When inflation causes no increase in claim amounts
Summary: It is well known that when (re)insurance coverages involve a deductible, the impact of inflation of loss amounts is distorted, and the changes in claims paid by the (re)insurer cannot be assumed to reflect the rate of inflation. A particularly interesting phenomenon occurs when losses follow a Pareto distribution. In this case, the observed loss amounts (those that exceed the deductible) are identically distributed from year to year even in the presence of inflation. Nevertheless, in this paper we succeed in estimating the inflation rate from the observations. We develop appropriate statistical inferential methods to quantify the inflation rate and illustrate them using simulated data. Our solution hinges on the recognition that the distribution of the number of observed losses changes from year to year depending on the inflation rate.
- The total claims distribution under inflationary conditions
- Diffusion premiums for claim severities subject to inflation
- Assessing inflation risk in non-life insurance
- Statistical inference based on large claims via poisson approximation. Part I: Poisson random variables
- On the analysis of a class of loss models incorporating time dependence
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