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2 FALSE POSITIVE/NEGATIVE INFORMATION SYSTEMS Jay Jaffe President Actuarial Enterprises, Ltd. Chicago, IL September, 2008

3 HOW TO MAKE INCORRECT DECISIONS ACCURATELY Jay Jaffe President Actuarial Enterprises, Ltd. Chicago, IL September, 2008

4 STATISTICAL ERROR TYPES  Type I or False Positive Error  Type II or False Negative Error

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6 TYPE I ERROR (FALSE POSITIVE)  Test shows:  Reality:

7 TYPE II ERROR (FALSE NEGATIVE)  Test shows:  Reality:

8 DECISION MAKING  Partly scientific and partly gut reaction  Acquire data only when it will improve the quality of a decision  Avoid “I think” decisions

9 THE 6 SENSES  Sight  Smell  Touch  Hearing  Taste  Direct Marketing

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11 GOALS  Minimize the # and impact of bad decisions  Learn to catch bad decisions before they create serious problems

12 THE ’s #1: Plan or business philosophy #2: Ask the right questions #3: Establish objectives or targets

13 ATTRIBUTES OF A PLAN  A plan helps to make decisions  A plan helps makes decision making easier

14 INTELLIGENT LOSS OF SALES (part of a good plan)

15 ASK THE RIGHT QUESTIONS  Understand the data you need to solve your problem  Know the metrics you need to make decisions

16 RESPONSE OR PAID RATES?  Processing cost: $12 per kit  % not taken: 40%  Processing cost per paid policy = 12 / ( 1.0 – 0.4) = $20

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18 The new direct marketing is an information-driven marketing process, made possible by database technology, that enables marketers to develop, test, implement, measure, and appropriately modify customized marketing programs and strategies. From The New Direct Marketing, David Sheppard Associates, p. 3

19 HELP IS ON THE WAY

20 AVOID THE FALLACY OF SMALL NUMBERS  10 small successes are better than one large success  Change occurs in small increments  Small changes can be significant

21 AVOID THE SILO MENTALITY  Involve people  Solicit opinions

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23 A REAL LIFE DISASTER  A PROFITABLE program  No data --- extremely poor MIS  Management killed the program and made a very accurate but incorrect decision

24 REMEMBER: IF YOU CAN’T MEASURE IT, DON’T DO IT.

25 IN CONCLUSION AVOID DECISIONS THAT:  Are not consistent with your business plan,  Have not considered the real issues of a situation, and  Are not being measured against your targets

26 YOUR NEW SCREEN

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28 NEW INSURANCE PROGRAM ASSESSMENT FORMULA  Excellent  Good  Average  Poor

29 THE ULTIMATE TEST OF A PRODUCT WILL THE EAT THE ???

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31 THE INSURANCE DIRECT MARKETING FORUM 2008