The great physicist Neils Bohr famously joked that prediction is very difficult, especially about the future. Bohr had a point, but it is also true that modern predictive modeling techniques are enabling many businesses to innovate, become more efficient, and grow profitably. The predictive algorithms powering the recommendations of Amazon, Netflix, and Google leap to mind. But, as recent books such as Moneyball, Super Crunchers, and The Numerati document, the phenomenon extends well beyond internet and database marketing. Indeed, the transformative power of predictive modeling cuts across such a wide swath of industries that Chris Anderson, the editor of Wired magazine, proclaimed one of todays most important cultural trends is the explosion of data about every aspect of our world and the rise of applied math gurus who know how to use it.
After seeing models built for Property and Casualty insurance evolve from innovative secret weapons to table stakes over the past decade, life insurers have begun to investigate whether predictive models can be applied in their industry. Recent experience leads them to answer with a decisive yes. Predictive models with a proven ability to help life insurers more effectively target market, make underwriting decisions more economically, accurately, and consistently, enhance retention programs, and even refine product pricing are increasingly creating competitive advantages, which prove to be so difficult to generate in a mature industry.
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