FUZZY TRENDS IN PROPERTY-LIABILITY INSURANCE CLAIM COSTS

Accuracy in forecasting expected loss costs may well be the most impor tant determinant of the ultimate profitability of a cohort of property -liability insurance policies. The existing literature on claim cost f orecasting focuses on the selection of the ''best'' forecasting model or method, discarding information provided by closely ranked alternati ves. In this article, we emphasize the selection of a ''good'' forecas t rather than a forecasting model, where goodness is defined using mul tiple criteria that may be vague or fuzzy. Fuzzy set theory is propose d as a mechanism for combining forecasts from alternative models using multiple fuzzy criteria. The fuzzy approach is illustrated using fore casts of automobile bodily injury liability pure premiums. We conclude that fuzzy set theory provides an effective method for combining stat istical and judgmental criteria in actuarial decision making.