Modelling and Forecasting of Losses in Voluntary Health Insurance

Voluntary Health Insurance (VHI) in spite of the number of advantages has one of the highest levels of risk among all types of insurance. Therefore, modeling of loss is one of the main goals of any insurance company because it allows minimizing this risk, by assigning individual premiums for different groups of policyholders. This paper includes a number of economic and statistical methods to identify factors, which significantly affect the loss and appoint the age-related loss ratios based on these factors. After the conducted analysis statistically significant differences of losses between sexes can be identified, as well as differences between insurers of different ages and insurance programs. Econometric models confirm the identified differences and model a numerical expression of expected loss. Scorecards allow identifying "bad" customers who require special attention for appointment of insurance premiums. Forecast of future losses includes seasonal and trend components, and adequately extend the existing time series. In conclusion, the main findings of the paper and practical recommendations for insurance companies on the basis of the presented methodology are presented.