Tariff Analysis in Automobile Insurance: Is It Time to Switch from Generalized Linear Models to Generalized Additive Models?
Generalized Linear Models (GLMs) are the standard tool used for pricing in the field of automobile insurance. Generalized Additive Models (GAMs) are more complex and computationally intensive but allow taking into account nonlinear effects without the need to discretize the explanatory variables. In...
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| Format: | Article |
| Language: | English |
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MDPI AG
2023-09-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/11/18/3906 |
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| author | Zuleyka Díaz Martínez José Fernández Menéndez Luis Javier García Villalba |
| author_facet | Zuleyka Díaz Martínez José Fernández Menéndez Luis Javier García Villalba |
| author_sort | Zuleyka Díaz Martínez |
| collection | DOAJ |
| description | Generalized Linear Models (GLMs) are the standard tool used for pricing in the field of automobile insurance. Generalized Additive Models (GAMs) are more complex and computationally intensive but allow taking into account nonlinear effects without the need to discretize the explanatory variables. In addition, they fit perfectly into the mental framework shared by actuaries and are easier to use and interpret than machine learning models, such as trees or neural networks. This work compares both the GLM and GAM approaches, using a wide sample of policies to assess their differences in terms of quality of predictions, complexity of use, and time of execution. The results show that GAMs are a powerful alternative to GLMs, particularly when “big data” implementations of GAMs are used. |
| first_indexed | 2024-03-10T22:29:46Z |
| format | Article |
| id | doaj.art-374c5f8a161f46179f4d8faeb7f7e1fe |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-10T22:29:46Z |
| publishDate | 2023-09-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-374c5f8a161f46179f4d8faeb7f7e1fe2023-11-19T11:49:13ZengMDPI AGMathematics2227-73902023-09-011118390610.3390/math11183906Tariff Analysis in Automobile Insurance: Is It Time to Switch from Generalized Linear Models to Generalized Additive Models?Zuleyka Díaz Martínez0José Fernández Menéndez1Luis Javier García Villalba2Group of Analysis, Security and Systems (GASS), Department of Financial and Actuarial Economics & Statistics, Faculty of Economics and Business Administration, Universidad Complutense de Madrid (UCM), Campus Somosaguas, 28223 Madrid, SpainDepartment of Business Administration, Faculty of Economics and Business Administration, Universidad Complutense de Madrid (UCM), Campus Somosaguas, 28223 Madrid, SpainGroup of Analysis, Security and Systems (GASS), Department of Software Engineering and Artificial Intelligence (DISIA), Faculty of Computer Science and Engineering, Office 431, Universidad Complutense de Madrid (UCM), Calle Profesor José García Santesmases, 9, Ciudad Universitaria, 28040 Madrid, SpainGeneralized Linear Models (GLMs) are the standard tool used for pricing in the field of automobile insurance. Generalized Additive Models (GAMs) are more complex and computationally intensive but allow taking into account nonlinear effects without the need to discretize the explanatory variables. In addition, they fit perfectly into the mental framework shared by actuaries and are easier to use and interpret than machine learning models, such as trees or neural networks. This work compares both the GLM and GAM approaches, using a wide sample of policies to assess their differences in terms of quality of predictions, complexity of use, and time of execution. The results show that GAMs are a powerful alternative to GLMs, particularly when “big data” implementations of GAMs are used.https://www.mdpi.com/2227-7390/11/18/3906automobile insurancegeneralized additive modelssplinestariff analysis |
| spellingShingle | Zuleyka Díaz Martínez José Fernández Menéndez Luis Javier García Villalba Tariff Analysis in Automobile Insurance: Is It Time to Switch from Generalized Linear Models to Generalized Additive Models? Mathematics automobile insurance generalized additive models splines tariff analysis |
| title | Tariff Analysis in Automobile Insurance: Is It Time to Switch from Generalized Linear Models to Generalized Additive Models? |
| title_full | Tariff Analysis in Automobile Insurance: Is It Time to Switch from Generalized Linear Models to Generalized Additive Models? |
| title_fullStr | Tariff Analysis in Automobile Insurance: Is It Time to Switch from Generalized Linear Models to Generalized Additive Models? |
| title_full_unstemmed | Tariff Analysis in Automobile Insurance: Is It Time to Switch from Generalized Linear Models to Generalized Additive Models? |
| title_short | Tariff Analysis in Automobile Insurance: Is It Time to Switch from Generalized Linear Models to Generalized Additive Models? |
| title_sort | tariff analysis in automobile insurance is it time to switch from generalized linear models to generalized additive models |
| topic | automobile insurance generalized additive models splines tariff analysis |
| url | https://www.mdpi.com/2227-7390/11/18/3906 |
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