Dependence Modelling of Frequency-Severity of Insurance Claims Using Waiting Time for Claim

26 Pages Posted: 27 Apr 2021

See all articles by Guangyuan Gao

Guangyuan Gao

Renmin University of China - School of Statistics

Jiahong Li

Peking University - School of Mathematical Sciences

Date Written: April 2, 2021

Abstract

We propose a dependent frequency-severity model using a Gaussian copula. The copula links a latent variable of waiting time for the second claim with the claim severity. By assuming a log-normal distributed claim severity, we can analyze the effect of claim counts on the conditional expectation of severity. We propose a Monte Carlo simulation algorithm to simulate the predictive distribution of the aggregated claims amount. In an empirical example, we compare the proposed method with the conditional modeling by Garrido et al. (2016) and the mixed copula modeling by Czado et al. (2012).

Keywords: Copula, frequency-severity modeling, Poisson waiting time

JEL Classification: G22

Suggested Citation

Gao, Guangyuan and Li, Jiahong, Dependence Modelling of Frequency-Severity of Insurance Claims Using Waiting Time for Claim (April 2, 2021). Available at SSRN: https://ssrn.com/abstract=3829478 or http://dx.doi.org/10.2139/ssrn.3829478

Guangyuan Gao

Renmin University of China - School of Statistics ( email )

No.59 Zhongguancun Street, Renmin University
Beijing, 100872
China

Jiahong Li (Contact Author)

Peking University - School of Mathematical Sciences ( email )

No.5 Yiheyuan Road
Beijing
China
15010432038 (Phone)

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