Statistically, the third party liability insurance among other business lines has the lion share of the claims settled in Iran insurance industry. In order to meet all of their liabilities and to comply with the terms mentioned in Bylaw 58 passed by the Insurance High Council, the Iranian insurers are mandated to estimate their technical provisions accurately. Given the specific conditions of the TPL insurance and intervention of other organizations in the claim procedures, the estimates of provisions are highly challenging for this business.
The research project carried out by Dr. Erfan Salavari, faculty member of Amirkabir University and Dr. Mahnaz Manteghipour, IRC’s associate researcher, comprises of five chapters including Introduction, Introducing Methods, Factors Contributing to Errors and How to Remove Them, Providing Confidence Interval in Estimating Errors, and Conclusion and Recommendations.
The research attempts to investigate the “Directive for Estimation of Technical Provisions in Third Party Motor Liability Insurance” by Central Insurance of Iran. The purpose of the study is to find the causes of error in the estimates of future claims and to either eliminate or mitigate them as much as possible.
In order to achieve this goal, the researchers prepared a list of possible causes of error based on the present literature and the interviews with experts. Then, they conducted a data-driven analysis of all the passible factors and chose the most effective ones. Further, for each factor, they have proposed a proper method for mitigating the error. The data were acquired from the selected insurance companies that contained claims data for 10 years. Furthermore, as a general tool for controlling the error, they have proposed a method for obtaining confidence intervals for technical provisions. Finally, the researchers recommend that their methods could be implemented on the real data with the ability to report the results.
Based on the findings of the study, among the factors assessed, three factors were chosen as the main factors contributing to major flaw in estimating provisions: The first, no separation maintained between financial and personal injury claims; second, no treatment of the non-claim data such as premiums in estimations; third, the incorporation of the time, policies are issued instead of incorporating the time the policies are effective in the estimations.
The findings of the study also indicated that one of the instruments that Central Insurance of I. R. Iran (CII – Insurance Supervisory and Regulatory Authority) can use to ensure the solvency of the insurance companies is the calculation of the confidence interval in estimating provisions.
Those interested to access and download the Persian full text with English abstract of the aforementioned research report, please take a visit to http://www.irc.ac.ir/fa-IR/Irc/4944/Articles/view/16040/1617.