A hierarchical reserving model for reported non-life insurance claims

Jonas Crevecoeur, Jens Robben and Katrien Antonio

Insurance: Mathematics and Economics, 2022, vol. 104, issue C, 158-184

Abstract: Traditional non-life reserving models largely neglect the vast amount of information collected over the lifetime of a claim. This information includes covariates describing the policy, claim cause as well as the detailed history collected during a claim's development over time. We present the hierarchical reserving model as a modular framework for integrating a claim's history and claim-specific covariates into the development process. Hierarchical reserving models decompose the joint likelihood of the development process over time. Moreover, they are tailored to the portfolio at hand by adding a layer to the model for each of the events registered during the development of a claim (e.g. settlement, payment). Layers are modelled with statistical learning (e.g. generalized linear models) or machine learning methods (e.g. gradient boosting machines) and use claim-specific covariates. As a result of its flexibility, this framework incorporates many existing reserving models, ranging from aggregate models designed for run-off triangles to individual models using claim-specific covariates. This connection allows us to develop a data-driven strategy for choosing between aggregate and individual reserving; an important decision for reserving practitioners. We illustrate our method with a case study on a real insurance data set and deduce new insights in the covariates driving the development of claims. Moreover, we evaluate the method's performance on a large number of simulated portfolios representing several realistic development scenarios and demonstrate the flexibility and robustness of the hierarchical reserving model.

Keywords: Individual claims reserving; Covariate shift; Model and variable selection; Moving window evaluation; Simulation machine (search for similar items in EconPapers)
JEL-codes: G22 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Working Paper: A hierarchical reserving model for reported non-life insurance claims (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:104:y:2022:i:c:p:158-184

DOI: 10.1016/j.insmatheco.2022.02.005

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