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Analysis of the Elasticity of Loss Amount by Accident Types using Linear Mixed Effect Model
Journal of Insurance and Finance
2011, 22(1),
pp.3-32
Publisher : Korea Insurance Research Institute
Research Area : Business Management
Publisher : Korea Insurance Research Institute
Research Area : Business Management
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The increase in insurance losses due to vehicle accidents leads to increased social costs and negatively affects public welfare. Accordingly, the auto insurance company may face pressure to raise premiums. However, auto insurance has social aspects and it is not so easy to raise premiums even if company faces a serious pressure to do so. Thus, the best way to decrease consumer complaints about premium increases and reduce the social costs due to motor vehicle accidents is to reduce the number of motor vehicle accidents. In order to achieve this, it is important to analyze the causes of accidents and to find effective ways to reduce accidents. In this paper, we analyze the direction of many of these efforts to reduce motor vehicle accidents and find a better way to achieve this. We think one can reduce auto accidents by identifying and concretely measuring different factors which affect damage level in each type of accident. To do this, we use a linear mixed-effects model to identify the relationship between accident types and losses. Analysis tells that the number of wounded person and partial loss in small accidents show the highest elasticity. Therefore, in order to reduce the number of small accidents,we propose ways to improve 'premium based on physical accidents' and 'systems on unknown perpetrator damage accident'.
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