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A mixed copula model for insurance claims and claim sizes

Author

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  • Claudia Czado
  • Rainer Kastenmeier
  • Eike Brechmann
  • Aleksey Min

Abstract

A crucial assumption of the classical compound Poisson model of Lundberg for assessing the total loss incurred in an insurance portfolio is the independence between the occurrence of a claim and its claims size. In this paper we present a mixed copula approach suggested by Song et al. to allow for dependency between the number of claims and its corresponding average claim size using a Gaussian copula. Marginally we permit for regression effects both on the number of incurred claims as well as its average claim size using generalized linear models. Parameters are estimated using adaptive versions of maximization by parts (MBP). The performance of the estimation procedure is validated in an extensive simulation study. Finally the method is applied to a portfolio of car insurance policies, indicating its superiority over the classical compound Poisson model.

Suggested Citation

  • Claudia Czado & Rainer Kastenmeier & Eike Brechmann & Aleksey Min, 2012. "A mixed copula model for insurance claims and claim sizes," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2012(4), pages 278-305.
    • Handle: RePEc:taf:sactxx:v:2012:y:2012:i:4:p:278-305
    DOI: 10.1080/03461238.2010.546147
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    Cited by:

    1. Övgücan Karadağ Erdemir, 2023. "A Comparative Perspective on Multivariate Modeling of Insurance Compensation Payments with Regression-Based and Copula-Based Models," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(39), pages 161-171, December.

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