Modeling Large Insurance Claims Using Extreme Value Theory: A Case Study Of The 37 Military Hospital.
Date
2020
Authors
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Journal ISSN
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Publisher
University Of Ghana
Abstract
The private health insurance industry is one of the vital components in nation-building.
It complements government’s efforts in reducing “out-of-pocket” payment for healthcare
services in the country. However, some private health insurance companies face severe
insolvency issues due to accumulation of unanticipated huge claim amounts. The Extreme
Value Theory (EVT) is a statistical tool proven to help solve or mitigate some of these
challenges since it focuses mainly on the behaviour of severe but rare occurrence. In this
study, we employ the EVT approaches to model large insurance claims from the 37 Military
hospital; and to estimate financial risk indicators such as Value-at-Risk (VaR) and Expected
Shortfall (ES) among other extreme quantiles. Conclusions drawn from analysis established
that the Weibull class of distributions is more appropriate for the data at hand and for
this reason, it is not likely for the 37 Military hospital to submit claim amount exceeding
24,618 cedis for any given day. In addition, private health insurance firms can be assured
at a confidence level of 99%, 99.5% and 99.9% that within a day, the hospital is not likely
to submit a claim amount exceeding 2,910 cedis, 3,938 cedis and 7,946 cedis respectively.
Finally, it was recommended that the NHIA could replicate this study using the claims
received by the public health insurance scheme (i.e. NHIS) since it can go a long way to
strengthen the financial sustainability of the scheme.
Description
MPhil. Statistics
Keywords
Insurance Claims, Ghana, health insurance industry, Extreme Value Theory