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BAYESIAN ASYMMETRIC LOGIT MODEL FOR DETECTING RISK FACTORS IN MOTOR RATEMAKING

Published online by Cambridge University Press:  10 January 2014

J.M. Pérez-Sánchez ,
M.A. Negrín-Hernández ,
C. García-García  and
E. Gómez-Déniz
J.M. Pérez-Sánchez*
Affiliation:
Department of Quantitative Methods in Economics, University of Granada, 18011–Granada, Spain
M.A. Negrín-Hernández
Affiliation:
Department of Quantitative Methods, University of Las Palmas de Gran Canaria, 35017–Las Palmas de G.C., Spain E-mail: [email protected]
C. García-García
Affiliation:
Department of Quantitative Methods in Economics, University of Granada, 18011–Granada, Spain E-mail: [email protected]
E. Gómez-Déniz
Affiliation:
Department of Quantitative Methods, University of Las Palmas de Gran Canaria, 35017–Las Palmas de G.C., Spain E-mail: [email protected]
*
E-mail: [email protected]
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Abstract

Modelling automobile insurance claims is a crucial component in the ratemaking procedure. This paper focuses on the probability that a policyholder reports a claim, where the classical logit link does not provide a right model. This is so because databases related with automobile claims are often unbalanced, containing more non-claims than the presence of claims. In this work an asymmetric logit model, which takes into account the large number of non-claims in the portfolio, is considered. Both, logit and asymmetric logit models from a Bayesian point of view, are used to a sample that was collected from a major automobile insurance company in Spain in 2009, resulting in a dataset of 2,000 passenger vehicle. We establish the validity of the asymmetric model in front of the conventional logit link. The use of a garage, the age of the vehicle and the duration of the client's relation with the company are all shown to be significant explanatory variables by the logit model. The asymmetric model includes, in addition, the length of time the policyholder has held a driving licence and the type of use made of the vehicle. The asymmetric model provides a better fit to the data examined.

Keywords

Automobile insurancelogit modelBayesian inferencesymmetric linkasymmetric link
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 44 , Issue 2 , May 2014 , pp. 445 - 457
Copyright
Copyright © ASTIN Bulletin 2014 

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