Premium Allocation for the Electrolux Cargo Insurance Program using Generalized Linear Models
The authors of this report has performed this Master Thesis at the Group Risk Management department of Electrolux AB. Electrolux is a world leading company regarding home appliances. It is a multinational company that operates in over 150 countries worldwide. The Net Sales during 2014 was 112 Billion SEK. With this in mind it leads to the fact that the company generates an extensive amount of transports carrying valuable goods, that is made daily all over the world. Every single transport itself entails a risk for the company, due to the exposure of a claim that can occur.
Our study involved that, with the help of statistical modelling identify and quantify risk, which would lie as a basis for a relevant allocation of Electrolux´s cargo insurance policy. The premiums should be allocated to the company´s 190 internal sales companies. Partly by perfoming a survey of Electrolux´s transportflows and a compilation of their claim statistics, we have provided the Risk Management department with underlying facts of the current situation of the companies logistics. With these facts, and the use of generalized linear models, we have managed to provide risks of relevant variables that affect the cargo insurance. These lied as a basis for our final allocation program delivered to Electrolux.
The results from this study has given the Risk Management department deeper knowledge of the underlying risks that cause the claims concerning their cargo insurance policy. We have also provided a user-friendly allocation program that will be used when allocating the premiums in the future. From the results we have concluded, we are certain of that Latin America is the region of our study with the highest risk. By the results of our premium allocation program we have also seen that the business sector Major Appliances EMEA has historically payed a lower premium than what they should have done. By this study we have highlighted the issues that can occur when trying to determine risks, due to inconsistent results. To conclude this has been a highly interesting study and by the goals set in the beginning of the project, we feel that they have been accompliched.
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