Handling the dependence of claim severities with copula models

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

Problem statement: Several studies have been carried out on the modeling of claim severity data in actuarial literature as well as in insurance practice. Since it is well established that the claim cost distributions generally have positive support and are positively skewed, the regression models of Gamma and Lognormal have been used by practitioners for modeling claim severities. However, the fitting of claim severities via regression models assumes that the claim types are independent. Approach: In this study, independent assumption between claim types will be investigated as we will consider three types of Malaysian motor insurance claims namely Third Party Body Injury (TPBI), Third Party Property Damage (TPPD) and Own Damage (OD) and applied the normal, t, Frank and Clayton copulas for modeling dependence structures between these claim types. Results: The AIC and BIC indicated that the Clayton is the best copula for modeling dependence between TPBI and OD claims and between TPPD and OD claims, whereas the t-copula is the best copula for modeling dependence between TPBI and TPPD claims. Conclusion: This study modeled the dependence between insurance claim types using copulas on the Malaysian motor insurance claim severity data. The main advantage of using copula is that each marginal distribution can be specified independently based on the distribution of individual variable and then joined by the copula which takes into account the dependence between these variables. Based on the results, the estimated of copula parameter for claim severities indicate that the dependence between claim types is significant.

Original languageEnglish
Pages (from-to)136-142
Number of pages7
JournalJournal of Mathematics and Statistics
Volume6
Issue number2
Publication statusPublished - 2010

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Copula Models
Copula
Damage
Insurance
Modeling
Regression Model
Dependence Structure
Marginal Distribution

Keywords

  • Claim severity
  • Claim types
  • Copula
  • Dependence

ASJC Scopus subject areas

  • Mathematics(all)
  • Statistics and Probability

Cite this

Handling the dependence of claim severities with copula models. / Resti, Yulia; Ismail, Noriszura; Jaaman @ Sharman, Saiful Hafizah.

In: Journal of Mathematics and Statistics, Vol. 6, No. 2, 2010, p. 136-142.

Research output: Contribution to journalArticle

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