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Explainable AI for paid-up risk management in life insurance products

Author

Listed:
  • Bermúdez, Lluís
  • Anaya, David
  • Belles-Sampera, Jaume

Abstract

Explainable artificial intelligence (xAI) provides a better understanding of the decision-making processes and results generated by black-box machine learning (ML) models. Here, we outline several xAI techniques in order to equip risk managers with more explainable ML methods. We illustrate this by describing an application for the more effective management of paid-up risk in insurance savings products. We draw on a database of real universal life policies to fit an initial logistic regression model and several tree-based models. We then use different xAI techniques, including a novel approach that leverages a Kohonen network of Shapley values, to offer valuable perspectives on tree-based models to the end-user. Based on these findings, we show how non-trivial ideas can emerge to improve paid-up risk management.

Suggested Citation

  • Bermúdez, Lluís & Anaya, David & Belles-Sampera, Jaume, 2023. "Explainable AI for paid-up risk management in life insurance products," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323006141
    DOI: 10.1016/j.frl.2023.104242
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    References listed on IDEAS

    as
    1. Emer Owens & Barry Sheehan & Martin Mullins & Martin Cunneen & Juliane Ressel & German Castignani, 2022. "Explainable Artificial Intelligence (XAI) in Insurance," Risks, MDPI, vol. 10(12), pages 1-50, December.
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      More about this item

      Keywords

      Machine learning; Shapley values; Kohonen networks; Risk analysis;
      All these keywords.

      JEL classification:

      • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
      • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
      • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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