The story of lies, damned lies, statistics … and great Scottish math geeks
As anyone who has ever suffered through a course on the subject can attest, statistics can, at times, be incomprehensible. As the saying goes, “There are three kinds of lies: lies, damned lies, and statistics.” Let’s face it: the abuse of statistics knows no bounds, and politicians of all stripes have refined its misuse to an art form.
As the great Canadian humorist Stephen Leacock once quipped, “In earlier times they had no statistics and so they had to fall back on lies.” But in reality, nothing could be further from the truth for those who depend on statistics to tease out the truth in numbers.
Life insurance companies are among those whose work depends on understanding the arcane nature of math and statistics. They do this so we, thankfully, do not have to. Insurers are experts in the field and use complex statistical analyses to accurately ascertain the significance of numbers and data. It’s through this enormous effort that life insurance companies ensure the premiums we pay fairly and accurately reflect the risks we face.
Essentially, the life insurance business is based on the accurate understanding of human mortality, derived from the building of “life tables” that list the many ways different people across time have lived and died. Complex statistical methods are applied to these huge tables to find patterns and trends hidden within them. More math is applied to the results to establish accurate probabilities for life spans, given certain groups and types of people and their lifestyles. Admittedly, not everyone’s idea of a good time but as they say, it’s work that has to be done.
Fair and accurate premiums are calculated based on these results. At the same time, the company setting the premiums also has to ensure the fund does not bankrupt itself in the process of paying out disbursements. After all, it’s easy to give away money. Doing so without going broke in the process … not so much.
It turns out that the Scots are well suited for this task. They have been rich in math geeks throughout their history. For instance, John Napier (1550–1617) geeked out on basic computation, stumbling into logarithms in the process. High school students everywhere have Colin Maclaurin (1698–1746) to blame for his work on calculus and geometry. James Gregory (1638–75) was responsible for his share of final exam punishments with infinite series representations for a number of trigonometry functions. Yikes!
It must be said, however, that despite the ire of generations of frustrated students, these Scots and others like them have been at the forefront of the math that underlies statistics and contributed greatly to this science. In fact, the world’s first application of math and statistics to life insurance dates back to the mid-1700s with the Scottish Ministers’ Widows’ Fund. This fund, and its statistical applications, forms the basis of all life insurance funds to this day. <Link to blog #4>. Who knew?
While it remains true in this day of information overload that “liars can figure and figures can lie,” the life insurance industry remains a beacon of trust. Without that trust in hard math, many of the world’s oldest life insurance firms and respected life products would have gone bust long ago.
It matters that life insurance companies are, for the most part, old, conservative and dull. This lack of flash in an age of screaming ads and pop-ups is our sign of confidence. When we purchase the future security of our family and loved ones in a life insurance product, we are not paying for empty platitudes and marketing, we are paying for the solidity of mathematics itself. And math does not lie, despite what angry high school students may think.