A heavy-tailed and overdispersed collective risk model

DOI10.1080/10920277.2021.1943451zbMATH Open1503.91086OpenAlexW3190707674MaRDI QIDQ5043473FDOQ5043473

Authors Pamela M. Chiroque-Solano, Fernando Antônio da S. Moura 

Publication date 6 October 2022

Published in North American Actuarial Journal (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2101.09022

zbMATH Keywords

collective risk modelclaim distributionfair premium

Mathematics Subject Classification ID

Actuarial mathematics (91G05) Statistics of extreme values; tail inference (62G32) Applications of statistics to actuarial sciences and financial mathematics (62P05)

Abstract: Insurance data can be asymmetric with heavy tails, causing inadequate adjustments of the usually applied models. To deal with this issue, hierarchical models for collective risk with heavy-tails of the claims distributions that take also into account overdispersion of the number of claims are proposed. In particular, the distribution of the logarithm of the aggregate value of claims is assumed to follow a Student-t distribution. Additionally, to incorporate possible overdispersion, the number of claims is modeled as having a negative binomial distribution. Bayesian decision theory is invoked to calculate the fair premium based on the modified absolute deviation utility. An application to a health insurance dataset is presented together with some diagnostic measures to identify excess variability. The variability measures are analyzed using the marginal posterior predictive distribution of the premiums according to some competitive models. Finally, a simulation study is carried out to assess the predictive capability of the model and the adequacy of the Bayesian estimation procedure. Keywords: Continuous ranked probability score (CRPS); decision theory; insurance data; marginal posterior predictive; tail value at risk; value at risk.

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Cited in

(2)

• Bayesian credibility model with heavy tail random variables: calibration of the prior and application to natural disasters and cyber insurance
• Collective risk model: Poisson-Lindley and exponential distributions for Bayes premium and operational risk

Describes a project that uses

Uses Software

• R
• Stan

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