## When less is more

A particular leitmotif of 2010 is productivity — getting more work done with the time and resources available.  Often this is about controlling costs, but in the insurance sector in the European Union it is also about adapting to scarcity of resources: with Solvency II looming, there is strong Europe-wide demand for actuarial expertise.  If you are looking to hire staff, you may find it hard to get people with the knowledge and experience you need.  This was a theme in a list of comments from risk experts earlier this year:

"There is growing concern across the industry that there may not be a sufficient supply of trained and talented professionals to meet the growing demand for risk management skills."
Ed Easop, A M Best
"In the short term, the most difficult part of this will be resourcing — finding people with the right skills and experience [...]"
Charl Cronje, Lane Clark & Peacock

When faced with a skill shortage, it is worth looking at how software can help.  For example, when I worked at a large insurance company it would take the best part of a day to validate a policy extract, deduplicate it and then append geodemographic codes for mortality modelling.  Now I can upload a data file in a matter of minutes and have the computer to do all these things automatically (and then have it email me when it is finished).  Another example was Solvency II-style stress tests, which used to take a couple of days to calculate using some model points.  Now a thousand portfolio run-offs are possible in around an hour, simulating every policyholder's lifetime individually.

Using computers in this way frees up time to work on models and analysis.  However, modern software can help even further with expert systems.  These are particularly useful in spotting features of data sets or models which might be problematic.  Often the expert system will not only highlight the problem, but can suggest what might have caused it and how to go about fixing it.  With pressure to do more, and with potentially severe shortages of expertise, it's worth exploring how software can boost the productivity of the people you have.

Assume we have a random variable, $$X$$, with expected value ... Read more