The Bayes Premium in an Aggregate Loss Poisson-Lindley Model with Structure Function STSP

Agustin Hernandez-Bastida, M. Pilar Fernandez-Sanchez

Abstract


Many premium calculating problems in actuarial science consider the number of claims, denoted as K, as the variable risk. Traditionally, this random variable is modelled by the Poisson distribution. However, it is well known that automobile insurance portfolios are characterized by zero-inflation (high percentage of zero values in the sample) and overdispersion (the variance is greater than the mean), and  the Poisson distribution does not properly reflect the last phenomenon. In this paper we determine the Bayes premium considering that K follows a Poisson-Lindley distribution, with parameter $\theta_{1}$ in $[0,1]$, which is a potential alternative to describe these situations. As the structure function for $\theta_{1}$ we elicit the standardized  two-sided power distribution, which is a reasonable alternative to the usual beta distribution. In addition, an aggregate loss model is considered with primary distribution given by the Poisson-Lindley distribution. A Bayesian analysis is developed to obtain the Bayes premium. The conclusion is that the STSP is not an adequate alternative in the problem in question because it is more informative and less dispersed than the Beta distribution.

Full Text: PDF DOI: 10.5539/ijsp.v2n2p47

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International Journal of Statistics and Probability   ISSN 1927-7032(Print)   ISSN 1927-7040(Online)

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