Empirical bayes credibility theory

Abstract

ABSTRACT Most insurance companies offer short-term contracts as one of their policies. These companies are business entities and should therefore ensure that there is growth on their profit margins. It is therefore important for them to have to analyze and consider the risks involved when estimating premiums. This helps them, monitor previous trend patterns, improve on them and use them to evaluate premiums for the coming year. They therefore have to analyze data on claim frequencies for past years and the risks involved. It is due to this that models have been developed to calculate premiums to be paid by the policyholder so that the company also gains some profit. There are several models used in the credibility theor . These include the Bulmann Model, Bulmann and Straub Model, Jewell's Hierarchical model, Hachemeister's Regression Model and many others. These models are used to estimate the credibility premiums to be paid. This study therefore illustrates and explains the use of two specific models i.e. the Bulmann model and the Bulmann and Straub-model which can also be referred to as the Empirical Bayes Credibility Theory: