Longitudinal Modeling of Insurance Claim Counts Using Jitters

Peng Shi, Emiliano A. Valdez
2011 Social Science Research Network  
Modeling insurance claim counts is a critical component in the ratemaking process for property and casualty insurance. This article explores the usefulness of copulas to model the number of insurance claims for an individual policyholder within a longitudinal context. To address the limitations of copulas commonly attributed to multivariate discrete data, we adopt a "jittering" method to the claim counts which has the effect of continuitizing the data. Elliptical copulas are proposed to
more » ... ate the intertemporal nature of the "jittered" claim counts and the unobservable subject-specific heterogeneity on the frequency of claims. Observable subject-specific effects are accounted in the model by using available covariate information through a regression model. The predictive distribution together with the corresponding credibility of claim frequency can be derived from the model for ratemaking and risk classification purposes. For empirical illustration, we analyze an unbalanced longitudinal dataset of claim counts observed from a portfolio of automobile insurance policies of a general insurer in Singapore. We further establish the validity of the calibrated copula model, and demonstrate that the copula with "jittering" method outperforms standard count regression models.
doi:10.2139/ssrn.1926237 fatcat:ar5qllaisbeo5pcet63ewlnnxi