Studies from Ted Rogers School of Management Yield New Data on Mathematics (Generalised Additive Modelling of Auto Insurance Data with Territory Design: A Rate Regulation Perspective): Mathematics

2023 FEB 02 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- A new study on mathematics is now available. According to news reporting out of Toronto, Canada, by NewsRx editors, research stated, “Pricing using a Generalised Linear Model is the gold standard in the auto insurance industry and rate regulation. Generalised Additive Model applications in insurance pricing are receiving increasing attention from academic researchers and actuarial pricing professionals.”

Our news journalists obtained a quote from the research from Ted Rogers School of Management: “The actuarial practice has constantly shown evidence of significantly different premium rates among the different rating territories. In this work, we build predictive models for claim frequency and severity using the synthetic Usage Based Insurance (UBI) dataset variables. First, we conduct territorial clustering based on each location’s claim counts and amounts by grouping those locations into a smaller set, defined as a cluster for rating purposes. After clustering, we incorporate these clusters into our predictive model to determine the risk relativity for each factor level. Through predictive modelling, we have successfully identified key factors that may be helpful for the rate regulation of UBI. Our work aims to fill the gap between individual-level pricing and rate regulation using the UBI database and provides insights on consistency in using traditional rating variables for UBI pricing. Our main contribution is to outline how GAM can address a more complicated functionality of risk factors and the interactions among them. We also contribute to demonstrating the territory clustering problem in UBI to construct the rating territories for pricing and rate regulation.”

According to the news reporters, the research concluded: “We find that relativity for high annual mileage driven is almost three times that associated with low annual mileage level, which implies its importance in premium calculation. Overall, we provide insights into how UBI can be regulated through traditional pricing factors, additional factors from UBI datasets and rating territories derived from basic rating units and the driver’s location.”

For more information on this research see: Generalised Additive Modelling of Auto Insurance Data with Territory Design: A Rate Regulation Perspective. Mathematics, 2023,11(334):334. (Mathematics - http://www.mdpi.com/journal/mathematics). The publisher for Mathematics is MDPI AG.

A free version of this journal article is available at https://doi.org/10.3390/math11020334.

Our news editors report that additional information may be obtained by contacting Shengkun Xie, Global Management Studies, Ted Rogers School of Management, Toronto Metropolitan University, Toronto, ON M5B 2K3, Canada. Additional authors for this research include Kun Shi.

(Our reports deliver fact-based news of research and discoveries from around the world.)