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Exposure to risk and zero accident claims in automobile insurance

Bolance, C., Guillén, M., Nielsen, J. P. and Thuring, F. (2018). Exposure to risk and zero accident claims in automobile insurance. Risks, doi: 10.3390/risks6010009

Abstract

Prospective customers of financial and insurance products can be targeted based on the profit the provider expects to earn from them. We present a model for individual expected profit and two alternatives for calculating optimal personalized prices that maximize the expected profit. For one of these alternatives, we obtain a closed-form expression for the price offered to each prospective customer; for the other, we need to use a numerical approximation. In both approaches, the profits generated by prospective customers are not immediately observed, given that the products sold by these companies have a risk component. We assume that willingness to pay is heterogeneous and apply our methodology using real data from a European insurance company. Our study indicates that a substantial boost in profits can be expected when applying the simplest optimal pricing method proposed.

Publication Type: Article
Additional Information: This article is published under a Creative Commons Attribution License, CC-BY.
Departments: Cass Business School > Actuarial Science & Insurance
URI: http://openaccess.city.ac.uk/id/eprint/19163
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