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Statistical premium in correlated losses of insurance

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  • Lai, Li-Hua

Abstract

We first investigate the market under two losses in which the second loss was affected by the first loss. We calculate the associated statistical premium using global and independent methods. The results show that the premium calculated in the global method is larger than that calculated in the independent method. Next, we consider the markets with more general losses which are correlated to one another. We adopt the “principle of minimum sensitive dependence on risk aversion” to find the statistical premium with the help of the Lagrange multiplier method. It is shown that the statistical premium found by using this method is larger than that calculated by using the independent method. We also show that when there is larger uncertainty, there is larger need for a risk loading in global condition. When the risk aversion is introduced, all insured prefer to move from their originally optimal loss control activities to a combination of the lower dispersion and risk tolerance. This also corroborates that increasing in risk reduces the optimal risk exposure of the application and induce the insured's loss control mechanisms adopted on insurance pricing and premium adjustments.

Suggested Citation

  • Lai, Li-Hua, 2015. "Statistical premium in correlated losses of insurance," Economic Modelling, Elsevier, vol. 49(C), pages 248-253.
    • Handle: RePEc:eee:ecmode:v:49:y:2015:i:c:p:248-253
    DOI: 10.1016/j.econmod.2015.05.002
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    References listed on IDEAS

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    Cited by:

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    2. Araichi, Sawssen & Peretti, Christian de & Belkacem, Lotfi, 2017. "Reserve modelling and the aggregation of risks using time varying copula models," Economic Modelling, Elsevier, vol. 67(C), pages 149-158.
    3. Araichi, Sawssen & Peretti, Christian de & Belkacem, Lotfi, 2016. "Solvency capital requirement for a temporal dependent losses in insurance," Economic Modelling, Elsevier, vol. 58(C), pages 588-598.
    4. Di Marcoberardino, G. & Chiarabaglio, L. & Manzolini, G. & Campanari, S., 2019. "A Techno-economic comparison of micro-cogeneration systems based on polymer electrolyte membrane fuel cell for residential applications," Applied Energy, Elsevier, vol. 239(C), pages 692-705.
    5. Wenhui Zhang & Yongmin Su & Ruimin Ke & Xinqiang Chen, 2018. "Evaluating the influential priority of the factors on insurance loss of public transit," PLOS ONE, Public Library of Science, vol. 13(1), pages 1-11, January.
    6. Costa, Carlos & Bakas, Fiona Eva & Breda, Zélia & Durão, Marília & Carvalho, Inês & Caçador, Sandra, 2017. "Gender, flexibility and the ‘ideal tourism worker’," Annals of Tourism Research, Elsevier, vol. 64(C), pages 64-75.

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