Building Loss Models

Krzysztof Burnecki, Joanna Janczura and Rafał Weron

MPRA Paper from University Library of Munich, Germany

Abstract: This paper is intended as a guide to building insurance risk (loss) models. A typical model for insurance risk, the so-called collective risk model, treats the aggregate loss as having a compound distribution with two main components: one characterizing the arrival of claims and another describing the severity (or size) of loss resulting from the occurrence of a claim. In this paper we first present efficient simulation algorithms for several classes of claim arrival processes. Then we review a collection of loss distributions and present methods that can be used to assess the goodness-of-fit of the claim size distribution. The collective risk model is often used in health insurance and in general insurance, whenever the main risk components are the number of insurance claims and the amount of the claims. It can also be used for modeling other non-insurance product risks, such as credit and operational risk.

Keywords: Insurance risk model; Loss distribution; Claim arrival process; Poisson process; Renewal process; Random variable generation; Goodness-of-fit testing (search for similar items in EconPapers)
JEL-codes: C15 C46 C63 G22 G32 (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-ias, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Building Loss Models (2010)
Working Paper: Building loss models (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:25492

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