Year: 2019
Type: article
Abstract: We present an approach to individual claims reserving and claim watching in general insurance based on classification and regression trees (CART). We propose a compound model consisting of a frequency section, for the prediction of events concerning reported claims, and a severity section, for the prediction of paid and reserved amounts. The formal structure of the model is based on a set of probabilistic assumptions which allow the provision of sound statistical meaning to the results provided by the CART algorithms. The multiperiod predictions required for claims reserving estimations are obtained by compounding one-period predictions through a simulation procedure. The resulting dynamic model allows the joint modeling of the case reserves, which usually yields useful predictive information. The model also allows predictions under a double-claim regime, i.e., when two different types of compensation can be required by the same claim. Several explicit numerical examples are provided using motor insurance data. For a large claims portfolio we derive an aggregate reserve estimate obtained as the sum of individual reserve estimates and we compare the result with the classical chain-ladder estimate. Backtesting exercises are also proposed concerning event predictions and claim-reserve estimates.
Source: Risks
DOI: 10.3390/risks7040102
Authors: Massimo De Felice, Franco Moriconi
Institutions: Sapienza University of Rome, University of Perugia
Language: English
Topic: Probability and Risk Models
Field: Decision Sciences
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $1,013
OpenAlex ID: W2979828430