### Role of Generalised Linear Model in non-life pricing Phase3

Phase1: http://www.actuarysense.com/2018/10/role-of-generalised-linear-model-in-non.html
Phase2: http://www.actuarysense.com/2018/11/role-of-generalised-linear-model-in-non.html So we know that the purpose of GLM is to find the relationship between mean of the response variable and covariates.

Linear Predictor: Let’s denote it with, “η” (eta). So, linear predictor is actually a function of covariates. For example, in the normal linear model where function is Y = B0 + B1x. So linear predictor will be η = B0 + B1x. Always note that linear predictor has to be linear in its parameter. In this case parameters are B0 and B1. But still the question is how I came up with B0 + B1x as a function? First of all, note that broadly there are two types of Covariates. 1. Variables: It takes the numerical value. For example: age of policyholder, years of ex…

### Explanation of Motor Insurance

Motor Insurance or Vehicle Insurance:
Motor insurance is an insurance policy that protects the owner of the vehicle against any financial loss arising out of damage or theft of vehicle.
Motor vehicle coverage also includes damage caused to third party or property.
Motor Insurance is mandatory in India.
Motor Insurance is available for both cars and two wheelers.
Now the premium will be lower for two-wheeler as compared to Car wheeler, as we know the more the sum insured, the more will be the premium, keeping all things constant.

Generally there are two types of Vehicle Insurance:
1.)          Third-Party Car Insurance
2.)          Comprehensive Car Insurance

Third Party Car Insurance:
1.    Provides coverage against any legal liability arising out of injuries to a third party when the policyholder is at fault.
2.    Third party cover does not pay for repair of damage to your car or if you suffer any car-related injuries.
3.    It is mandatory for every motor vehicle owner to buy at least third-party insurance coverage in India.

Comprehensive Car Insurance:
1.    This plan is called a comprehensive plan because it provides coverage for the damages to your car, third-party legal liability, theft, along with the personal accident coverage.
2.    A comprehensive car insurance plan includes coverage for fire, theft, natural and man-made catastrophes, such as a tornado, hurricane vandalism, damage caused to your vehicle by animals, falling objects, civil disturbance, such as a riot that causes damages to your car.

Exclusions:
1.    Damages caused by a driver driving without a valid driving license.
2.    Damages caused due to driving under the influence of intoxicants.
3.    Any loss or damage due to mutiny war, or a nuclear attack

Which one is better: Third Party cover and Comprehensive cover:
1.    It depends upon the value of car. If the value of my vehicle is low than it is better to buy third party insurance because damages that happen to my vehicle can be managed easily and it is economical to pay repair bills rather than paying high premium in case of comprehensive insurance.
On the other hand, if my vehicle is expensive and new, then its better to buy comprehensive plan as it is better to be safe than sorry
2.    If I am seeking for the coverage of my vehicle too and some other add ons too than it’s better to buy comprehensive plan as third-party insurance only covers liability against other party. But the key factor here is the fact that premium is more in comprehensive as compared to Third party insurance.

One can extend the coverage for car insurance by opting for add-ons. These add-ons will increase the financial coverage but additional premium amount will be added to the base premium amount. Some of popular add-ons available with car insurance are:

Zero Depreciation: There is certain value to part of the vehicle. When a claim is made, depreciation is calculated on these parts and the amount is paid accordingly. By opting for zero depreciation cover, the entire amount of the part is paid as a part of claim.

Engine and Gear Box Protection:  In case damaged is caused to engine parts or gear box of the vehicle due to water ingression, leakage of lubricating oil etc, the costs for repair and replacement will be covered.

What are the factors that affect my premium? ­­­­­­
1.    The location where i live. If I live in an area where traffic is low, you will have lower premium rates for example in a city like Kaithal (Haryana). But premium will be higher in big and, metro cities like Gurgaon (Haryana).
2.    Policyholder age also impact premium. People under the age of 25 years need to pay highest premium and person between the age of 50 years to 65 years are required to pay the least.
3.    If your car runs on diesel than you have to pay higher premium as compared to another engine.
4.    Comprehensive car insurance is costlier than third party cover, so premium is more in this case.

Compulsory deductible does not affect the premium in any way.
According to IRDA, compulsory deductibles in case of private vehicles are as follows:
Cars up to 1,500 cc – ₹1000
Cars above 1,500 cc – ₹2000

For example: If the value of your car is 6,00,000, then premium for Comprehensive can vary from Rs. 8500-14000  and for same car, third party insurance can vary between 3000-4500.

credits: http://policybazaar.com

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