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Forecasting the maximum compensation offer in the automobile BI claims negotiation proces

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  • Mercedes Ayuso

    ()
    (Faculty of Economics, University of Barcelona)

  • Miguel Santolino

    ()
    (Faculty of Economics, University of Barcelona)

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    Abstract

    Most motor bodily injury (BI) claims are settled by negotiation, with fewer than 5% of cases going to court. A well-defined negotiation strategy is thus very useful for insurance companies. In this paper we assume that the monetary compensation awarded in court is the upper amount to be offered by the insurer in the negotiation process. Using a real database, a log-linear model is implemented to estimate the maximal offer. Non-spherical disturbances are detected. Correlation occurs when various claims are settled in the same judicial verdict. Groupwise heteroscedasticity is due to the influence of the forensic valuation on the final compensation amount. An alternative approximation based on generalized inference theory is applied to estimate confidence intervals on variance components, since classical interval estimates may be unreliable for datasets with unbalanced structures.

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    File URL: http://www.ub.edu/irea/working_papers/2008/200807.pdf
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    Bibliographic Info

    Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 200807.

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    Length: 24 pages
    Date of creation: May 2008
    Date of revision: May 2008
    Handle: RePEc:ira:wpaper:200807

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    Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
    Web page: http://www.ub.edu/irea/
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    Related research

    Keywords: bodily injury claims compensation; negotiation process; generalized confidence intervals.;

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    1. Nelson, William Jr., 2002. "Equity or intention: it is the thought that counts," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 423-430, August.
    2. Crocker, Keith J & Tennyson, Sharon, 2002. "Insurance Fraud and Optimal Claims Settlement Strategies," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 469-507, October.
    3. David S. Loughran, 2005. "Deterring Fraud: The Role of General Damage Awards in Automobile Insurance Settlements," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(4), pages 551-575.
    4. Viaene, Stijn & Ayuso, Mercedes & Guillen, Montserrat & Van Gheel, Dirk & Dedene, Guido, 2007. "Strategies for detecting fraudulent claims in the automobile insurance industry," European Journal of Operational Research, Elsevier, vol. 176(1), pages 565-583, January.
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