Optimal claim strategy in the automobile insurance market
DOI:
https://doi.org/10.1590/0101-416147171blmKeywords:
Auto insurance, Pseudeductible, ClaimAbstract
Upon analyzing an extensive database on the Brazilian auto insurance market, we found a stylized fact: the frequency of claims is higher in the first months of contractual validity. In order to explain it, we propose a modified version of Venezia and Levy (1980) model, in which we show that pseudodeductible is lower at the beginning of the contract. The pseudodeductible is an unobservable threshold, higher than the deductible stipulated in the contract, below which the insuree has an incentive not to claim his losses. Given that the pseudodeductible is smaller at the beginning of the contract, the model predicts that there will be a higher frequency of losses (of lower value) being claimed in this period. In order to test this prediction, we regressed the logarithm of indemnities against dummies for the time of the contract, and we found that in the first quarter of the period the average value of claimed losses is approximately 2.21% lower than the second quarter. This information can be used by insurers to adjust the value of deductibles in the first months of contracts in order to reduce their claims rates.
Downloads
References
BRAUN, M., et al. “Modeling the “Pseudodeductible” in Insurance Claims Decisions.” Management Science. Vol. 52, No. 8, pp 1258-1272, 2006.
DE LEVE, G. e WEEDA, P.J. “Driving with Markov-programming”. The ASTIN Bulletin. No. 5, pp
-86, 1968.
DELLAERT, N. P., et al. “Optimal Claim Behaviour for Third-Party Liability Insurances or To claim or not to claim: that is the question.” Insurance: Mathematics and Economics. Vol. 9, pp 59-76, 1990.
DE PRIL, N. “Optimal Claim Decisions for a Bonus-Malus System: a Continuous Approach”. International Journal for Actuarial Studies in Non-life Insurance and Risk Theory. Vol. 10, pp 215-222, 1979.
DE PRIL, N. e GOOVAERTS, M. “Bounds for the Optimal Critical Claim Size of a Bonus System”.
Insurance: Mathematics and Economics. Vol. 2. No. 1, pp 27-32, 1983.
GRENANDER, U. “Some Remarks on Bonus Systems in Automobile Insurance”. Skandinavisk Aktuarietidskrift, Vol 40, pp 180-198, 1957.
HASTINGS, N.A.J. “Optimal Claiming on Vehicle Insurance”. Operational Research Quarterly. Vol. 27. No. 4, pp 805-813, 1976.
KERR, D. A. “Exploring the role of pseudodeductible in auto insurance claims reporting”. Journal of Insurance Issues. Vol 35, No.1, pp 44-72, 2012.
KOLDERMAN, J. e VOLGENANT, A. “Optimal Claiming in an Auto-mobile Insurance System with
Bonus-Malus Structure”. Journal of the Operatio-nal Research Society. Vol. 36. No. 3, pp 239-
, 1985.
LANZENAUER, C. H. “Entscheidungsregeln fur das optimale Verhalten in der Kraftfahrtversicherung”. Unternemensforschung. 13, pp. 193-204, 1969.
LANZENAUER, C. H. “Decision problems in the Canadian automobile insurance systems”. Journal of Risk and Insurance. Vol 39, No. 1, pp 79-92, 1972a.
LANZENAUER, C. H. “The effects of the insurees’ decisions on the insurer’s profit”. Proceedings in Operations Research. Physica Verlag, Heidelberg, pp 399-421, 1972b.
LANZENAUER, C. H. “Optimal Claim Decisions by Policyholders in Automobile Insurance with
Merit-Rating Structures”. Operations Research. Vol. 22, No. 5, pp. 979-990, 1974.
LEMAIRE, J. “Driver versus Company”. Scandinavian Actuarial Journal. pp 209-219, 1996.
NORBERG, R. “A Credibility Theory for Automobile Bonus System”. Scandinavian Actuarial Journal, 92-109, 1976.
NORMAN, J.M. e SHEARN, D.C.S. “Optimal Claiming on Vehicle Insurance Revisited”. Journal of
the Operational Research Society. Vol. 31. No. 2, pp 181-186, 1980.
VENEZIA, I. “Aspects of Optimal Automobile Insurance”. The Journal of Risk and Insurance. Vol 51 No 1, pp 63-79, 1984.
VENEZIA, I. e LEVY, H. “Optimal Claim in Automobile Insurance”. Review of Economic Studies.
pp. 539-549, 1980.
VENEZIA, I. e LEVY, H. “Optimal Claim in Automobile Insurance”. (Discussion Paper 79-2, Department of Economics, University of Rochester), 1979.
Downloads
Published
Issue
Section
License
Copyright (c) 2017 Bruno Aurichio, Mariana F. Boreli
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
By submitting an article, the author authorizes its publication and attests that it has not been submitted to any other journal. The original article is considered final. Articles selected for publication are proofread for grammatical and orthographic errors. The journal does not pay rights for published articles. The Institute of Economic Research from the School of Economics, Business and Accounting of the University of São Paulo (Instituto de Pesquisas Econômicas da Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo) owns the journal's copyright.