IDEAS home Printed from https://ideas.repec.org/a/pal/gpprii/v44y2019i3d10.1057_s41288-019-00130-0.html
   My bibliography  Save this article

Applying the Tweedie model for improved microinsurance pricing

Author

Listed:
  • Inmaculada Peña-Sanchez

Abstract

Microinsurance usually involves basic rate making due to the scarcity of data and the lack of actuarial skills, causing microinsurers to add significant charges to premiums to compensate for unexpected variations in risk assessment. The situation could be improved by applying predictive modelling techniques to enable better pricing in the microinsurance market. This paper proposes the application of a generalised linear model with the Tweedie compound Poisson–Gamma distribution for a bundled microinsurance in the Philippines. The risk factors considered are mainly derived from the available database and are related to the features of the insured. The results of the predictive analysis point out that there are three predictors that best fit the model: age of the insured, policy age, and population density. The application of the Tweedie model provides fair and accurate risk premiums that outperform the model currently applied by the company and enhance its risk control.

Suggested Citation

  • Inmaculada Peña-Sanchez, 2019. "Applying the Tweedie model for improved microinsurance pricing," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(3), pages 365-381, July.
    • Handle: RePEc:pal:gpprii:v:44:y:2019:i:3:d:10.1057_s41288-019-00130-0
    DOI: 10.1057/s41288-019-00130-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41288-019-00130-0
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/s41288-019-00130-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Biener, Christian & Eling, Martin & Schmit, Joan T., 2014. "Regulation in Microinsurance Markets: Principles, Practice, and Directions for Future Development," World Development, Elsevier, vol. 58(C), pages 21-40.
    2. Allen, Franklin & Demirguc-Kunt, Asli & Klapper, Leora & Martinez Peria, Maria Soledad, 2016. "The foundations of financial inclusion: Understanding ownership and use of formal accounts," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 1-30.
    3. repec:ilo:ilowps:356564 is not listed on IDEAS
    4. Bargin, Eloisa A. & Lomboy, Christopher. & Soriano, Elmer S., 2002. "A field study of microinsurance in the Philippines," ILO Working Papers 993565643402676, International Labour Organization.
    5. repec:ilo:ilowps:469153 is not listed on IDEAS
    6. David M Dror, 2016. "Guest Editorial," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 41(2), pages 179-183, April.
    7. Monique Cohen & Jennefer Sebstad, 2005. "Reducing vulnerability: the demand for microinsurance," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(3), pages 397-474.
    8. Platteau, Jean-Philippe & De Bock, Ombeline & Gelade, Wouter, 2017. "The Demand for Microinsurance: A Literature Review," World Development, Elsevier, vol. 94(C), pages 139-156.
    9. Christian Biener & Martin Eling, 2012. "Insurability in Microinsurance Markets: An Analysis of Problems and Potential Solutions," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 37(1), pages 77-107, January.
    10. Daron, Joseph D. & Stainforth, David A., 2014. "Assessing pricing assumptions for weather index insurance in a changing climate," LSE Research Online Documents on Economics 59154, London School of Economics and Political Science, LSE Library.
    11. de Jong,Piet & Heller,Gillian Z., 2008. "Generalized Linear Models for Insurance Data," Cambridge Books, Cambridge University Press, number 9780521879149, October.
    12. Monique Cohen & Michael J. Mccord & Jennefer Sebstad, 2005. "Reducing vulnerability: demand for and supply of microinsurance in East Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(3), pages 319-325.
    13. Ralf Radermacher & Siddharth Srivastava & Matthew Walsham & Chhorn Sao & Francesco Paolucci, 2016. "Enhancing the Inclusion of Vulnerable and High-Risk Groups in Demand-Side Health Financing Schemes in Cambodia: A Concept for a Risk-Adjusted Subsidy Approach," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 41(2), pages 244-258, April.
    14. Jean-Philippe Boucher & Michel Denuit & Montserrat Guillén, 2007. "Risk Classification for Claim Counts," North American Actuarial Journal, Taylor & Francis Journals, vol. 11(4), pages 110-131.
    15. Biener, Christian, 2013. "Pricing in Microinsurance Markets," World Development, Elsevier, vol. 41(C), pages 132-144.
    16. Demirguc-Kunt, Asli & Klapper, Leora, 2012. "Measuring financial inclusion : the Global Findex Database," Policy Research Working Paper Series 6025, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yu Yan & Michael Faure, 2021. "Government interventions in microinsurance: evidence from China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(3), pages 440-467, July.
    2. Biener, Christian, 2013. "Pricing in Microinsurance Markets," World Development, Elsevier, vol. 41(C), pages 132-144.
    3. Isaac Akomea-Frimpong & Caleb Boadi & Roger Owusu-Boafo, 2021. "Determinants and challenges of supplying microlife insurance in Ghana," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(3), pages 331-357, July.
    4. Zulekha Ndurukia & Agnes W. Njeru & Esther Waiganjo, 2017. "Factors Influencing Demand for Micro Insurance Services in the Insurance Industry in Kenya," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(7), pages 232-259, July.
    5. Carolyn Kousky & Helen Wiley & Len Shabman, 2021. "Can Parametric Microinsurance Improve the Financial Resilience of Low-Income Households in the United States?," Economics of Disasters and Climate Change, Springer, vol. 5(3), pages 301-327, October.
    6. Deprez, Laurens & Antonio, Katrien & Boute, Robert, 2021. "Pricing service maintenance contracts using predictive analytics," European Journal of Operational Research, Elsevier, vol. 290(2), pages 530-545.
    7. Martin Branda, 2014. "Optimization Approaches to Multiplicative Tariff of Rates Estimation in Non-Life Insurance," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 31(05), pages 1-17.
    8. Emon Kalyan Chowdhury & Rupam Chowdhury, 2024. "Role of Financial Inclusion in Human Development: Evidence from Bangladesh, India and Pakistan," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 3329-3354, March.
    9. Grohmann, Antonia & Klühs, Theres & Menkhoff, Lukas, 2018. "Does financial literacy improve financial inclusion? Cross country evidence," World Development, Elsevier, vol. 111(C), pages 84-96.
    10. Giesbert, Lena & Steiner, Susan, 2011. "Perceptions of (Micro)Insurance in Southern Ghana: The Role of Information and Peer Effects," GIGA Working Papers 183, GIGA German Institute of Global and Area Studies.
    11. Raksmey, Uch & Lin, Ching-Yang & Kakinaka, Makoto, 2022. "Macroprudential regulation and financial inclusion: Any difference between developed and developing countries?," Research in International Business and Finance, Elsevier, vol. 63(C).
    12. Han, Rui & Melecky, Martin, 2017. "Broader use of saving products among people can make deposit funding of the banking system more resilient," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 89-102.
    13. Dougherty, John P. & Flatnes, Jon Einar & Gallenstein, Richard A. & Miranda, Mario J. & Sam, Abdoul G., 2020. "Climate change and index insurance demand: Evidence from a framed field experiment in Tanzania," Journal of Economic Behavior & Organization, Elsevier, vol. 175(C), pages 155-184.
    14. Wang, Rui & Luo, Hang (Robin), 2022. "How does financial inclusion affect bank stability in emerging economies?," Emerging Markets Review, Elsevier, vol. 51(PA).
    15. Ndanshau, Michal O.A. & Njau, Frank E., 2021. "Empirical Investigation into Demand-Side Determinants of Financial Inclusion in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 9(1), January.
    16. Thereza Balliester Reis, 2022. "Socio‐economic determinants of financial inclusion: An evaluation with a microdata multidimensional index," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(3), pages 587-611, April.
    17. repec:zbw:bofitp:2014_010 is not listed on IDEAS
    18. Baumgartner, Carolin & Gruber, Lutz F. & Czado, Claudia, 2015. "Bayesian total loss estimation using shared random effects," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 194-201.
    19. Noelia Cámara & David Tuesta, 2018. "Measuring financial inclusion: a multidimensional index," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The role of data in supporting financial inclusion policy, volume 47, Bank for International Settlements.
    20. Shirley J. Ho & Hsiu-Hao Hsu, 2021. "The effect of microinsurance on the insurance market: evidence from Taiwan," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(1), pages 130-145, January.
    21. Ximena Pena & Carmen Hoyo & David Tuesta, 2014. "Determinantes de la inclusion financiera en Mexico a partir de la ENIF 2012," Working Papers 1414, BBVA Bank, Economic Research Department.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:gpprii:v:44:y:2019:i:3:d:10.1057_s41288-019-00130-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.