An average model approach to experience based premium rates discounts: an application to Spanish agricultural insurance
- PDF / 868,632 Bytes
- 15 Pages / 439.37 x 666.142 pts Page_size
- 21 Downloads / 208 Views
An average model approach to experience based premium rates discounts: an application to Spanish agricultural insurance José L. Vilar‑Zanón1,3 · Antonio Heras1 · Estela de Frutos2 Received: 7 June 2019 / Revised: 9 April 2020 / Accepted: 11 May 2020 © EAJ Association 2020
Abstract We address some issues in agricultural insurance, describing drawbacks of the bonus-malus system (BMS) methodology used in Spain and many other EU countries. We develop an alternative experience based premium rate discount system taking into account the adverse years when high losses caused by extreme weather events happen. Our contribution consists of a two-step methodology. Firstly, we use tobit or Tweedie regressions to calculate yearly correction rates. Secondly, we calculate the mean of the correction rates. This average model acts as a buffer against adverse year losses. We compare three alternatives: our two resulting average models and the BMS operating in the Spanish line of business exemplified—table grapes. Keywords Agricultural insurance · Experience premium rate discounts · Bonusmalus system · Tweedie · Tobit
1 Introduction The purpose of this article is to discuss the actuarial methodology used in agricultural insurance when it comes to address the experience-rating step. It focuses on the Spanish case. Agricultural (also named crop) insurance is in many senses rather special compared to general insurance lines. From an organizational point of view, the Spanish market works exclusively through a coinsurance pool formed by 21 * José L. Vilar‑Zanón [email protected] 1
Department of Financial and Actuarial Economics & Statistics, Universidad Complutense de Madrid, Madrid, Spain
2
Agroseguro S.A., Madrid, Spain
3
Departamento de Economía Financiera y Actuarial y Estadística, Universidad Complutense de Madrid, Campus de Somosaguas. Facultad de Ciencias Económicas y Empresariales, 28223 Pozuelo de Alarcón, Spain
13
Vol.:(0123456789)
J. L. Vilar‑Zanón et al.
insurance companies. It relies upon a joint action of public and private entities offering subsidies to farmers for their premiums. It offers coverage in all the agricultural productions against all the natural risks. From a methodological point of view, the rating process has to overcome some hard problems. In [23] and [19] we can see that premiums must be calculated for coverage levels or deductibles once a farm yield distribution has been fitted. However, non-stationarity of crop yields due to technological change and weather variability calls for regular updates of the fitted distribution, see for instance [18, 22, 24, 26] and [7]. In addition, the yield spatial dependencies due to weather events jeopardizes the basic process of pooling independent risks [2]. In US crop insurance a loss cost ratemaking process is used to calculate the base rate from a mean of loss costs over time and farms [25]. The well-known general insurance problem on how to particularize the premiums by trying to approach them to individual risk behaviours is also very relevant in c
Data Loading...
