By Scott Lennox
The General Insurance Research Committee continues to meet monthly to identify relevant research topics and potential partnering organizations with the goal of furthering the SOA’s activities in general insurance. As well, the committee is dedicated to providing members with results that will help them in their day-to-day activities. The committee welcomes ideas for consideration and is seeking additional members. If you are interested in either submitting ideas or becoming a member, please contact Scott Lennox, SOA staff fellow at slennox@soa.org.
The SOA has the following three general insurance research projects that have been completed and are published on the SOA general insurance research page:
- Methodologies and Techniques for Agricultural Insurance including Impact of Climate Change—This report was sponsored by the General Insurance Research Committee and authored by Lysa Porth, Ken Seng Tan, and Wenjun Zhu. The paper outlines an approach to develop a relational model in order to relate farm-level yield experience between two separate countries in order to enhance the farm-level dataset to more accurately compute premiums. Individual crop insurance programs rely on the historical individual farm-level yields, which serve as the foundation for setting coverage levels and rates. However, yield experience at the farm level is often insufficient or unavailable, and there may also be concerns regarding data credibility, or to be able to directly calculate an estimate of individual expected losses. This often leads to the use of aggregate county-level data to establish a base premium rate, and this practice has been heavily criticized as contributing to adverse selection and substantial program losses. The objective of this research is to address this issue through developing a new relational model to predict farm-level crop yield distributions in the absence of farm-level yield data, in order to improve the accuracy of computing crop insurance premium rates.
- Hedging of an Insurance Company’s Portfolio—This report was sponsored by the General Insurance Research Committee and authored by Jungmin Choi. The paper outlines a hybrid portfolio that combines life and general insurance aspects. There has been much research on hedging of an insurance company’s portfolio when the risk is incoming from life insurance only or general insurance only, but little on both in the same portfolio. However, most large multi-line insurance holding companies have separate legal entities that can and do issue both products. A financial market containing one risk-free asset and one risky asset is assumed, where the investor may choose the proportion of investments for each asset. The paper derives a formula to estimate the optimal trading strategy of a portfolio with a general insurance product and a life insurance product.
- Application of Predictive Modeling for the Local Government Property Insurance Fund—This report was sponsored by the General Insurance Research Committee and authored by Gee Lee and Edward Frees. In this paper, a comprehensive overview of deductible ratemaking is provided, and the pros and cons of various approaches under different parametric models are compared. The regression approach proves to have an advantage in predicting aggregate claims, when deductible choices influence the frequency and severity distributions. The maximum likelihood approach becomes necessary for calculating theoretically correct relativities for deductible levels beyond those observed, for each policyholder. For demonstration, loss models are fit to the Wisconsin Local Government Property Insurance Fund data, and examples are provided for the ratemaking of per-loss deductibles offered by the fund. Selected parametric models from the generalized beta family distributions are compared. Models for specific peril types can be combined to improve the ratemaking, and estimation issues for such models under truncation and censoring are discussed.
The SOA has the following two general insurance research projects currently in progress:
- Cybersecurity Insurance: Modeling and Pricing—This project will develop a framework to address problems associated with cybersecurity insurance.
- Delta Boosting in Predictive Modeling—This project will refine and generalize the Delta boosting method in predictive modeling focused on its application to property-casualty insurance.
In addition to the projects currently in progress, the committee is evaluating proposals for research on international pooling schemes. The objective is to build on existing research to analyze the main catastrophe pooling structures currently in place in and outside the U.S., summarize their strengths and weakness to their designs and suggest possible diversification, other improvements and expansions to better address small nations’ insurance needs.
Once a submission is chosen, the SOA will be seeking individuals to join the volunteer Project Oversight Group (POG) to help guide and oversee the project. The POG seeks four to seven volunteers who may be FSAs, ASAs, or non-members with backgrounds in the topic. Volunteers are expected to participate in periodic, hour-long conference calls (a total of five to 10 calls expected over the course of a project) to review material and provide guidance. These projects provide a way for volunteers to network, build upon their experience in the field, and help support the SOA’s research efforts. If you have questions about the research projects listed above, contact Scott Lennox, SOA staff fellow at slennox@soa.org. If you would like to volunteer, please send an email to generalinsurance@soa.org. Please provide your contact information and let us know that you are interested in volunteering for one of the Project Oversight Groups.
Scott Lennox, FSA, FCIA, FCAS, is a staff fellow for the Society of Actuaries. He can be contacted at slennox@soa.org.