Richard J. Verrall and Yakoub H. Yakoubov
Abstract
In general insurance, policyholder age is often treated as a factor with the number of levels requiring that the individual ages of the policyholders be grouped. Although the groups are usually defined by the existing underwriting structure, it should be investigated as part of any premium rating exercise that uses a model to assess past claims experience. It is possible that an incorrect grouping by policyholder age could bias the results of the risk premium estimation. On the other hand, it may not be computationally feasible to use separate ages in the premium model, making some form of grouping necessary. In this paper, we specify a data-based procedure for grouping by age using fuzzy set theory. An example is given that illustrates how the method can be used in practice.
Key words and phrases: fuzzy set theory, general insurance, premium rating.
Richard J. Verrall
Dept. of Actuarial Science and Statistics
City University
London EC1V 0HB
UNITED KINGDOM
Yakoub H. Yakoubov
Aon Consulting
15 Minories
London EC3N 1NJ
UNITED KINGDOM
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