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A Class Of Mixture Of Experts Models For General Insurance: Application To Correlated Claim Frequencies

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  • Chai Fung, Tsz
  • Badescu, Andrei L.
  • Sheldon Lin, X.

Abstract

This paper focuses on the estimation and application aspects of the Erlang count logit-weighted reduced mixture of experts model (EC-LRMoE), which is a fully flexible multivariate insurance claim frequency regression model. We first prove the identifiability property of the proposed model to ensure that it is a suitable candidate for statistical inference. An expectation conditional maximization (ECM) algorithm is developed for efficient model calibrations. Three simulation studies are performed to examine the effectiveness of the proposed ECM algorithm and the versatility of the proposed model. The applicability of the EC-LRMoE is shown through fitting an European automobile insurance data set. Since the data set contains several complex features, we find it necessary to adopt such a flexible model. Apart from showing excellent fitting results, we are able to interpret the fitted model in an insurance perspective and to visualize the relationship between policyholders’ information and their risk level. Finally, we demonstrate how the fitted model may be useful for insurance ratemaking.

Suggested Citation

  • Chai Fung, Tsz & Badescu, Andrei L. & Sheldon Lin, X., 2019. "A Class Of Mixture Of Experts Models For General Insurance: Application To Correlated Claim Frequencies," ASTIN Bulletin, Cambridge University Press, vol. 49(3), pages 647-688, September.
    • Handle: RePEc:cup:astinb:v:49:y:2019:i:03:p:647-688_00
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    Citations

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    Cited by:

    1. Despoina Makariou & Pauline Barrieu & George Tzougas, 2021. "A Finite Mixture Modelling Perspective for Combining Experts’ Opinions with an Application to Quantile-Based Risk Measures," Risks, MDPI, vol. 9(6), pages 1-25, June.
    2. Makariou, Despoina & Barrieu, Pauline & Tzougas, George, 2021. "A finite mixture modelling perspective for combining experts’ opinions with an application to quantile-based risk measures," LSE Research Online Documents on Economics 110763, London School of Economics and Political Science, LSE Library.
    3. Tzougas, George & di Cerchiara, Alice Pignatelli, 2021. "Bivariate mixed Poisson regression models with varying dispersion," LSE Research Online Documents on Economics 114327, London School of Economics and Political Science, LSE Library.
    4. Tzougas, George & Pignatelli di Cerchiara, Alice, 2021. "The multivariate mixed Negative Binomial regression model with an application to insurance a posteriori ratemaking," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 602-625.
    5. Tzougas, George & Makariou, Despoina, 2022. "The multivariate Poisson-Generalized Inverse Gaussian claim count regression model with varying dispersion and shape parameters," LSE Research Online Documents on Economics 117197, London School of Economics and Political Science, LSE Library.
    6. Delong, Łukasz & Lindholm, Mathias & Wüthrich, Mario V., 2021. "Gamma Mixture Density Networks and their application to modelling insurance claim amounts," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 240-261.
    7. Fung, Tsz Chai & Badescu, Andrei L. & Lin, X. Sheldon, 2019. "A class of mixture of experts models for general insurance: Theoretical developments," Insurance: Mathematics and Economics, Elsevier, vol. 89(C), pages 111-127.
    8. Bladt, Martin & Yslas, Jorge, 2023. "Robust claim frequency modeling through phase-type mixture-of-experts regression," Insurance: Mathematics and Economics, Elsevier, vol. 111(C), pages 1-22.
    9. George Tzougas & Despoina Makariou, 2022. "The multivariate Poisson‐Generalized Inverse Gaussian claim count regression model with varying dispersion and shape parameters," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(4), pages 401-417, December.
    10. Verschuren, Robert Matthijs, 2022. "Frequency-severity experience rating based on latent Markovian risk profiles," Insurance: Mathematics and Economics, Elsevier, vol. 107(C), pages 379-392.
    11. Zezhun Chen & Angelos Dassios & George Tzougas, 2023. "Multivariate mixed Poisson Generalized Inverse Gaussian INAR(1) regression," Computational Statistics, Springer, vol. 38(2), pages 955-977, June.
    12. Počuča, Nikola & Jevtić, Petar & McNicholas, Paul D. & Miljkovic, Tatjana, 2020. "Modeling frequency and severity of claims with the zero-inflated generalized cluster-weighted models," Insurance: Mathematics and Economics, Elsevier, vol. 94(C), pages 79-93.
    13. Chen, Zezhun Chen & Dassios, Angelos & Tzougas, George, 2023. "EM estimation for bivariate mixed poisson INAR(1) claim count regression models with correlated random effects," LSE Research Online Documents on Economics 118826, London School of Economics and Political Science, LSE Library.

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