Statistical Method for Assessing the Cost-effectiveness of the Property Insurance Program

The property insurance program developed by the insured determines the main requirements to the conditions, features of the conclusion, execution and termination of the concluded property insurance contracts. When it is implemented for a number of years, when there is a periodic renewal of insurance contracts on standard conditions, the insured has the need to assess the economic effectiveness of such insurance protection, preferably using quantitative indicators. Existing methods of estimating the cost-effectiveness of property insurance programs do not sufficiently take into account the stochastic nature of the insurance process and, in particular, that the resulting losses are subject to extreme type distribution laws studied within the framework of the asymptotic theory of extreme values probabilities. Therefore, for example, it is difficult to adequately assess the economic effectiveness of the property insurance program in a rather frequent situation where the total costs of the insured for paying insurance premiums exceed the total insurance compensation. The proposed statistical method of estimating the economic effectiveness of the property insurance program is based on extreme type distribution functions determined by statistical data, characterizing the claimed losses and insurance compensation paid. The cost effectiveness assessment is carried out using the cost-effectiveness indicator of the property insurance program, which is calculated according to two parameters: the expected share of insurance payments (insurance indemnities) and the premium efficiency coefficient. The expected share of insurance payments is determined by the ratio of mathematical expectations of distribution functions, which characterize the claimed losses and insurance compensation paid. The premium efficiency ratio is the ratio of the gross premium total for the property insurance program, calculated using the function of distributing the claimed losses, and the total amount of premiums paid for the entire period of the property insurance program. Adding up the values of the expected share of insurance payments (insurance indemnities) and the premium efficiency factor taking into account their weights, the value of the economic efficiency indicator of the property insurance program is obtained. The formation of a conclusion on the economic effectiveness of the property insurance program is carried out on the basis of the value of the economic efficiency indicator of the property insurance program according to the proposed scale.