MODELING THE NUMBER OF INSURED HOUSEHOLDS IN AN INSURANCE PORTFOLIO USING QUEUING THEORY

Abstract

AbstractIn this paper, we use queuing theory to model the number of insured households in an insurance portfolio. The model is based on an idea from Boucher and Couture-Piché (2015), who use a queuing theory model to estimate the number of insured cars on an insurance contract. Similarly, the proposed model includes households already insured, but the modeling approach is modified to include new households that could be added to the portfolio. For each household, we also use the queuing theory model to estimate the number of insured cars. We analyze an insurance portfolio from a Canadian insurance company to support this discussion. Statistical inference techniques serve to estimate each parameter of the model, even in cases where some explanatory variables are included in each of these parameters. We show that the proposed model offers a reasonable approximation of what is observed, but we also highlight the situations where the model should be improved. By assuming that the insurance company makes a $1 profit for each one-year car exposure, the proposed approach allows us to determine a global value of the insurance portfolio of an insurer based on the customer equity concept.