Application of Bühlmanns-Straub Credibility Theory in Determining the Effect of Frequency-Severity on Credibility Premium Estimation

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Application of Bühlmanns-Straub Credibility Theory in Determining the Effect of Frequency-Severity on Credibility Premium Estimation

Abstract The study sought to demonstrate how credibility claim costs without the consideration of claim frequency and claim severities underlined by different risk profiles underestimate claim costs or premiums charged policyholders by non-life insurance companies. We used secondary data of non-life marine insurers in Ghana, claim histories that range from the period of 2013 to 2018. The claim histories included claim sizes, claim counts and policy counts. Bühlmans-Straub Credibility theory model was used in estimating credibility weights, credibility claim costs, credibility claim frequencies and credibility claim severities and subsequently find the credibility frequency-severity claim cost as the product of credibility claim frequency and severity for the individual and respective risk classes. We compared the estimates of the claim costs or premiums and have observed that the credibility