The application of loss modelling in pricing for group health insurance in the Philippines

Added Title

National Business and Management Conference (6th : 2018 : De La Salle University - Manila)

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management Department

Document Type

Conference Proceeding

Source Title

6th National Business and Management Conference

Publication Date

11-2018

Abstract

This study aimed to demonstrate the application of risk management and loss modeling on the estimation of health insurance product prices and the advantages and disadvantages of frequency-severity method over the traditional loss-cost approach in which only claims severity is estimated. It addressed the existing pricing concerns by introducing the loss model driven frequency-severity method widely used in many insurance markets around the world. The results of the study showed that by classifying data according to its similar characteristics, the risk of wrongly specifying a best-fit probability distribution is minimized, percentiles can be determined through Maximum Likelihood Estimation avoiding the use of the central limit theorem and the resulting segmented pricing equation is more effective in discovering the primary pricing drivers. Claims data were right-skewed heavy-tailed and best-fitted into the Weibull distribution as determined by Anderson Darling and p-value estimates. The modeled premiums were approximately twenty-percent higher than the principal premiums.

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Disciplines

Finance and Financial Management

Keywords

Health insurance—Rates; Health insurance—Finance

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