MACHINE INSURANCE PREMIUM CALCULATIONS BASED ON CLAIM MODELS

Abstract: The market for insurance continues to grow and expand. As insurance plays a part in our very own lives, it is important to understand how the premiums are calculated. In this thesis, this is done for machines, namely, cars and spindles. The premiums are calculated by combining claim frequency and claim severity. The method used to calculate insurance premiums for cars is generalized linear modelling (GLM), where the claim frequency and severity are modelled in two ways, separately and combined. Moreover, as breakdowns are likely time dependent, a Monte Carlo simulation is done as well to evaluate how a change in failure rate affect the insurance premium in the early, constant and late stage for data on spindles. Using GLMs for the car data, the separate modelling results in a premium of 380 € and 435 € for the combined modelling. Furthermore, varying the failure rate for the spindle data during the early stage results in average premiums ranging from 3194 to 4298 €. Finally, the range in the constant stage is 1811 to 2022 €, and 5812 to 6972 € in the late stage.