Predictive risk analysis using a collective risk model: choosing between past frequency and aggregate severity information
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Publication:2656993
Abstract: Typical risk classification procedure in insurance is consists of a priori risk classification determined by observable risk characteristics, and a posteriori risk classification where the premium is adjusted to reflect the policyholder's claim history. While using the full claim history data is optimal in a posteriori risk classification procedure, i.e. giving premium estimators with the minimal variances, some insurance sectors, however, only use partial information of the claim history for determining the appropriate premium to charge. Classical examples include that auto insurances premium are determined by the claim frequency data and workers' compensation insurances are based on the aggregate severity. The motivation for such practice is to have a simplified and efficient posteriori risk classification procedure which is customized to the involved insurance policy. This paper compares the relative efficiency of the two simplified posteriori risk classifications, i.e. based on frequency versus severity, and provides the mathematical framework to assist practitioners in choosing the most appropriate practice.
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Cited in
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- Frequency-severity experience rating based on latent Markovian risk profiles
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- scientific article; zbMATH DE number 1996544 (Why is no real title available?)
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