Determinants of Claims in Motor Insurance in Rwanda

Abstract

The paper examines the determinants of claims in the motor insurance sector in Rwanda. We utilised the adaptable Tweedie model alongside XGBoost to analyse and uncover key predictors influencing claim behaviour. Initial findings from the XGBoost analysis emphasised the significance of variables such as the vehicle’s manufacturing year, policyholder, and coverage type in shaping claim probabilities. Subsequent Tweedie regression analysis provided deeper insights, revealing that institutional policyholders are more likely to file claims compared to individual policyholders. Moreover, comprehensive insurance coverage showed a notably higher claim probability than third-party coverage. Interestingly, larger cars exhibited a slightly lower likelihood of claims, while older vehicles and rainy seasons corresponded to increased claim probabilities. Furthermore, an increase in spare parts expenditure is associated with a marginal reduction in claim likelihood, possibly indicating prudent driving behaviour. Conversely, increased maintenance expenditure correlated with a higher probability of claims. Additionally, an increase in GDP was associated with a slight decrease in claim probability, potentially reflecting broader economic conditions influencing driving patterns, vehicle usage, or safety measures investment, thereby impacting claim behaviour. Empirical implications from the findings suggest that insurers could leverage insights from our analysis, such as vehicle manufacturing year, policyholder, and coverage type, to refine pricing and risk assessment strategies. Additionally, promoting proactive maintenance practices among policyholders could help reduce claim frequency and severity. On the regulatory side, the National Bank of Rwanda should foster a regulatory environment conducive to innovation and data-driven decision-making while ensuring compliance with standards and monitoring claims management processes for transparency and accountability. These findings offer valuable insights for sector stakeholders, guiding strategies to enhance industry stability and efficiency in Rwanda’s evolving insurance landscape.