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438 Alternative decision-support systems
Financial services applications
The insurance industry has been one of the most progressive in the
uptake of expert systems. A fact supported by the results from a number
of studies of the UK insurance industry, in the mid-1990s, revealed that
90% of 51 insurance company respondents were at least investigating
the potential of expert systems and, although it was found that only 10%
of companies reported systems in actual use, respondent expectations
were that in three years’ time 50% would possess operational systems. 24
Clearly, expert systems have made a measurable impact on the insurance
industry and expansion is widely expected to continue.
The reasons for the contrasting enthusiasm of marketers and insurers
for this advanced technology are numerous and complex. It seems likely,
however, that in the case of the insurers a certain momentum has been
built up as a result of the specific targeting of this lucrative industry
sector by software vendors, which has led to a subsequent and growing
realization of the availability and utility of the software.
Thus a bandwagon appears to have started rolling – although whether
individual insurance companies have been motivated to jump on
through a fear of being left behind and losing competitive edge, or
as a result of the objective consideration of successful projects by competitors,
is difficult to ascertain. One survey suggests that the latter has
been the case. 24
Similarly, the failure of marketing-oriented expert systems to be extensively
adopted/implemented may be the result of a lack of targeted
interest from software vendors or perhaps through the lack of demonstrable
success of those systems which have been attempted – or indeed
through a combination of these factors.
Of those applications which have attracted the greatest interest from
insurers, life underwriting has proved the most prominent. Life underwriting
is, essentially, the process of evaluating risk associated with
insuring an individual, and matching the individual to the actuarial
(a definition which applies to the underwriting of all types of risk and
policy). More specifically, life underwriters assess the information which
they receive from a standard application form, in combination with any
additional information which may have been requested (such as medical
reports from the applicants’ doctors or medical examinations taken for
the purpose of the application). The task of the underwriter is then to
match the applicant to the particular mortality table which correctly
predicts the statistical probability of the individual succumbing to death
over the term of the policy.