Bivariate mixed Poisson regression models with varying dispersion

George Tzougas and Alice Pignatelli di Cerchiara

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The main purpose of this article is to present a new class of bivariate mixed Poisson regression models with varying dispersion that offers sufficient flexibility for accommodating overdispersion and accounting for the positive correlation between the number of claims from third-party liability bodily injury and property damage. Maximum likelihood estimation for this family of models is achieved through an expectation-maximization algorithm that is shown to have a satisfactory performance when three members of this family, namely, the bivariate negative binomial, bivariate Poisson–inverse Gaussian, and bivariate Poisson–Lognormal distributions with regression specifications on every parameter are fitted on two-dimensional motor insurance data from a European motor insurer. The a posteriori, or bonus-malus, premium rates that are determined by these models are calculated via the expected value and variance principles and are compared to those based only on the a posteriori criteria. Finally, we present an extension of the proposed approach with varying dispersion by developing a bivariate Normal copula-based mixed Poisson regression model with varying dispersion and dependence parameters. This approach allows us to consider the influence of individual and coverage-specific risk factors on the mean, dispersion, and copula parameters when modeling different types of claims from different types of coverage. For expository purposes, the Normal copula paired with negative binomial distributions for marginals and regressors on the mean, dispersion, and copula parameters is fitted on a simulated dataset via maximum likelihood.

JEL-codes: C1 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2021-10-30
New Economics Papers: this item is included in nep-cwa, nep-ecm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in North American Actuarial Journal, 30, October, 2021. ISSN: 1092-0277

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:114327

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