Bayesian CART models for insurance claims frequency

Accuracy and interpretability of a (non-life) insurance pricing model are essential qualities to ensure fair and transparent premiums for policy-holders, that reflect their risk. In recent years, the classification and regression trees (CARTs) and their ensembles have gained popularity in the actuarial literature, since they offer good prediction performance and are relatively easily interpretable. In this paper, we introduce Bayesian CART models for insurance pricing, with a particular focus on claims frequency modelling. Additionally to the common Poisson and negative binomial (NB) distributions used for claims frequency, we implement Bayesian CART for the zero-inflated Poisson (ZIP) distribution to address the difficulty arising from the imbalanced insurance claims data. To this end, we introduce a general MCMC algorithm using data augmentation methods for posterior tree exploration. We also introduce the deviance information criterion (DIC) for the tree model selection. The proposed models are able to identify trees which can better classify the policy-holders into risk groups. Some simulations and real insurance data will be discussed to illustrate the applicability of these models.

Automatic model training under restrictive time constraints

We develop a hyperparameter optimisation algorithm, Automated Budget Constrained Training (AutoBCT), which balances the quality of a model with the computational cost required to tune it. The relationship between hyperparameters, model quality and computational cost must be learnt and this learning is incorporated directly into the optimisation problem. At each training epoch, the algorithm decides whether to terminate or continue training, and, in the latter case, what values of hyperparameters to use. This decision weighs optimally potential improvements in the quality with the additional training time and the uncertainty about the learnt quantities. The performance of our algorithm is verified on a number of machine learning problems encompassing random forests and neural networks. Our approach is rooted in the theory of Markov decision processes with partial information and we develop a numerical method to compute the value function and an optimal strategy.