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Estimation of Expected Insurance Losses Under Different Deductible Levels

Abstract

The study examines the estimation of expected insurance losses under different deductible levels, focusing on how variations in deductibles affect the portion of insured losses borne by insurers and policyholders. A deductible represents the amount of a covered loss that must be absorbed by the policyholder before the insurer becomes responsible for the remaining eligible loss. The selection of an appropriate deductible level is therefore important in determining expected claim payments, insurance pricing, and the overall financial exposure of insurers. The study will estimate expected insurance losses associated with different deductible levels and examine how changes in deductible amounts influence the expected cost of claims. It will assess the distribution of losses that remain payable by insurers after the application of different deductibles and determine the extent to which deductible levels alter expected claims liabilities. The study will also examine the implications of these variations for actuarial loss estimation. The analysis will focus on loss amounts, deductible levels, claim frequency, claim severity, expected claim payments, retained losses, and loss distributions. Probability distributions and actuarial loss models will be applied to estimate expected losses above selected deductible thresholds. The study will compare the resulting estimates across different deductible levels to establish patterns in insurer loss exposure and policyholder loss retention. A quantitative research approach will be adopted for the study. Relevant historical insurance claims data containing individual loss amounts and claims experience will be obtained from appropriate secondary sources. Descriptive statistics, probability distribution analysis, expected value techniques, loss elimination ratio analysis, and actuarial modelling will be employed to estimate expected losses under the selected deductible levels. The study is expected to reveal that increases in deductible levels generally reduce the expected portion of losses payable by insurers. Lower deductible levels may result in greater insurer exposure to smaller claims, while higher deductible levels may transfer a larger proportion of losses to policyholders. The study may also demonstrate that the magnitude of the reduction in expected losses varies according to the underlying distribution and severity of insurance claims. The findings are expected to provide useful information for insurers, actuaries, underwriters, and insurance analysts in evaluating deductible structures and estimating potential claims liabilities. Accurate estimation of expected losses at different deductible levels may support more appropriate premium calculations, improved risk assessment, and effective loss management. The findings may also assist insurers in evaluating the financial implications of alternative deductible arrangements. The study concludes that estimating expected insurance losses under different deductible levels provides an important basis for understanding insurer exposure and policyholder loss retention. It is therefore recommended that insurance companies apply appropriate actuarial and statistical techniques when evaluating deductible levels and regularly analyse claims data to ensure that deductible structures remain consistent with expected loss experience and insurance risk.

Keywords: Expected insurance losses, deductible levels, insurance deductibles, loss estimation, expected claims, claim frequency, claim severity, loss distributions, actuarial modelling, insurance pricing, insurer exposure, policyholder retention, loss elimination ratio, claims liabilities, actuarial risk assessment.