On Some Probability Distributions of Customer Sensitivity for Premium Renewal in Non-life Insurance
Document Type
Lecture
Publication Date
11-30-2022
Abstract
Every year, non- life insurers face the recursing problem of adjusting premium. This problem comes from the trade-off between the need of increasing the global revenue of the company and the need of retention of the existing customers of the portfolio. Traditional pricing methods (General Linear Model or Credibility Theory) solve this problem by a static approach and they do not take into account the customer sensitivity and/or the prices offered by competing companies. Elena et al. (2019) formalized and solved the pricing renewal problem of a non-life insurance company by using a dynamic approach based on reinforcement learning (Markov Decision Problem). The insurer has a portfolio of costumers and therefore a total turnover (initial state). At the time of contract renewal, the insurer (agent) offers a renewal premium to the first insured (we say that the agent takes action). Whether or not the insured accepts the renewal premium, his decision leads the company to a new state (new income and new retention). Then, taking into account the new situation of the company, the insurer repeats sequentially the same action to all the others insureds in the portfolio. This paper extends and improves the model of Elena et al. in various circumstances. More precisely, we propose some families of probability distributions that take into consideration sensitivity of insurers to the new premiums. We rewrite the Elena et al.’s model by replacing regression probability by the obtained probability distributions and we obtain our new pricing models. We find the best strategy for insurer to set renewal price through reinforcement learning algorithms. The implementation of the newly obtained reinforcement models on a portfolio of contracts by using backward SARSA learning agent yields better results than those obtained by Elena and al.
Relational Format
presentation
Recommended Citation
Fono, Louis Aimé, "On Some Probability Distributions of Customer Sensitivity for Premium Renewal in Non-life Insurance" (2022). Probability & Statistics Seminar. 23.
https://egrove.olemiss.edu/math_statistics/23
