Page 363 - Contributed Paper Session (CPS) - Volume 6

CPS1966 Jessa L. S. C. et al.
has a higher weight, which may also indicate a decline in health, Other
Traditional is more often bought. In terms of income, Unit-linked can also be
preferred by low earning individuals.
To assess the accuracy of the models in predicting, the final models were
used to predict the test data.

Table 3: Summary of Misclassification Rates for All Models (Test Data)
Total Misclassification High-risk
Misclassification
Classification Trees 24.37% 12.83%
Multinomial Logistic
Regression (CART Final 17.52% 12.08%
Predictors)
Random Forest 18.81% 15.55%
(Full Model)
Among the models, only the final models from Multinomial Logistic
Regression and Random Forest passed the misclassification benchmark of
20% assuming total misclassification. However, if the high-risk
misclassification was considered, which is the portion of Endowment and
Other Traditional observations classified as Unit-Linked, Classification Trees
can also be accepted at the threshold. The high-risk misclassification
represents the conservative clients which may be offered with an aggressive
investment insurance product without caution.

4. Discussion and Conclusion
All models are acceptable within 20% misclassification threshold if only the
high-risk misclassification is considered. The models are also shown to be poor
in predicting minority classes but good in classifying the dominating class
which is Unit-linked. Given these results, the models cannot be used to profile
the markets for Endowment and Other Traditional but were used to
understand the market for Unit-linked better. The relationships that were
generated from each of the models can be consolidated to come up with a
targeting strategy to promote Unit-linked plans. Tapping the Endowment
market as well to purchase Unit-linked is reasonable since the two products
address the same need which is savings and that selling Unit-linked is more
profitable for the company given the instability of the interest rate over the
long-run.
Caution must be observed however in offering Unit-linked plans using the
insights from the model since much observations from the minority classes
are misclassified. Offering an aggressive financial tool to conservative clients
might cause severe misselling. This risk can be controlled by full disclosure of
the features of a Unit-linked product especially its non-guarantees.
There were a lot of insights that were derived from the models that can be
used for the targeting strategy. For instance, Unit-linked plans can be offered

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