Modeling Large Insurance Claims Using Extreme Value Theory: A Case Study Of The 37 Military Hospital.

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Date

2020

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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.

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MPhil. Statistics

Keywords

Insurance Claims, Ghana, health insurance industry, Extreme Value Theory

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