the industry, and this gives me more thorough insight on the industry and what kind of things I want to work on because the case covers a lot of functions in the actuarial industry. ”

The team recommends that students sign up for the competition next year, and “if they're feeling nervous, just do it because they will learn a lot, and they shouldn't miss it”.