Faculty of Actuarial Science and Insurance seminar with Filip Lindskog

Non-life pricing: back to first principles
Abstract:
We consider the pricing of general insurance contracts that may be terminated before the end of the coverage period. The basic assumption is that of a fair price, meaning that the insurer's expected premium income should match the expected claims cost. By identifying premia as conditional expectations, we show that fair premia can be represented as solutions to minimization problems formulated in terms of arbitrary Bregman loss functions and duration weights that depend on how the insurer chooses the premium to be paid by the policyholder. The results emphasize distribution-free calculation of premia, without the need for stochastic model assumptions. We illustrate to what extent traditional non-life pricing practices, such as GLM, and modern predictive approaches are consistent with our approach to pricing.

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