IVE SP DR
IAL EC
DATA
Features Data drive
FE
ATURE
The
credible journey Juan Ignacio de Oyarbide and Federico Chiacchiarini explain how credibility theory can smooth geographical risk factors in pricing
30 | THE ACTUARY | OCTOBER 2023
30-32 geographical data_The Actuary Oct 23_The Actuary.indd 30
T
he geographical risk factor is often one of the most predictive and discriminative variables used in actuarial pricing. Generally, rate spread ratios between low and high-risk areas could reach 3:1 in a standard motor third-party liability business. Actuarial professionals, underwriters and regulators pay special attention to this factor due to its high impact on rates. Traditionally, pricing practitioners would get consistent loss estimates by pooling a large group of insureds, for example by regions or provinces; this did not involve any major actuarial modelling challenges. In recent years, however, www.theactuary.com
25/09/2023 10:33