Accounting for severity of risk when pricing insurance products

Ramon Alemany (), Catalina Bolance () and Montserrat Guillen
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Ramon Alemany: Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona
Catalina Bolance: Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona

No 2014-05, Working Papers from Universitat de Barcelona, UB Riskcenter

Abstract: We design a system for improving the calculation of the price to be charged for an insurance product. Standard pricing techniques generally take into account the expected severity of potential losses. However, the severity of a loss can be extremely high and the risk of a severe loss is not homogeneous for all policy holders. We argue that risk loadings should be based on risk evaluations that avoid too many model assumptions. We apply a nonparametric method and illustrate our contribution with a real problem in the area of motor insurance.

Keywords: quantile; value-at-risk; loss models; extremes (search for similar items in EconPapers)
Pages: 25 pages
Date: 2014-04
New Economics Papers: this item is included in nep-ias and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://www.ub.edu/rfa/research/WP/UBriskcenterWP201405.pdf First version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bak:wpaper:201405

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