Determining Pure Premium of Motor Vehicle Insurance with Generalized Linear Models (GLM)

Abstract

Motor vehicle insurance guarantees protection, coverage, and compensation for the risks of accidents, damages, and loss of motor vehicles. It is crucial for companies to determine appropriate insurance premium rates as a preventive measure to avoid difficulties in meeting claims filed by policyholders. This research aims to determine the pure premium of motor vehicle insurance using the Generalized Linear Models (GLM) method, which utilizes the concept of a general linear relationship between independent variables and the dependent/response variable, as well as identifying motor vehicle characteristics that influence the determination of pure premiums. The data used in this study is from Swedish motor vehicle insurance. The research aims to determine the pure premium in the data by modeling claim frequency using the Poisson distribution and claim severity using the Gamma distribution, depending on the significantly influential characteristics. The Maximum Likelihood Estimation method is employed for parameter estimation. After conducting the research, the estimated parameters , , and the pure premium of motor vehicle insurance are found to be 35,572,223.27 kr, with the characteristics influencing the pure premium being the distance traveled by the vehicle, the insured's geographic zone, and the no-claim bonus.