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Market-based insurance ratemaking: Application to pet insurance

Part of: Applications Parametric inference Mathematical finance

Published online by Cambridge University Press:  11 April 2025

Pierre-Olivier Goffard Open the ORCID record for Pierre-Olivier Goffard [Opens in a new window] ,
Pierrick Piette  and
Gareth W. Peters
Pierre-Olivier Goffard*
Affiliation:
Institut de Recherche Mathématique Avancée, Université de Strasbourg, Strasbourg, France
Pierrick Piette
Affiliation:
Laboratoire SAF EA2429, Institut de Science Financière et d’Assurances (ISFA), Univ Lyon, Université Claude Bernard Lyon 1, F-69366, Lyon, France Hestialytics, Paris, France
Gareth W. Peters
Affiliation:
Department of Statistics and Applied Probability, University of California Santa Barbara, Santa Barbara, CA 93106-3110, USA
*
*Corresponding author: Pierre-Olivier Goffard; Email: [email protected]
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Abstract

This paper introduces a method for pricing insurance policies using market data. The approach is designed for scenarios in which the insurance company seeks to enter a new market, in our case: pet insurance, lacking historical data. The methodology involves an iterative two-step process. First, a suitable parameter is proposed to characterize the underlying risk. Second, the resulting pure premium is linked to the observed commercial premium using an isotonic regression model. To validate the method, comprehensive testing is conducted on synthetic data, followed by its application to a dataset of actual pet insurance rates. To facilitate practical implementation, we have developed an R package called IsoPriceR. By addressing the challenge of pricing insurance policies in the absence of historical data, this method helps enhance pricing strategies in emerging markets.

Keywords

Insurance pricingBayesian inferenceapproximate Bayesian computationisotonic regression

MSC classification

Primary: 62P05: Applications to actuarial sciences and financial mathematics
Secondary: 91G70: Statistical methods, econometrics 62F15: Bayesian inference
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , First View , pp. 1 - 24
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of The International Actuarial Association

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