Risk Prediction and Estimation of Corporate Product Claim Reserve Funds in Insurance Companies Using the Extreme Value Theory

Abstract

Every human action involves risk, and in the insurance industry, customer claims are the biggest risk that companies face. This risk must be managed effectively through claim prediction, especially for corporate products. This research analyzes the risk of claims at insurance companies using the Extreme Value Theory (EVT) method, which can estimate extreme risks. Identification of extreme values in claims data is done through the EVT approach, namely Block-Maxima (BM). Generalized Extreme Value (GEV) distribution parameter estimation is performed, followed by prediction of claim risk using Value at Risk (VaR) and estimation of claim reserve funds. The results show that the GEV approach with a 95% confidence level is most suitable for predicting claim risk. Based on these results, the company requires a claim reserve fund of IDR 100,798,248,000 to deal with potential losses due to extreme claims.