Spatial modelling of risk premiums for water damage insurance

Jens Christian Wahl, Fredrik Lohne Aanes, Kjersti Aas, Sindre Froyn and Daniel Piacek

Scandinavian Actuarial Journal, 2022, vol. 2022, issue 3, 216-233

Abstract: In this paper, we compare different spatial models for modelling the risk premium for water damage insurance on the level of the policyholder. We evaluate four models that take the spatial variability into account: (1) the Intrinsic Conditional Auto-Regressive (ICAR) model; (2) the Besag, York, Mollier (BYM) model; (3) the independent random effects model; and (4) a spatial spline model. The models are compared on a huge data set from the Norwegian insurance company Gjensidige containing seven million observations of policyholders during the period 2011–2018. While Bayesian methods are most frequently used for inference in Gaussian Markov Random Field models, we take a frequentist approach and estimate the model parameters using Laplace approximated restricted maximum likelihood. Using the R package mgcv, we compare the different models for claim frequency, claim size and combined in a risk premium model in a comprehensive cross-validation study. Practical measures such as the loss ratio lift, double lift and Gini index are used to compare performance. Finally, we also compare mgcv with INLA and show that for reasonable big data sets we get identical estimates at a much lower computational cost.

Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/03461238.2021.1951346 (text/html)
Access to full text is restricted to subscribers.

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:taf:sactxx:v:2022:y:2022:i:3:p:216-233

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/sact20

DOI: 10.1080/03461238.2021.1951346

Access Statistics for this article

Scandinavian Actuarial Journal is currently edited by Boualem Djehiche

More articles in Scandinavian Actuarial Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().