Xia, Chaoxiong (Michelle)
Ph.D. (Doctor of Philosophy)
Department of Mathematical Sciences
A commonly encountered risk in insurance business is misrepresentation risk. Misrepresentation is a type of insurance fraud where a policyholder or a policy applicant falsifies his or her risk status in order to pay cheaper premiums for more expensive future risks. It is difficult and expensive for insurance companies to detect this kind of risk. With high cost of sophisticated underwriting, it becomes a norm for insurance companies to regularly rely on the policy applicant to self-report most of their risk statuses. We employ a frequentist approach by using expectation-maximization (EM) algorithm to carry out maximum likelihood estimation of the effects and prevalence of misrepresentation based on the misrepresentation model from Xia and Gustafson . We apply the EM algorithm approach to the misrepresentation model when there is a single risk factor. An extension to the single risk factor model is the multi-risk factor model (multiple risk factors).In the extension of the single risk factor to multi-risk factor, we look at some other distributions from the exponential family. We develop a use case of the methodology by determining if there is any evidence of misrepresentation in the Medical Expenditure Panel Survey (MEPS) data.
Akakpo, Rexford Mawunyegah, "Frequentist Methods in Handling Misrepresentation Risk" (2021). Graduate Research Theses & Dissertations. 6779.
Northern Illinois University
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