FRC research explores increase in AI in UK actuarial work
Continuing the theme, the Financial Reporting Council (FRC) recently released a research report delving into the increased uptake of Artificial Intelligence (AI) and Machine Learning (ML) in the UK actuarial landscape.
Extensive interviews with industry professionals found that AI and ML are being incorporated into the actuarial toolkit – particularly when it comes to assessing claims risks, forecasting policyholder group behaviours, and enhancing customer interactions.
The report also anticipates a significant surge in the adoption of AI and ML in this domain, primarily driven by the transformative potential of these technologies and accelerated by the emergence of advanced large language models such as ChatGPT.
However, one predominant concern that echoes through the research findings is the need for ‘explainability’ regarding AI and ML models. Their opaque nature, with models often termed ‘black boxes,’ poses a considerable challenge in the sector.
Of particular interest is the identification of risks that could impact actuarial work quality. These include concerns about source data quality stemming from AI/ML’s ability to utilise extensive, often unstructured data sources, with limited human oversight, and an over-reliance on results without a comprehensive understanding of their limitations.
Additionally, the report acknowledges risks related to poor data labelling, with potential for inaccuracies. Interviewees also raised concerns about potential biases or systematic inaccuracies within the data used for training AI/ML models, resulting in flawed judgment patterns and low adaptability of models across various contexts.
The takeaway? While AI and ML show a lot of promise in this field, it is key to continue to train these emerging tools on high quality data, with the right skills and testing necessary to backtest conclusions.
Mark Babington, FRC Executive Director of Regulatory Standards, underscores the necessity of addressing these concerns to ensure the quality and reliability of actuarial work as AI and ML continue to shape the industry. “The FRC hopes this research will stimulate further thinking in the industry about how to manage these risks,” he states.
Access the full report for in-depth insights
