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Multiperil rate making for property insurance using longitudinal data
Author(s) -
Yang Lu,
Shi Peng
Publication year - 2019
Publication title -
journal of the royal statistical society: series a (statistics in society)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.103
H-Index - 84
eISSN - 1467-985X
pISSN - 0964-1998
DOI - 10.1111/rssa.12419
Subject(s) - property (philosophy) , property insurance , actuarial science , copula (linguistics) , damages , context (archaeology) , insurance policy , variety (cybernetics) , econometrics , business , economics , general insurance , statistics , mathematics , law , political science , paleontology , philosophy , epistemology , biology
Summary In property insurance, a contract often provides the policyholder with protection against damages to the insured properties that arise from a variety of perils. We propose a multivariate framework for pricing property insurance contracts with multiperil coverage in a longitudinal context. Specifically, a two‐part model is employed to accommodate the excess of 0s and heavy tails in the insurance loss cost, and a Gaussian copula with a structured correlation is used to capture the dependence within and between perils, as well as their interaction. Using the government property insurance data from the state of Wisconsin in the USA, we show that the multiperil claim model has important implications in both experience rating and risk margin analysis.