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Skewed link regression models for imbalanced binary response with applications to life insurance

07/30/2020
by   Shuang Yin, et al.
University of Connecticut
0

For a portfolio of life insurance policies observed for a stated period of time, e.g., one year, mortality is typically a rare event. When we examine the outcome of dying or not from such portfolios, we have an imbalanced binary response. The popular logistic and probit regression models can be inappropriate for imbalanced binary response as model estimates may be biased, and if not addressed properly, it can lead to serious adverse predictions. In this paper, we propose the use of skewed link regression models (Generalized Extreme Value, Weibull, and Frec̀het link models) as more superior models to handle imbalanced binary response. We adopt a fully Bayesian approach for the generalized linear models (GLMs) under the proposed link functions to help better explain the high skewness. To calibrate our proposed Bayesian models, we use a real dataset of death claims experience drawn from a life insurance company's portfolio. Bayesian estimates of parameters were obtained using the Metropolis-Hastings algorithm and for Bayesian model selection and comparison, the Deviance Information Criterion (DIC) statistic has been used. For our mortality dataset, we find that these skewed link models are more superior than the widely used binary models with standard link functions. We evaluate the predictive power of the different underlying models by measuring and comparing aggregated death counts and death benefits.

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