Modelling Motor Insurance Claims Using Arma Model And Appropriate Statistical Distribution Of Insurance Companies, Machakos County, Kenya

The prediction of future claim amounts based on past or present claims is a challenging task for insurance companies. According to research carried out by Michael Barth and David L. Eccles (2009); claim costs constitute large proportion of insurers expenses in evaluating the premium growth on the loss ratio of property causality insurers. Various statistical techniques have been employed to analyze claims data and assess its impact on productivity. Autoregressive (AR), Moving Average (MA), and Auto Regressive Moving Average (ARMA) processes are commonly used to model the temporal dependencies and trends in the data. These techniques enable insurance companies to understand the dynamics of claim incidence and their effects on productivity over time (Philip J, 2016). Advanced modeling techniques such as generalized additive models, negative binomial regression, and multinomial logit models have been used to evaluate claims processes, predict claim occurrence, and model claim severity (Renshaw A.E, 1994; Edward. W Frees et al., 2008; Daiane Aparecida Zanetti et al., 2006). These models consider various factors such as driver age, gender, vehicle type, and no claim discount to assess their impact on claim incidence and productivity. Previous studies have overlooked the comprehensive examination of the impact of insurance claims on productivity on insurance companies. Therefore, this research aims to address this gap by investigating the factors associated with insurance motor claims and their effects on the productivity of insurance companies by employing statistical techniques like appropriate probability distribution, incorporation of moving average technique, Autoregressive process and ARMA process, as identified by industry professionals and experts. The results obtained from the real-life data for distinctive 11 years indicated the potential strength of ARMA models to provide insurance company's claim amount prediction that could assist the companies to have better planning. The findings of this study, if adopted by various keynote players in the insurance and regulatory sectors, can be highly beneficial in formulating appropriate policies to enhance the management of motor insurance claims and improve the productivity of insurance companies.