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Risk factors selection with data mining methods for insurance premium ratemaking

Author

Listed:
  • Amela Omeraševiæ

    (Uniqa osiguranje d.d. Sarajevo, Obala Kulina bana 19, 71000 Sarajevo, Bosnia and Herzegovina)

  • Jasmina Selimoviæ

    (School of Economics and Business, University of Sarajevo, Trg osloboðenja – Alija Izetbegoviæ 1, 71000 Sarajevo, Bosnia and Herzegovina)

Abstract

Insurance companies that have adopted the application of data mining methods in their business have become more competitive in the insurance market. Data mining methods provides the insurance industry with numerous advantages: shorter data processing times, more sophisticated methods for more accurate data analysis, better decision-making, etc. Insurance companies use data mining methods for various purposes, from marketing campaigns to fraud prevention. The process of insurance premium pricing was one of the first applications of data mining methods in insurance industry. The application of the data mining method in this paper aims to improve the results in the process of non-life insurance premium ratemaking. The improvement is reflected in the choice of predictors or risk factors that have an impact on insurance premium rates. The following data mining methods for the selection of prediction variables were investigated: Forward Stepwise, Decision trees and Neural networks. Generalized linear models (GLM) were used for premium ratemaking, as the main statistical model for non-life insurance premium pricing today in most developed insurance markets in the world.

Suggested Citation

  • Amela Omeraševiæ & Jasmina Selimoviæ, 2020. "Risk factors selection with data mining methods for insurance premium ratemaking," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 667-696.
    • Handle: RePEc:rfe:zbefri:v:38:y:2020:i:2:p:667-696
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    GLM; data mining methods; forward stepwise; decision trees; neural networks;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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