Employer’s Third Party Liability Insurance Premium Calculation Using GAMLSS with Emphasis on Claim Severity

Liability insurance pricing similar to any other non-life insurance pricing consists of setting the price of an insurance policy by considering various properties of the insured subject and the policy holder. An actuary uses the insurance company’s historical data to find a model which describes the dependence between claim cost and explanatory variables. A common way for calculating the premium is multiplying the conditional expectation of the claim frequency by the expected claim severity. The aim of this paper is proposing a new approach using Generalized Additive Models for Location, Scale and Shape (GAMLSS) techniques to calculate the risk premium for employer’s third party liability insurance by eliminating claim frequency. A numerical example based on an Iranian liability insurance portfolio is demonstrated using the statistical software RStudio.

Keywords:

Employer’s Third Party Liability Insurance , Premium , Claim Severity , GAMLSS