What is GLM in actuarial pricing?

GLM pricing, a statistical method prevalent in the insurance sector, serves as a cornerstone for determining the cost of insurance policies. This methodology employs sophisticated models to delve into the intricacies of potential claims.

At the heart of GLM pricing lies the utilisation of generalised linear models. These models are designed to handle the complexity of insurance data, enabling precise predictions regarding the expected costs associated with claims.

The process involves identifying and assessing various risk factors inherent in the insured entities. These factors could encompass anything from the insured's age, health status, to their occupation and lifestyle choices.

By meticulously analysing these risk factors, GLM pricing aims to provide insurers with an accurate estimation of the potential costs they may incur in the event of a claim. This, in turn, allows for the formulation of fair and reasonable policy premiums.

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