Lee-Carter–ARIMA hybrid approach and machine learning for mortality rate forecasting in the United States: Implications for national defense and population risk assessment
TL;DR
Five hybrid approaches that combine stochastic models and machine learning, along with one non-hybrid approach, are explored to assess their potential to improve forecasting accuracy and may contribute to national defense planning and support the maintenance of demographic stability.
Abstract
Background: The Accuracy of mortality rate forecasting plays an important role in various decision-making processes in the life insurance sector, including determining premium amounts. In addition, it also contributes to assessing the readiness of human resources to support national defense, as well as to conducting risk assessments aimed at maintaining demographic stability. The United States mortality data was selected as the study object due to the availability of comprehensive and high-quality. Aims: This study explores five hybrid approaches that combine stochastic models and machine learning, along with one non-hybrid approach to assess their potential to improve forecasting accuracy. Method: In this study, the Lee-Carter–ARIMA, Lee-Carter–Random Forest, Lee-Carter–ANN, Lee-Carter–ARIMA–Random Forest, Lee-Carter–ARIMA–ANN, and ANN models were evaluated. These models were applied to mortality rate data from nine divisions in the United States (US), stratified by gender, using training data from 1966 to 2005 and test data from 2006 to 2015. The best model is determined based on the smallest Mean Absolute Percentage Error (MAPE) value while also considering the interpretability of the model. Result: The study's results show that, across the number of divisions, the Lee-Carter–ARIMA–Random Forest model produces the smallest MAPE values most often. However, in terms of average MAPE, the Lee-Carter–ARIMA–ANN model performs better, with MAPEs of 9.66% for females and 9.28% for males. Furthermore, neither of these models yields a substantial improvement in predictive accuracy compared with the Lee-Carter–ARIMA model. Conclusion: Considering the relatively small decrease in MAPE and the difficulty of interpreting machine learning models due to their black box nature, the Lee-Carter–ARIMA model demonstrates the best overall performance relative to the other models. Nevertheless, the Lee-Carter–ARIMA–Random Forest and Lee-Carter–ARIMA–ANN models show potential as alternative approaches that merit further investigation and may contribute to national defense planning and support the maintenance of demographic stability.