Prediction of Outstanding Claims: A Hierarchical Credibility Approach

We consider the problem of predicting unpaid losses in respect of incurred, but not yet reported claims in the case where the distribution of delays until notification may depend on the type of claim. A hierarchical credibility model is presented, where the distribution of delays corresponding to different types of claims, as well as other characteristics affecting the claims experience, are viewed as realizations of unobservable random variables. The proposed method is illustrated by a numerical example.