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Market-based insurance ratemaking

Author

Listed:
  • Pierre-Olivier Goffard

    (UNISTRA - Université de Strasbourg, IRMA - Institut de Recherche Mathématique Avancée - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique)

  • Pierrick Piette

    (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Gareth W. Peters

    (PSTAT-UCSB - Department of Statistics and Applied Probability [Santa Barbara] - UC Santa Barbara - University of California [Santa Barbara] - UC - University of California)

Abstract

This paper introduces a novel method for pricing insurance policies using market data. The approach is designed for scenarios in which the insurance company seeks to enter a new market lacking historical data. The methodology involves an iterative two-step process. First, a suitable parameter is proposed to characterize the underlying risk. Second, the resulting pure premium is linked to the observed commercial premium using an isotonic regression model. To validate the method, comprehensive testing is conducted on synthetic data, followed by its application to a dataset of actual pet insurance rates. To facilitate practical implementation, we have developed an R package called IsoPriceR. By addressing the challenge of pricing insurance policies in the absence of historical data, this method contributes to enhancing pricing strategies in emerging markets.

Suggested Citation

  • Pierre-Olivier Goffard & Pierrick Piette & Gareth W. Peters, 2023. "Market-based insurance ratemaking," Working Papers hal-04297811, HAL.
    • Handle: RePEc:hal:wpaper:hal-04297811
    Note: View the original document on HAL open archive server: https://hal.science/hal-04297811
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