Pay-How-You-Drive (PHYD) or Usage-Based (UB) systems for automobile insurance provide actuaries with behavioural risk factors, such as the time of the day, average speeds and driving habits. These data are collected while the contract is in force thanks to telematic devices installed in the vehicle. They thus fall in the category of a posteriori information that becomes available after contract initiation. For this reason, they must be included in the actuarial pricing by means of credibility updating mechanisms instead of being included in the score as ordinary a priori observable features. We propose the use of multivariate mixed models to describe the joint dynamics of telematics data and claim frequencies. Future premiums, incorporating past experience can then be determined using the predictive distribution of claim characteristics given past history. This approach allows the actuary to deal with the variety of situations encountered in insurance practice, ranging from new drivers without telematics record to contracts with different seniority and drivers using their vehicle to different extent, generating varied volumes of telematics data.
Keywords: Risk classification, premium calculation, driving behavior, internet of things, count data models.
Sector: Insurance
Authors: Michel Denuit, Montserrat
Guillen and Julien Trufin
Publication: Annals of Actuarial Science
Date: February 2019
Language: English
Michel is a Scientific Advisor at Detralytics, as well as a professor in actuarial science at the Université Catholique de Louvain. He has international experience as a visiting professor, and has promoted many projects in collaboration with the industry. At Detralytics, Michel coaches young talents, provides cutting-edge training, fosters innovation and oversees R&D projects.
Montserrat Guillén was born in Barcelona in 1964. She received a Master of Science in Mathematics and Mathematical Statistics in 1987 and a PhD in Economics from UB in 1992. She received a MSc in Data Analysis from the University of Essex (United Kingdom). Since April, 2001 she is Chair Professor of the Department of Econometrics at the University of Barcelona. She is currently Honorary Visiting Professor in the Faculty of Actuarial Science and Insurance at City, University of London. She was Visiting Research faculty at the University of Texas at Austin (USA) in 1994. She was also Visiting Professor of Insurance Econometrics at the University of Paris II. She was awarded the ICREA Academia distinction in 2011 and in 2019.
Julien est Scientific Advisor chez Detralytics et Professeur en sciences actuarielles au sein du département de mathématiques de l’Université Libre de Bruxelles. Il possède une expérience en tant que consultant et un solide parcours académique développé au sein d’institutions de renom, dont l’Université Laval (Canada), l’UCL et l’ULB (Belgique). Chez Detralytics, Julien encadre les jeunes talents, dispense des formations de pointe, stimule l’innovation et supervise les projets de R&D.
