Exploring the Effects of Classical Auto Insurance Rating Variables on Premium in ARDL: Is the high Policyholders’ Premium in Ghana Justified?

Jacob Azaare, Zhao Wu and Bright Nana Kwame Ahia

SAGE Open, 2022, vol. 12, issue 4, 21582440221134219

Abstract: To better understand the actual rating variables that affects Auto insurance Policyholders’ premium, this paper attempts to provide empirical evidence to justify which ones are significant and needed to be considered by insurers by adopting the autoregressive distributed lag (ARDL) model. In satisfying all the conditions for ARDL application, unit root, Heteroskedasticity, normality, dynamic stability and serial correlation tests were conducted. We estimate the effects of each rating variable on Premium taking into consideration whether the policy of the insured is Third-Party or Comprehensive. These rating variables in the ARDL model serves as the independent variables that establishes the short and long-run relationships between them and the Premium as the dependent variable. The results suggest that not all the classical rating variables used in the market significantly impact Premium. Whiles, to some extent, we found a varying degree of variables impact on Premium depending on the insurance type, the autos cubic capacity, which plays a cogent role on the basic Premium in Ghana, is insignificant. Also, policyholders’ age characteristics are statistically significant but are excluded in the premium calculations. Thus, this paper shows the need to consider all the other possible rating variables, including policyholders’ age into the Ghanaian insurance pricing system, whiles autos cubic capacity considering the weight it put on the basic Premium should be re-examined. This would help to obtain a financially balanced and optimal pricing system for policyholders.

Keywords: long-run equilibrium; classical Premium variables; Ghana auto insurance market; optimal pricing system; insurance policyholders; policyholders premium (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/21582440221134219 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:12:y:2022:i:4:p:21582440221134219

DOI: 10.1177/21582440221134219

Access Statistics for this article

More articles in SAGE Open
Bibliographic data for series maintained by SAGE Publications ().