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  #11  
Old 03-30-2018, 12:30 PM
Heywood J Heywood J is offline
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What is the point of modeling claims with no payment? Whatever the frequency of them, wouldn't you have to multiply it by expected severity of zero when calculating the rate?
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  #12  
Old 03-30-2018, 12:32 PM
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Originally Posted by Strider View Post
So you don't include records with no claims?

Otherwise I don't see how you model severity for entries with no losses,
A lot would depend on whether or not you want to also include ALAE (or DCC) with the modeled data.

There could be some claims where zero dollars were paid as indemnity, but quite a bit was paid for ALAE on the claim (think subrogated claims). Do you want that cost reflected in the modeling?

But you can model severity where you have (valid) records with zero paid using either a Tweedie (a la a pure premium model) or some zero-inflated distribution.

The key is that if you're counting it for frequency, you need to count it for severity (otherwise, you're going to over estimate the pure premium--something that will get you into trouble with a regulator if it's discovered).
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Old 03-30-2018, 12:34 PM
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What is the point of modeling claims with no payment? Whatever the frequency of them, wouldn't you have to multiply it by expected severity of zero when calculating the rate?
If you have a provision for ALAE and/or ULAE that is based on "claim count" (regardless of the size of indemnity payment, if any), then you'll need to capture that with a frequency model.

But agree that would need to also consider them in the severity model (with a zero indemnity potential).
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Old 03-30-2018, 12:35 PM
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FTR, I'm in the camp of excluding any claim that does not generate some sort of positive cost amount (could be zero indemnity, positive ALAE) from the modeling process. Far easier to explain the model (especially from a high-level perspective to a regulator).
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Old 03-30-2018, 04:12 PM
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The key is that if you're counting it for frequency, you need to count it for severity.
Thanks. That's where my mind went.
This makes more sense than including it one place and excluding it in the other. And why early answers said how to do severity depends on how you do frequency. However you do it, you need to be consistent. Even I, as a non-actuary, could see that.
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Old 05-25-2018, 02:37 PM
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Are you modeling paid losses instead of incurred? Does you paid loss include paid ALAE?
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Old 05-29-2018, 10:39 AM
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Does your data include the insured's portion of the claim? Gross/Net of Deductible? We record it both ways, so it's possible a 0 payment is simply a claim that didn't exceed the deductible. It's still an amount if you are trying to model ground up loss.
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