FIRE CLAIM SIZE ESTIMATION USING MATHEMATICAL METHODS: MONTE CARLO SIMULATION & SCENARIO ANALYSIS
24 Pages Posted: 3 Jul 2024
Date Written: December 09, 2023
Abstract
By building a mathematical model based on the October 2023 updated data tables of the National Fire Statistics—Home Office, this report seeks to, primarily, estimate the total sum—S—likely to be incurred by a UK insurance company next year in paying claims resulting from a fire policy.
These claims, random both in size—Xi–(magnitude) and number—N—(frequency), are estimated using the basic underlying assumptions: that they are independent of each other, and identically distributed from a statistical distribution(s). These distributions, of the number and size of fires arising from policies in the risk pool of the UK insurer, will be predicted from a host of distributions and severally justified as a best fit for the model. Based on the predictions of fire claim distributions, the probability distribution of the total sum likely to be spent by the insurer next year is estimated using Monte-Carlo simulations in R.
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