Application of Generalized Linear Models in Medical Insurance Rate Making
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Date
2018Author
Kangwana, Geoffrey O
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Generalized linear models have been used by actuaries in rate making for over the last
thirty years. The basic ideas of generalized linear models were introduced by Nelder and
Wedderburn in 1972. The aim of this paper is to demonstrate how Generalized linear
models can be utilized in pricing private medical insurance. Private medical insurance is
an indemnity based health and care insurance product that provides compensation for
the cost of medical treatment. Private medical insurance will normally include outpatient
and inpatient benefits and is priced on the basis of frequency multiplied by severity. The
parameters of the model of frequency and model of severity are then used to estimate
frequency and severity respectively. Frequency and severity increase with age and benefit
limit. Females have higher frequency than males for both inpatient and outpatient benefits.
Males have higher inpatient severity than females while females have higher outpatient
severity than males. The pure premium has been calculated as the product of frequency
and severity. The pure premium increases with age and benefit limit. The pure premium is
normally loaded for commission,risk margin,expenses and profit margin to arrive at the
gross premium.
Publisher
University of Nairobi