Data Mining Techniques and Ethical Considerations in Insurance

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UNDERSTANDING THE DIGITAL REVOLUTION

Introduction
Data mining is the way which provides the proper collection of the information which helps in
making the specific records. The insurance company makes several policies which can be
beneficial for the clients in their losses. This report is based on the impact of data mining on the
insurance company. It provides the proper description of both the terms in the initial stage. In the
next steps, it defines the techniques that are based on data mining which efficiently affects the
insurance company. In the third stage, there will be a description of the rules or the ethics that
include in the business or in the insurance company through which the company easily generates
successful results. At the last, there will be the flow diagram which shows the overall strategies
that include in the use of data mining in the insurance company.

Part 1
Data Mining
Data mining is the methodology that can be used by the companies in which they turn out the
raw data in the necessary or useful information. The businessman easily knows their customers
and the patterns of the huge batches of data by using the software’s and make the strategies for
marketing, all this have to be done efficiently. These strategies are also used to making the
increment in sales and to reduce down the cost. Data mining is commonly depending on the
appropriate collection of the data, processing of the computer and the warehouses. The process
of data mining is used to build up the models of machine learning along with power applications.
It also includes the technology based on the search engine and the programs based on
recommendations of the website (Twin, A. 2019).
Data mining include the analyzing of the huge amount of information blocks with meaningful
patterns. This methodology can be used in the many ways which include the marketing of
database, risk management of credits, proper detection of the fraud activity, filtering of Spam E-
mail along with the insertion of user’s opinion. It is the process which is used to making the
patterns of the huge amount of data sets by hiding the important contents and make validation for
traversing the information. Data mining is commonly used to determining the unsuspected or
previously unknown relationships amongst the data. This technology is also known as the
discovery of knowledge and the extraction of the knowledge, along with the analysis of data or
patterns, etc.
In this, the data process for preparation can be consumed around 90% in the project time. The
data can be from any type of sources should be selected, transformed, or formatted, and
constructed, it all depends on the operations based on the data transmission.
Insurance company

Insurance is like the contract which can be represented as the policy. It includes the individual or
the entities which financially receive the protection along with the reimbursement from the
losses. This can be achieved by from any company. The insurance company makes payments
which can be affordable for being insured. Insurance policies are like the hedge which will be
used in against the losses based on financial, in both cases small and big (Kagan, J. 2019). It
means that the insurance company saves the clients by insured them for the damaging property
or the injured property from another party or the third party.
The property, as well as the life of any individual all, are surrounded by the several risks of
facing the disability, destruction, and death. Due to these losses, the financial condition can be
faced by many individuals. So, insurance is the way or the method which transfer these risks in
the potential; solutions. This all can be provided by the insurance company. It is considered as
the legal agreement between the two or three parties. Mainly, insurance will be conducted
between the two parties which involve the insurer or the insured where the insurer stands for the
insurance company and insured stands for the individual. The insurance company makes the
promises for providing the solutions on the losses by insuring all the contingency of insurance.
Insurance is the platform that can be used to protect an individual and its family from financial
losses. It can be saved by making the legal contract known as the insurance policy. The insurance
company denies providing insurance if they find the risks with any applications or the insured
person.

Part 2
Data mining techniques are techniques which include making the business profitable. It depends
on the several types of business or according to the problems that can be faced in the business.
As there is a total of seven techniques involved in data mining. It is the approach through which
the individual improves the cost structure or the accuracy. In this, three techniques are described
along with their effects. The three techniques are described as:
1. Statistics technique
2. Classification technique
3. Neural networks technique
1.Statistical technique:
This technique is considered as the branch of the mathematics which is commonly related to the
group or the collection of the data or information. It helps in designing the patterns for the
individual in the insurance company according to the status or desire of the individual. The
statistics technique of data mining provides the collection of the data and their counting's. it is
commonly used for generating the reports or the collection with the counting data. In the
insurance company, there will be a desired of making the records of each individual along with
the proper segmentation. This provides the records in the form of the histogram, mean, median,
average, mode, variance, max, min or the linear regression. Through this, the problems of
maintaining the records can be solved out. All the records can be collected on the software which
helps in maintaining the status of the individual (EDUCBA. 2019).
2. Classification technique:
It is the most common technique that can be used for the data which includes the number of
samples which is pre-classified. This classification is used for making a large set of data. The
insurance company requires the pre-data for making the insurance contract of the individual or
the customers. This technique helps the company in generating all the necessary data of the

insurer in the pre-cases. It is commonly relating to the analysis of the cluster. This technique
involves two processes. That is described as the:
Learning: In this, the company generating and analyzing all the contents or the algorithms of the
insurer.
Classification: This process provides the facility for analyzing all the rules and regulations at the
precision level.
All the important information or the rules and regulations can be planned by using the e-mail or
the fax.
3.Neural networks:
This technique is considered as the most important technique of data mining for the insurance
company. This technique provides the hindrance to the important details and or the logics layers
through which the company policies have saved along with maintaining the rules. This network
designs several classifications, analyze the links along with regression and design the proper
models for the segmentation. It is the type of model that can be used to set up the links between
the several nodes for the other parties in the insurance company. It aligned all the layers in the
proper form that is arranging all the protocols sequentially.
The algorithms of the neural networks for the insurance company can be divided into two parts.
They described as supervised and unsupervised.
The supervised model can be used to design the model of classification or the regression model.
The unsupervised algorithm is used for organizing the context as the set of data target. These
models or the techniques are ideal for the insurance company because it designs the proper
patterns by considering all the situations and tactics. It is also used to make the numeric models.
It provides solutions to some questions in the insurance sector. Like:
 How many nodes are connected in which manner?
 How many processing units are included and used?
 How the process training will be provided and how it is to be stopped.

This provides the two proper solutions:
 First is about the network. In which the complete solution is provided in the package
form or all the solutions stored in the single application which only be run in the
company.
 The second one is that all the solutions which bounded to each other with the consulting
services in the company.

Part 3
Ethics and regulations
Law:
 Law of insurance is the collection of the rules and regulations which can be related to the
insurance terms. As it is be known that the insurance is the contact which can be set up
between the two parties. It changes the loss risk of the individuals by providing them
exchange help at the financial level is known as the premium (AME3bg. 2009).
 Insurance laws provide the way through which the formation of the contacts can be
managed or control. It means that the insurance laws offer the process through which the
company sells or buy the exchanges. The company also put claims on the insurer.
 There are several numbers of laws of the insurance which provide in different forms.
There are many types of insurance policies that are health insurance, car insurance, home
insurance, etc.
 There is a total of 5 laws in data mining. That is described as:
1. Law for business goal: It determines the data mining field and concerned with
providing the solutions for issues by achieving all set of goals.
2. Law for business law: It determines the characteristics of the process of data
mining. This law stated that the evaluation will start from defining the goals and
provide the guiding deployments to the results.
3. Law for data preparation: most of the time in data mining can be spent on
preparation or acquisition of the data. The estimation based on an informal
manner can vary from approx. 80 percent (Khabaza, T. 2019).
4. Law of NFL-DM: It can provide the spacing in problems and generate the facility
through which the optimal solution will be generated efficiently. It requires the
proper understanding of the problems and provides the different solution models
for that.

5. Watkins law: This law stated that the objectives or the domain of the business
interest should be cleared and reflects the data mining. It also includes that the
process is in the domain model.
Ethical:
 Along with managing the laws or work along with the rules and regulations in the
company. It is also necessary that the ethics are also followed. It can be known that every
technique has some sort of issues which create problems while performing several
important tasks (Thomas, D. 2019).
 If the ethical lines are not followed in the data line;
1. Personal data: There is no particular definition for personal data. It is only stated
that if the data is prevented from the hackers or secure to the authority level then
the risk is not present. But if the data is hacked out then the risk of security is
conducted.
2. Transparency: the businesses are not incentivized for the transparent level. There
will be a lot of legal leeway in order of personal data.
3. Governance: the lack of governance in the data mining creates the problem in
which the third party access the legal documents and various ethical gaps are
created in this.
 Ethical behavior is necessary which preserves the client's trust and make the transactions
with efficiency and in a proper manner.
 In the insurance company, there are many issues faced which are as follows:
1. Identification of the insurer whether it is fraud or the licensed one. Because there
are many issues faced by the company of having the fraud clients which hacking
the personal data.
2. The stakeholders or the employees in the company will be skilled or they have the
proper knowledge of the security. They don’t have to share the details of the
company to the third party.

3. All the decisions based on ethics can be designed without the barrier and which
can be followed by the entire team of the company.
Physical
 For the implementation of the system in a successful manner, the architecture of the
system plays a significant role. The functionality of the entire system can be depending
on designing of the system. The system is designed by considering all the features which
will be required in the system. So, that the architecture for the data mining in the
insurance company has designed by using the best technologies to provide efficient
results.
 The major problem faced by the insurance company is of the security off data and the
fraud client. That why the formation is done by measuring all the requirements for the
company. It also includes the features which are related to the security concepts. The
systems used in the company for data mining can provide the best results by7 providing
the best facilities to the clients.
 If the problems are continued faced in the company, this will provide the bad results and
the insurance company faces a huge amount of loss. There will be a huge amount of
frauds will be faced by the clients.
Market:
 The marketing of the company is the way through which the company advertisement will
be conducted and the clients will be able to know about the company efficiently.
 The marketing of the company can be conducted by:
1. Brushing up the website of the company: It means that the website should be updated on
a timely basis through which the clients get the updated information while visiting the
website.

2. There will be a proper satisfaction of the clients with the company: The current clients
have satisfied with the policies of the company. So, that they also advertise about the
company by communicating with the third party.
3. By making the personal networks: Along with the customer referrals, there will be an
agent which is hired by the company through which the agent can communicate about the
company to the clients and help in making the new clients to the company.

Part 4
Figure 1 Flow chart