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Forecasting the Maximum Compensation Offer in the Automobile BI Claims Negotiation Process

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Listed:
  • Mercedes Ayuso

    (University of Barcelona)

  • Miguel Santolino

    (University of Barcelona)

Abstract

Most motor bodily injury claims are settled by negotiation, with fewer than 5% of cases going to court. A well-defined negotiation strategy is thus very useful for insurance companies. In this paper we assume that the monetary compensation awarded in court is the upper amount to be offered by the insurer in the negotiation process (reservation price). Using a real database, a log-linear model is implemented to estimate the maximal offer. Non-spherical disturbances are detected. Residual dependence occurs when various claims are settled in the same judicial verdict. Groupwise heteroscedasticity is due to the influence of the forensic valuation on the final compensation amount. An alternative approximation based on generalized inference theory is applied to estimate confidence intervals on variance components, since classical interval estimates may be unreliable for datasets with unbalanced structures.

Suggested Citation

  • Mercedes Ayuso & Miguel Santolino, 2012. "Forecasting the Maximum Compensation Offer in the Automobile BI Claims Negotiation Process," Group Decision and Negotiation, Springer, vol. 21(5), pages 663-676, September.
    • Handle: RePEc:spr:grdene:v:21:y:2012:i:5:d:10.1007_s10726-011-9241-y
    DOI: 10.1007/s10726-011-9241-y
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    References listed on IDEAS

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    1. Viaene, Stijn & Ayuso, Mercedes & Guillen, Montserrat & Van Gheel, Dirk & Dedene, Guido, 2007. "Strategies for detecting fraudulent claims in the automobile insurance industry," European Journal of Operational Research, Elsevier, vol. 176(1), pages 565-583, January.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Decision support systems; Multivariate statistics; Bodily injury claims compensation; Negotiation process; Generalized confidence intervals; Reserve price;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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