The assessment of insurance risk premium with a simulation study using Archimedean copulas

Year 2025, Volume: 74 Issue: 4, 709 - 722, 24.12.2025

Kübra Durukan , Emel Kızılok Kara

https://doi.org/10.31801/cfsuasmas.1583979

Abstract

This study aims to analyze the effects of risk-averse and risk-seeking attitudes on premium adjustments in dependent risk groups. Using the risk aversion method, it examines how dependence structures modeled by different Archimedean copula families affect the premium strategies of insurance companies. The study combines theoretical derivations with simulation-supported analyses and presents concrete examples to illustrate the impact of risk attitudes on premiums. In the first stage, bivariate risk aversion coefficients and risk premiums were theoretically determined for Archimedean copula families. Subsequently, a simulation study based on different Spearman correlation coefficients was conducted to numerically evaluate the effects of dependence on premium levels and risk behaviors. The findings show that dependence plays a significant role in shaping insurers’ risk behavior. Specifically, it was concluded that risk-averse companies should set higher premiums, whereas risk-seeking companies may prefer lower premium levels.

Keywords

Dependence , Archimedean copulas , risk aversion attitude , risk premium , insurance

Supporting Institution

Kırıkkale University

Project Number

2024/031

Thanks

The authors acknowledge that this work is supported by the Scientific Research Projects Coordination Unit of Kırıkkale University with project number 2024/031. With this support, a part of the study was presented orally at the 10th International Conference on Advances in Statistics (ICAS 2024) held in Budapest, Hungary.

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