Optimal premium pricing policy in a competitive insurance market environment

2012 ◽  
Vol 7 (2) ◽  
pp. 175-191 ◽  
Author(s):  
Athanasios A. Pantelous ◽  
Eudokia Passalidou
Keyword(s):  
Control Function ◽  
Insurance Industry ◽  
Automobile Insurance ◽  
Insurance Company ◽  
Pricing Policy ◽  
The Past ◽  
Discounted Utility ◽  
Finite Time Horizon ◽  
Using Data ◽  
A Company

AbstractIn this paper, we propose a model for the optimal premium pricing policy of an insurance company into a competitive environment using Dynamic Programming into a stochastic, discrete-time framework when the company is expected to drop part of the market. In our approach, the volume of business which is related to the past year experience, the average premium of the market, the company's premium which is a control function and a linear stochastic disturbance, have been considered. Consequently, maximizing the total expected linear discounted utility of the wealth over a finite time horizon, the optimal premium strategy is defined analytically and endogenously. Finally, considering two different strategies for the average premium of the market, the optimal premium policy for a company with an expected decreasing volume of business is derived and fully investigated. The results of this paper are further evaluated by using data from the Greek Automobile Insurance Industry.

Life

2020 ◽  
pp. 8-32
Author(s):  
Benjamin Wiggins
Keyword(s):  
Public Relations ◽  
Insurance Industry ◽  
Theoretical Work ◽  
Business Practices ◽  
Insurance Company ◽  
Company Policy ◽  
History Of ◽  
A Company ◽  
History Of Race

Chapter 1 focuses on the early history of race-based insurance. When the Newark-based Prudential Insurance Company of America incorporated in 1875, it revolutionized the American insurance industry by offering policies to the working class for an affordable three cents per week. What made the Prudential doubly unique was that the company insured not simply industrial laborers, but also African American laborers. The company was not in the progressive vanguard, though. Rather, the Northern upstart, in contrast to its Southern competitors, simply had not thought to craft a company policy to explicitly ban African Americans from purchasing life insurance. Just five years after becoming the first insurer to cover black lives, the Prudential began to charge differential, race-based premiums and commenced a public relations effort to defend its discriminatory practices. This foundational chapter traces how the theoretical work of scientific racism became embedded in the business practices of American insurers.

scholarly journals On age difference in joint lifetime modelling with life insurance annuity applications

2018 ◽  
Vol 12 (2) ◽  
pp. 350-371 ◽  
Author(s):  
François Dufresne ◽  
Enkelejd Hashorva ◽  
Gildas Ratovomirija ◽  
Youssouf Toukourou
Keyword(s):  
Life Insurance ◽  
Joint Distribution ◽  
Goodness Of Fit ◽  
Married Couple ◽  
Insurance Market ◽  
Age Difference ◽  
Insurance Company ◽  
The Past ◽  
Copula Approach ◽  
Using Data

AbstractInsurance and annuity products covering several lives require the modelling of the joint distribution of future lifetimes. In the interest of simplifying calculations, it is common in practice to assume that the future lifetimes among a group of people are independent. However, extensive research over the past decades suggests otherwise. In this paper, a copula approach is used to model the dependence between lifetimes within a married couple using data from a large Canadian insurance company. As a novelty, the age difference and the gender of the elder partner are introduced as an argument of the dependence parameter. Maximum likelihood techniques are thus implemented for the parameter estimation. Not only do the results make clear that the correlation decreases with age difference, but also the dependence between the lifetimes is higher when husband is older than wife. A goodness-of-fit procedure is applied in order to assess the validity of the model. Finally, considering several annuity products available on the life insurance market, the paper concludes with practical illustrations.

A POSTERIORI RATEMAKING WITH PANEL DATA

2014 ◽  
Vol 44 (3) ◽  
pp. 587-612 ◽  
Author(s):  
Jean-Philippe Boucher ◽  
Rofick Inoussa
Keyword(s):  
Panel Data ◽  
A Priori ◽  
Automobile Insurance ◽  
Insurance Company ◽  
A Posteriori ◽  
Numerical Illustration ◽  
Section Data ◽  
The Past ◽  
Car Insurance ◽  
Insurance Data

AbstractRatemaking is one of the most important tasks of non-life actuaries. Usually, the ratemaking process is done in two steps. In the first step, a priori ratemaking, an a priori premium is computed based on the characteristics of the insureds. In the second step, called the a posteriori ratemaking, the past claims experience of each insured is considered to the a priori premium and set the final net premium. In practice, for automobile insurance, this correction is usually done with bonus-malus systems, or variations on them, which offer many advantages. In recent years, insurers have accumulated longitudinal information on their policyholders, and actuaries can now use many years of informations for a single insured. For this kind of data, called panel or longitudinal data, we propose an alternative to the two-step ratemaking approach and argue this old approach should no longer be used. As opposed to a posteriori models of cross-section data, the models proposed in this paper generate premiums based on empirical results rather than inductive probability. We propose a new way to deal with bonus-malus systems when panel data are available. Using car insurance data, a numerical illustration using at-fault and non-at-fault claims of a Canadian insurance company is included to support this discussion. Even if we apply the model for car insurance, as long as another line of business uses past claim experience to set the premiums, we maintain that a similar approach to the model proposed should be used.

scholarly journals Performance of Malaysian Insurance Companies Using Data Envelopment Analysis

2018 ◽  
Vol 11 (3) ◽  
pp. 1147 ◽  
Author(s):  
Ng Jia Bao ◽  
Rohaizan Ramlan ◽  
Fazeeda Mohamad ◽  
Azlina Md Yassin
Keyword(s):  
Data Envelopment Analysis ◽  
Insurance Industry ◽  
Secondary Data ◽  
Efficiency Score ◽  
Equity Capital ◽  
Insurance Companies ◽  
Data Envelopment ◽  
Insurance Company ◽  
Policy Makers ◽  
Using Data

The purpose of this study is to evaluate the performance of the local insurance in Malaysia for the period 2014-2015. The major challenge in the insurance industry is increasing competition in this market. Besides that, problematic in performance measurement to evaluate performance is another challenge in insurance industry. 24 local insurance companies involved in this study using quantitative method of Data Envelopment Analysis (DEA) output-orientation CCR model. This study utilizes three inputs and three outputs; operating expenses, equity capital and commission as well as net premium, net investment income, and net incurred claim. The secondary data sources were derived from official data of local insurance companies’ annual report respectively. The DEA-Solver-LV version 8 tools were used to analyze the data that have been collected to evaluate the performance of local insurance company. This DEA model allows integration of the performance for the insurance companies and provides management overall performance evaluation. The results showed that there are 8 efficient companies in 2014 and 9 efficient companies in 2015. The average efficiency score in 2014 was increased from 78.9% to 79.1% in 2015. The findings from this study will benefit the insurance associations in Malaysia, management of insurances companies and policy makers.

scholarly journals The Functions of the Stock Market and the Fallacies of Shareholder Value

2018 ◽  
Author(s):  
William Lazonick
Keyword(s):  
Stock Market ◽  
Control Function ◽  
Shareholder Value ◽  
Past Century ◽  
Managerial Capitalism ◽  
The Past ◽  
The Social ◽  
Innovative Enterprise ◽  
Organizational Integration ◽  
A Company

This chapter analyses the evolution of US stock markets in terms of five functions: ‘control’, ‘cash’, ‘creation’, ‘combination’, and ‘compensation’. I argue for the centrality of the control function in supporting innovative enterprise in the rise of US managerial capitalism. I then consider how each of the five functions can encourage value creation or, alternatively, empower value extraction, and trace the evolving roles of the five functions of the stock market in major US business corporations over the past century. Drawing upon this history, I conclude by critiquing the dominant ideology that, for the sake of superior economic performance, a company should be run to ‘maximize shareholder value’ (MSV). I indicate how MSV undermines the social conditions of innovative enterprise: strategic control, organizational integration, and financial commitment.

scholarly journals The Utility of Zero-Inflated Models in the Estimation of the Number of Accidents in the Automobile Insurance Industry

Equilibrium ◽  
2010 ◽  
Vol 5 (2) ◽  
pp. 181-194
Author(s):  
Marija Del Carmen Melgar ◽  
Jose Antonio Ordaz
Keyword(s):  
Insurance Industry ◽  
Empirical Studies ◽  
Private Insurance ◽  
Positive Association ◽  
Insurance Companies ◽  
Automobile Insurance ◽  
Insurance Company ◽  
Count Data Models ◽  
Automobile Accidents ◽  
Private Insurance Company

The main purpose of the present paper is to provide an econometric model which estimates the number of automobile accidents that policyholders declare to their insurance companies, pointing out those variables that are significant in this process. Our empirical analysis is based on the data supplied by a private insurance company that operates in Spain, and on the zero-inflated count data models as methodology. We find a positive association between the levels of coverage and the accident rates, suggesting the existence of problems related to adverse selection and moral hazard. This result is one of the most important conclusions of our work and confirms the theoretical aspects pointed up by other empirical studies in the literature. Additionally, estimating the number of policyholders that suffered any accident but not declared, and how many these non-declared accidents are, could be very useful information for insurers to evaluate their risk planning. Our model attempts to reach this target as well.

A GDPR Implementation Guide for the Insurance Industry

2018 ◽  
Vol 7 (4) ◽  
pp. 34-44 ◽  
Author(s):  
Xenofon Liapakis
Keyword(s):  
Human Rights ◽  
Data Protection ◽  
Insurance Industry ◽  
Fine Tuning ◽  
Insurance Company ◽  
Universal Statement ◽  
Productive Process ◽  
A Company

Data Protection has always been an issue of concern for businesses across the globe. Laws addressing the Universal Statement for Human Rights have been set as early as 1948 and, as years go by, awareness further strengthens legislative actions. Through his work at Interamerican insurance company, the author shows that alignment with legislation, though perceived as a resource-intensive, counter-productive process, may be turned into an opportunity for fine tuning, promoting the operations of a company, and raising the trust towards IT.

scholarly journals An Analysis of Spanish Accidents in Automobile Insurance: The Use of the Probit Model and the Theoretical Potential of Other Econometric Tools

Equilibrium ◽  
2011 ◽  
Vol 6 (3) ◽  
pp. 117-134
Author(s):  
Jose Antonio Ordaz ◽  
Maria Del Carmen Melgar ◽  
M. Kazim Khan
Keyword(s):  
Insurance Industry ◽  
Probit Model ◽  
Probit Analysis ◽  
Model Specification ◽  
Insurance Companies ◽  
Automobile Insurance ◽  
Insurance Company ◽  
Multiple Perspectives ◽  
Count Data Models ◽  
Driving Experience

Automobile insurance is one of the main pillars of the entire insurance industry in the developed economies. Knowing as much as possible about the factors related to the accidents is an essential issue for the insurance companies so that they may improve their levels of efficiency. Therefore, in this paper we focus on studying the most relevant variables that help explain the registration of claims in the automobile insurance sector. For this purpose, we fit a probit model specification using a database from a Spanish insurance company. Our research points out the significance of certain variables, such as the policyholders’ driving experience, their region of residence as well as their levels of insurance coverage, towards the likelihood of registering an insurance claim. However, probit analysis represents only one of the multiple perspectives which we can consider to examine the question of accidents and their reporting. Very briefly, we also discuss the utility of zero-inflated count data models to study the number of accidents declared by policyholders. Finally, we point out the possibilities that thinned models could offer for this type of research.

scholarly journals Application of Game Theory to Some Problems in Automobile Insurance

1962 ◽  
Vol 2 (2) ◽  
pp. 208-221 ◽  
Author(s):  
Karl Borch
Keyword(s):  
Game Theory ◽  
Automobile Insurance ◽  
Insurance Company ◽  
Probability Of Ruin ◽  
Von Neumann ◽  
The Game Theory ◽  
Government Inspection ◽  
The Government ◽  
Image Position ◽  
A Company

In this paper we shall study the problem of determining “correct” premium rates for sub-groups of an insurance collective. This problem obviously occurs in all branches of insurance. However, it seems at present to be a really burning issue in automobile insurance. We shall show that the problem can be formulated as a conflict between groups which can gain by co-operating, although their interests are opposed. When formulated in this way, the problem evidently can be analysed and solved by the help ot the “Game Theory” of Von Neumann and Morgenstern (5).We shall first illustrate the problem by a simple example. We consider a group of n1 = 100 persons, each of whom may suffer a loss of 1, with probability p1 = 0.1. We assume that these persons consider forming an insurance company to cover themselves against this risk. We further assume that for some reason, government regulations or prejudices of managers, an insurance company must be organized so that the probability of ruin is less than 0.001If such a company is formed, expected claim payment will beand the standard deviation of the claim payments will beIf the government inspection (or the company's actuary) agrees that the ruin probability can be calculated with sufficient approximation by assuming that the claim payments have a normal distribution, the company must have funds amounting to

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