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Multivariate credibility modelling for usage-based motor insurance pricing with behavioural data

Published online by Cambridge University Press:  12 February 2019

Michel Denuit ,
Montserrat Guillen  and
Julien Trufin
Michel Denuit
Affiliation:
Institute of Statistics, Biostatistics and Actuarial Science, Louvain Institute of Data Analysis and Modeling, UC Louvain, 1348 Louvain-la-Neuve, Belgium
Montserrat Guillen
Affiliation:
Riskcenter, Department of Econometrics, Universitat de Barcelona, 08034 Barcelona, Spain
Julien Trufin*
Affiliation:
Department of Mathematics, Université Libre de Bruxelles (ULB), 1050 Bruxelles, Belgium
*
*Correspondence to: Julien Trufin. E-mail: julien.trufin@ulb.ac.be
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Abstract

Pay-how-you-drive (PHYD) or usage-based (UB) systems for automobile insurance provide actuaries with behavioural risk factors, such as the time of the day, average speeds and other driving habits. These data are collected while the contract is in force with the help of telematic devices installed in the vehicle. They thus fall in the category of a posteriori information that becomes available after contract initiation. For this reason, they must be included in the actuarial pricing by means of credibility updating mechanisms instead of being incorporated in the score as ordinary a priori observable features. This paper proposes the use of multivariate mixed models to describe the joint dynamics of telematics data and claim frequencies. Future premiums, incorporating past experience can then be determined using the predictive distribution of claim characteristics given past history. This approach allows the actuary to deal with the variety of situations encountered in insurance practice, ranging from new drivers without telematics record to contracts with different seniority and drivers using their vehicle to different extent, generating varied volumes of telematics data.

Keywords

Risk classificationPremium calculationDriving behaviourInternet of thingsCount data models
Type
Paper
Information
Annals of Actuarial Science , Volume 13 , Issue 2 , September 2019 , pp. 378 - 399
Copyright
© Institute and Faculty of Actuaries 2019 

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