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Tree-based methods: a useful tool for life insurance

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Abstract

Life insurance faces a number of new challenges. This paper identifies some difficulties with techniques that are widely used to cope with these challenges. As an interesting alternative tree-based methods are suggested and discussed. In particular a “hybrid” approach (using regression trees for a classification situation) is proposed. The main advantage of this approach is its ease of interpretability and its inherent transparency. The method appears to be particularly suitable for the identification of the risk factors in complex situations like disability insurance.

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Acknowledgments

The author is grateful to Swiss Re for their support and for providing the data set used in the example in Sect. 4.3 from their data monitoring pool and in particular to Marcus Bauer and Ralf Krüger of Swiss Re for performing the calculations behind Fig. 8 and Table 6. He would like to thank the participants of the data monitoring pool workshops for many stimulating and helpful discussions. Thanks go also to Wayne Dam of Swiss Re for checking the English and for suggesting a number of stylistic improvements, to the organizers of the ‘DAV-Herbsttagung 2010’ for the invitation to present part of the material of this paper there, and to the reviewer for his useful and constructive suggestions.

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  1. Institute of Mathematics, University of Bayreuth, Bayreuth, Germany

    Walter Olbricht

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  1. Walter Olbricht
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Correspondence to Walter Olbricht.

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Olbricht, W. Tree-based methods: a useful tool for life insurance. Eur. Actuar. J. 2, 129–147 (2012). https://doi.org/10.1007/s13385-012-0045-5

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  • DOI: https://doi.org/10.1007/s13385-012-0045-5

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