Issue: 2024/Vol.34/No.4, Pages 67-79
ADAPTING THE INSURANCE PRICING MODEL FOR DISTRIBUTION CHANNEL EXPANSION USING THE BAYESIAN GENERALIZED LINEAR MODEL
Carina Gunawan
, Muhammad Ivan Faizal, Nanang Susyanto 
Cite as: C. Gunawan, M. I. Faizal, N. Susyanto. Adapting the insurance pricing model for distribution channel expansion using the Bayesian generalized linear model. Operations Research and Decisions 2024: 34(4), 67-79. DOI 10.37190/ord240404
Abstract
The insurance market is changing due to new distribution channels, requiring insurers to update their pricing models. We propose a mathematical approach using Bayesian GLM to adjust insurance pricing. Our strategy modifies the pricing model by incorporating distribution channels while utilizing the initial model as a baseline. Bayesian generalized linear models (GLM) enable effective model updates while incorporating existing knowledge. We validated our approach using data from the general insurance sector, comparing it with the traditional approach. Results show that Bayesian GLM outperforms the traditional method in accurately estimating pricing. This superiority highlights its potential as a powerful tool for insurers to remain competitive in a rapidly changing market. Our approach makes a significant mathematical contribution to insurance pricing, allowing insurers to adapt to market conditions and enhance their competitive edge.
Keywords: distribution channel, insurance pricing, competitiveness, predictive performance, Bayesian GLM
Received: 5 November 2023 Accepted: 26 September 2024
Published online: 19 December 2024