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Implementing Custom Loss Functions in Advanced Machine Learning Structures for Targeted Outcomes

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  • Thomas Hitchen

    (Department of Mathematics, University of Manchester, Manchester M13 9PL, UK)

  • Saralees Nadarajah

    (Department of Mathematics, University of Manchester, Manchester M13 9PL, UK)

Abstract

In the era of rapid technological advancement and ever-increasing data availability, the field of risk modeling faces both unprecedented challenges and opportunities. Traditional risk modeling approaches, while robust, often struggle to capture the complexity and dynamic nature of modern risk factors. This paper aims to provide a method for dealing with the insurance pricing problem of pricing predictability and MLOT (Money Left On Table) when writing a book of risks. It also gives an example of how to improve risk selection through suitable choices of machine learning algorithm and acquainted loss function. We apply this methodology to the provided data and discuss the impacts on risk selection and predictive power of the models using the data provided.

Suggested Citation

  • Thomas Hitchen & Saralees Nadarajah, 2025. "Implementing Custom Loss Functions in Advanced Machine Learning Structures for Targeted Outcomes," JRFM, MDPI, vol. 18(7), pages 1-19, June.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:7:p:348-:d:1685755
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    References listed on IDEAS

    as
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    2. Alina Kulustayeva & Aigul Jondelbayeva & Azhar Nurmagambetova & Aliya Dossayeva & Aliya Bikteubayeva, 2020. "Financial data reporting analysis of the factors influencing on profitability for insurance companies," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(3), pages 2394-2406, March.
    3. Ronald Richman & Mario V. Wüthrich, 2023. "LocalGLMnet: interpretable deep learning for tabular data," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2023(1), pages 71-95, January.
    4. Michel Denuit & Julien Trufin, 2017. "Beyond the Tweedie Reserving Model: The Collective Approach to Loss Development," North American Actuarial Journal, Taylor & Francis Journals, vol. 21(4), pages 611-619, October.
    5. Alinta Ann Wilson & Antonio Nehme & Alisha Dhyani & Khaled Mahbub, 2024. "A Comparison of Generalised Linear Modelling with Machine Learning Approaches for Predicting Loss Cost in Motor Insurance," Risks, MDPI, vol. 12(4), pages 1-29, March.
    6. Denuit, Michel & Trufin, Julien, 2017. "Beyond the Tweedie Reserving Model: The Collective Approach to Loss Development," LIDAM Reprints ISBA 2017038, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    7. Carina Clemente & Gracinda R. Guerreiro & Jorge M. Bravo, 2023. "Modelling Motor Insurance Claim Frequency and Severity Using Gradient Boosting," Risks, MDPI, vol. 11(9), pages 1-20, September.
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