Proposed Project for the MSU Industrial Math Students

Project 1: Refinement of Credibility Factors

Insurance companies use a concept called credibility to assist in developing premium rates to charge their customers. Credibility is the weight which gets assigned to the group’s own historical data. For example, if a group has a credibility factor of 0.35, then that groups rates would be a weighted average of the rate implied by their own historical data (with a weight of 0.35) and the rates which result from a manual rating formula (receiving a weight of 1-0.35). This project would involve refining or re-designing our current table of credibility factors. Hopefully, the result would use more data and result in more accurate rates.

Project 2: Analysis of Data Used in Annual Rating Studies

Delta Dental conducts an annual rating study to derive rating factors for our manual premium calculations. Currently, we exclude data from any groups whose contract included a deductible. As more and more groups are adding deductibles to their contract, we are throwing away a large amount of otherwise useable data. In this project, we would ask the students to evaluate the feasibility and impact of retaining the data from these groups.

 

Project summaries prepared by Toby Hall.