Modeling Payment Frequency for Loss Reserves Based on Dynamic Claim Scores

Juan Sebastian Yanez, Jean-Philippe Boucher and Mathieu Pigeon

North American Actuarial Journal, 2024, vol. 28, issue 3, 491-512

Abstract: By modeling reserves with microlevel models, individual claims information is better preserved and can be more easily handled in the fitting process. Some of the claim information is available immediately at the report date and remains known until the closure of the claim. However, other helpful information changes as claims develop; for example, the previously observed number of payments. In this article, we seek to model payment counts discretely based on past information, in terms of both claim characteristics and previous payment counts. We use a dynamic score that weighs the risk of the claim based on previous claim behavior and that gets updated at the end of each discrete interval. In the model used in this article, we will also distinguish between the different types of payments. We evaluate our model by fitting it into a dataset from a major Canadian insurance company. We will also discuss estimation procedures, make predictions, and compare the results with other models.

Date: 2024
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DOI: 10.1080/10920277.2023.2218897

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