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1 results

  • Estimation and Testing for Functional Form in Pure Premium Regression Models

  • Scott E. Harrington
  • Journal:
    ASTIN Bulletin: The Journal of the IAA / Volume 16 / Issue S1 / April 1986
    Published online by Cambridge University Press:
    29 August 2014, pp. S31-S43
    Print publication:
    April 1986
    • Article
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  • Estimation of pure premiums for alternative rate classes using regression methods requires the choice of a functional form for the statistical model. Common choices include linear and log-linear models. This paper considers maximum likelihood estimation and testing for functional form using the power transformation suggested by Box and Cox. The linear and log-linear models are special cases of this transformation. Application of the procedure is illustrated using auto insurance claims data from the state of Massachusetts and from the United Kingdom. The predictive accuracy of the method compares favorably to that for the linear and log-linear models for both data sets.