Bayesian CART models for insurance claims frequency

DOI10.1016/J.INSMATHECO.2023.11.005arXiv2303.01923OpenAlexW4389210433MaRDI QIDQ6152709FDOQ6152709

Authors:

Publication date: 13 February 2024

Published in: Insurance Mathematics \& Economics (Search for Journal in Brave)

Abstract: Accuracy and interpretability of a (non-life) insurance pricing model are essential qualities to ensure fair and transparent premiums for policy-holders, that reflect their risk. In recent years, the classification and regression trees (CARTs) and their ensembles have gained popularity in the actuarial literature, since they offer good prediction performance and are relatively easily interpretable. In this paper, we introduce Bayesian CART models for insurance pricing, with a particular focus on claims frequency modelling. Additionally to the common Poisson and negative binomial (NB) distributions used for claims frequency, we implement Bayesian CART for the zero-inflated Poisson (ZIP) distribution to address the difficulty arising from the imbalanced insurance claims data. To this end, we introduce a general MCMC algorithm using data augmentation methods for posterior tree exploration. We also introduce the deviance information criterion (DIC) for the tree model selection. The proposed models are able to identify trees which can better classify the policy-holders into risk groups. Some simulations and real insurance data will be discussed to illustrate the applicability of these models.

Full work available at URL: https://arxiv.org/abs/2303.01923

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zbMATH Keywords

MCMCDICnegative binomial distributionzero-inflated Poisson distributionBayesian CARTinsurance pricingclaims frequency

Mathematics Subject Classification ID

Actuarial mathematics (91G05) Applications of statistics to actuarial sciences and financial mathematics (62P05)

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