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Multidimensional Credibility With Time Effects: An Application to Commercial Business Lines
Author(s) -
Englund Martin,
Gustafsson Jim,
Nielsen Jens Perch,
Thuring Fredrik
Publication year - 2009
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2009.01306.x
Subject(s) - credibility , dependency (uml) , industrial organization , computer science , microeconomics , econometrics , business , operations research , economics , engineering , software engineering , political science , law
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.