Market-based insurance ratemaking: application to pet insurance

Pierre-Olivier Goffard (), Pierrick Piette () and Gareth Peters
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Pierre-Olivier Goffard: UNISTRA - Université de Strasbourg, IRMA - Institut de Recherche Mathématique Avancée - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique
Pierrick Piette: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Gareth Peters: PSTAT-UCSB - Department of Statistics and Applied Probability [Santa Barbara] - UC Santa Barbara - University of California [Santa Barbara] - UC - University of California

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Abstract: This paper introduces a method for pricing insurance policies using market data. The approach is designed for scenarios in which the insurance company seeks to enter a new market, in our case: pet insurance, lacking historical data. The methodology involves an iterative two-step process. First, a suitable parameter is proposed to characterize the underlying risk. Second, the resulting pure premium is linked to the observed commercial premium using an isotonic regression model. To validate the method, comprehensive testing is conducted on synthetic data, followed by its application to a dataset of actual pet insurance rates. To facilitate practical implementation, we have developed an R package called IsoPriceR. By addressing the challenge of pricing insurance policies in the absence of historical data, this method helps enhance pricing strategies in emerging markets.

Keywords: Insurance Pricing; Bayesian Inference5; Approximate Bayesian Computation; Isotonic Regression (search for similar items in EconPapers)
Date: 2023
Note: View the original document on HAL open archive server: https://hal.science/hal-04297811v3
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