Pricing of premium for automobile insurance using bayesian method

Abstract

The aggregate claim model can be used to determine the amount of premium charged to the insured by the insurance company. This model consists of two mutually independent random variables, namely the number of claims that occur per period and the amount of claim for each event. In this study, the number of claims is Poisson distributed, and the amount of claim is distributed by generalized extreme value (GEV). The Bayes method is used to estimate the parameters of each distribution. Parameter estimation results are used to calculate the expectations and variances of the aggregate claim model which are then used to calculate insurance premiums. Based on the estimation results, the amount of premium charged to the insured ranges from IDR 3,831,480 to IDR 6,443,860.