Multidimensional Credibility With Time Effects: An Application to Commercial Business Lines

TY - JOUR

T1 - Multidimensional Credibility With Time Effects: An Application to Commercial Business Lines

AU - Englund, Martin

AU - Gustafsson, Jim Krister Angantyr

AU - Nielsen, J.P.

AU - Thuring, Fredrik

N1 - Paper id:: 10.1111/j.1539-6975.2009.01306.x

PY - 2009

Y1 - 2009

N2 - 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.

AB - 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.

M3 - Journal article

SN - 0022-4367

VL - 76

SP - 443

EP - 453

JO - Journal of Risk and Insurance

JF - Journal of Risk and Insurance

IS - 2

ER -