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| Main Authors: | , , , |
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| Format: | Preprint |
| Published: |
2026
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| Subjects: | |
| Online Access: | https://arxiv.org/abs/2602.02398 |
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| _version_ | 1866911416628281344 |
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| author | Lee, Hyemin Kim, Dohee So, Banghee Ahn, Jae Youn |
| author_facet | Lee, Hyemin Kim, Dohee So, Banghee Ahn, Jae Youn |
| contents | Standard count models such as the Poisson and Negative Binomial models often fail to capture the large proportion of zero claims commonly observed in insurance data. To address such issue of excessive zeros, zero-inflated and hurdle models introduce additional parameters that explicitly account for excess zeros, thereby improving the joint representation of zero and positive claim outcomes. These models have further been extended with random effects to accommodate longitudinal dependence and unobserved heterogeneity. However, their consistency with fundamental probabilistic principles in insurance, particularly stochastic monotonicity, has not been formally examined. This paper provides a rigorous analysis showing that standard counting random-effect models for excessive zeros may violate this property, leading to inconsistencies in posterior credibility. We then propose new classes of counting random-effect models that both accommodate excessive zeros and ensure stochastic monotonicity, thereby providing fair and theoretically coherent credibility adjustments as claim histories evolve. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2602_02398 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Counting models with excessive zeros ensuring stochastic monotonicity Lee, Hyemin Kim, Dohee So, Banghee Ahn, Jae Youn Applications Standard count models such as the Poisson and Negative Binomial models often fail to capture the large proportion of zero claims commonly observed in insurance data. To address such issue of excessive zeros, zero-inflated and hurdle models introduce additional parameters that explicitly account for excess zeros, thereby improving the joint representation of zero and positive claim outcomes. These models have further been extended with random effects to accommodate longitudinal dependence and unobserved heterogeneity. However, their consistency with fundamental probabilistic principles in insurance, particularly stochastic monotonicity, has not been formally examined. This paper provides a rigorous analysis showing that standard counting random-effect models for excessive zeros may violate this property, leading to inconsistencies in posterior credibility. We then propose new classes of counting random-effect models that both accommodate excessive zeros and ensure stochastic monotonicity, thereby providing fair and theoretically coherent credibility adjustments as claim histories evolve. |
| title | Counting models with excessive zeros ensuring stochastic monotonicity |
| topic | Applications |
| url | https://arxiv.org/abs/2602.02398 |