Actuarial Science and Financial Mathematics seminar series
Peng Shi
University of Wisconsin-Madison
Room: M3 3127
Actuarial Modeling and Pricing of Deductible Insurance Contracts
Insurers use experience rating to adjust premiums for renewing policyholders based on their claims history. This paper focuses on experience rating for insurance contracts with deductibles, which policyholders select endogenously as a cost-sharing tool to reduce inefficiencies from information asymmetry.
We propose a copula-based longitudinal model for repeated risk outcome measurements, addressing the endogeneity of deductible choices. Our framework relaxes the common assumption that deductibles are exogenous, aligning with economic theories of adverse selection and moral hazard. It supports various risk outcome distributions, making it well-suited for predictive experience rating. Applied to commercial property insurance data, our method reveals a negative relationship between deductible levels and underlying risk. It enables improved risk segmentation and identification of profitable policies, outperforming traditional models that treat deductibles as exogenous.