CLASSIFICATION RATEMAKING USING DECISION TREE IN THE INSURANCE MARKET OF BOSNIA AND HERZEGOVINA

Main Article Content

Amela Omerašević Jasmina Selimović

Abstract

This paper investigates the impact of risk classification on life insurance ratemaking with particular reference to Bosnia and Herzegovina (BiH). The research is based on a sample of over eighteen thousand insurance policies for passenger vehicles collected over the period 2015-2020. In our empirical investigation we develop a standard risk model based on the application of Poisson Generalized linear models (GLM) for claims frequency estimate and Gamma GLM for claim severity estimate. The analysis reveals that GLM does not provide a reliable parameter estimates for Multi-level factor (MLF) categorical predictors. Although GLM is widely used method to deter insurance premiums, improvements of GLM by using the data mining methods identified in this paper may solve practical challenges for the risk models. The popularity of applying data mining methods in the actuarial community has been growing in recent years due to its efficiency and precision. These models are recommended to be considered in BiH and South East European region in general.

Article Details

How to Cite
Omerašević, A., & Selimović, J. (2020). CLASSIFICATION RATEMAKING USING DECISION TREE IN THE INSURANCE MARKET OF BOSNIA AND HERZEGOVINA. The South East European Journal of Economics and Business, 15(2), 124-139. Retrieved from http://journal.efsa.unsa.ba/index.php/see/article/view/1480
Section
Scientific and Professional papers: Economics and Business
Author Biographies

Amela Omerašević, Uniqa osiguranje d.d. Sarajevo

Amela Omerašević, MSc
CFO
Uniqa osiguranje d.d. Sarajevo
E-mail: amela.omerasevic@uniqa.ba

Jasmina Selimović, Associate Professor, School of Economics and Business, University of Sarajevo

Jasmina Selimović, PhD (corresponding author)
Associate Professor
School of Economics and Business
University of Sarajevo
E-mail: jasmina.selimovic@efsa.unsa.ba
Address: Trg Oslobođenja Alija Izetbegović 1
71000 Sarajevo, Bosna i Hercegovina