A New Weighted Lindley Model with Applications to Extreme Historical Insurance Claims

Abstract

In this paper, we propose a weighted Lindley (NWLi) model for the analysis of extreme historical insurance claims. It extends the classical Lindley distribution by incorporating a weight parameter, enabling more flexibility in modeling insurance claim severity. We provide a comprehensive theoretical overview of the new model and explore two practical applications. First, we investigate the mean-of-order P (MOOP(P)) approach for quantifying the expected claim severity based on the NWLi model. Second, we implement a peaks over a random threshold (PORT) analysis using the value-at-risk metric to assess extreme claim occurrences under the new model. Further, we provide a simulation study to evaluate the accuracy of the estimators under various methods. The proposed model and its applications provide a versatile tool for actuaries and risk analysts to analyze and predict extreme insurance claim severity, offering insights into risk management and decision-making within the insurance industry.