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1、UsingGeneralizedLinearModelstoBuildDynamicPricingSystemsKarlP.Murphy,MichaelJ.Brockman,andPeterK.W.Lee107UsingGeneralizedLinearModelstoBuildDynamicPricingSystemsforPersonalLinesInsurancebyKarlPMurphy,MichaelJBrockman,PeterKWLee1.IntroductionThispaperexplainshowadynamicp
2、ricingsystemcanbebuiltforpersonallinesbusiness,wherebyprofitloadsandriskpremiumscanbetailoredtotheindividualbehaviouralcharacteristicsofthecustomer.Theapproachhasbeendevelopedforafreeandcompetitiveratingregulatoryenvironment,althoughthetechniquescanbereverse-engineeredt
3、oprovidecustomervaluemodelsinmarketswhereratesarecontrolled.Weusethestatisticaltechnique,generalizedlinearmodels(GLMs),forestimatingtheriskpremiumandpriceelasticitycomponentsofthemodel.ThesetechniquesarewellestablishedintheBritishandEuropeanmarketsandarerecentlybecoming
4、morewidelyusedintheUnitedStates.Theobjectiveistouseasmuchinformationasinputtothesemodelsinordertoestablishwhichriskfactorsarethemostpredictive.Inourexperience,everycompanyisdifferent;intheirsizeandorganisation,intheirunderwritingandmarketingphilosophy,intheirclaimshandl
5、ing,andintheirmeansofdistribution.Itisessentialthatthepricingmodelsbuiltreflectthesecharacteristics.Thepaperisintendedtobepractical,hencewehavekeptthetheorytoaminimum,quotingotherpapersorliteraturewhereamoretheoreticalexpositionisrequired.Inparticular,muchofthecontentso
6、fthispaperfollowonfromtheworkofBrockmanandWrightwhichsetsoutthetheoryofgeneralizedlinearmodelsanditsapplicationforpersonallinespricing.SinceBrockmanandWright,theuseofGLMshasbecomemuchmorecommon.WhilstGLMsarebeingwidelyutilizedintheUKandEurope,wedonotbehevethattheresults
7、arebeingfullyexploited.InthispaperwewillbeexplaininghowtheresultsofGLMscanbemoreeffectivelyemployed.Thestructureofthepaperwillbeasfollows:firstlywearegoingtodiscussthemainstatistical-techniqueusedforpredictingbehaviour(bothclaimsanddemand),namelygeneralizedlinearmodels.
8、WewillthenlookathowGLMscanbeusedinassessingtheriskpremiumforapolicy,followedbyadiscussiononusingGLMstoassesspr
