When Inflation Causes No Increase in Claim Amounts
It is well known that when (re)insurance coverages involve a deductible, the impact of inflation of loss amounts is distorted, and the changes in claims paid by the (re)insurer cannot be assumed to reflect the rate of inflation. A particularly interesting phenomenon occurs when losses follow a Paret...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2009-01-01
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| Series: | Journal of Probability and Statistics |
| Online Access: | http://dx.doi.org/10.1155/2009/943926 |
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| Summary: | It is well known that when (re)insurance coverages involve a deductible, the
impact of inflation of loss amounts is distorted, and the changes in claims paid by the
(re)insurer cannot be assumed to reflect the rate of inflation. A particularly interesting
phenomenon occurs when losses follow a Pareto distribution. In this case, the observed loss
amounts (those that exceed the deductible) are identically distributed from year to year
even in the presence of inflation. Nevertheless, in this paper we succeed in estimating the
inflation rate from the observations. We develop appropriate statistical inferential methods
to quantify the inflation rate and illustrate them using simulated data. Our solution hinges
on the recognition that the distribution of the number of observed losses changes from year
to year depending on the inflation rate. |
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| ISSN: | 1687-952X 1687-9538 |