Dependence modeling of frequency-severity of insurance claims using waiting time

Guangyuan Gao and Jiahong Li

Insurance: Mathematics and Economics, 2023, vol. 109, issue C, 29-51

Abstract: Mixed copula approach has been used to jointly model discrete variable of claim counts and continuous variable of claim amounts. We propose to use a copula to link two continuous variables of the waiting time for the second claim and the average claim size. The frequency-severity dependence can be derived using the relationship between the waiting time and the counts of a Poisson process. Assuming a Gaussian copula and a log-normal distributed average claim size, we can investigate the effect of claim counts on the conditional claim severity analytically, which would be difficult in the mixed copula approach. We propose a Monte Carlo algorithm to simulate from the predictive distribution of the aggregated claims amount. In an empirical example, we illustrate the proposed method and compare with other competing methods. It shows that our proposed method provides quite competitive results.

Keywords: Insurance claims; Frequency-severity dependence; Copula regression; Poisson process; Waiting time (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:109:y:2023:i:c:p:29-51

DOI: 10.1016/j.insmatheco.2022.12.006

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