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Multidimensional Credibility With Time Effects: An Application to Commercial Business Lines

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Listed:
  • Martin Englund
  • Jim Gustafsson
  • Jens Perch Nielsen
  • Fredrik Thuring

Abstract

This article considers Danish insurance business lines for which the pricing methodology has been dramatically upgraded recently. A costly affair, but nevertheless, the benefits greatly exceed the costs; without a proper pricing mechanism, you are simply not competitive. We show that experience rating improves this sophisticated pricing method as much as it originally improved pricing compared with a trivial flat rate. Hence, it is very important to take advantage of available customer experience. We verify that recent developments in multivariate credibility theory improve the prediction significantly, and we contribute to this theory with new robust estimation methods for time (in‐)dependency.

Suggested Citation

  • Martin Englund & Jim Gustafsson & Jens Perch Nielsen & Fredrik Thuring, 2009. "Multidimensional Credibility With Time Effects: An Application to Commercial Business Lines," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(2), pages 443-453, June.
    • Handle: RePEc:bla:jrinsu:v:76:y:2009:i:2:p:443-453
    DOI: 10.1111/j.1539-6975.2009.01306.x
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    References listed on IDEAS

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    1. Englund, Martin & Guillén, Montserrat & Gustafsson, Jim & Nielsen, Lars Hougaard & Nielsen, Jens Perch, 2008. "Multivariate Latent Risk: A Credibility Approach," ASTIN Bulletin, Cambridge University Press, vol. 38(1), pages 137-146, May.
    2. Zehnwirth, Ben, 1985. "Linear Filtering and Recursive Credibility Estimation," ASTIN Bulletin, Cambridge University Press, vol. 15(1), pages 19-35, April.
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    Cited by:

    1. Asamoah, Kwadwo, 2016. "On the credibility of insurance claim frequency: Generalized count models and parametric estimators," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 339-353.
    2. Leo Guelman & Montserrat Guillen & Ana M. Pérez-Marín, 2014. "Optimal personalized treatment rules for marketing interventions: A review of methods, a new proposal, and an insurance case study," Working Papers 2014-06, Universitat de Barcelona, UB Riskcenter.
    3. Yang Lu, 2018. "Dynamic Frailty Count Process in Insurance: A Unified Framework for Estimation, Pricing, and Forecasting," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 85(4), pages 1083-1102, December.
    4. Levon Barseghyan & Francesca Molinari & Darcy Steeg Morris & Joshua C. Teitelbaum, 2020. "The Cost of Legal Restrictions on Experience Rating," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 17(1), pages 38-70, March.
    5. Pechon, Florian & Denuit, Michel & Trufin, Julien, 2018. "Multivariate Modelling of Multiple Guarantees in Motor Insurance of a Household," LIDAM Discussion Papers ISBA 2018019, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).

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