Comparison of some reserve estimation methods based on paid and incurred loss

In the insurance company's portfolio there may be claims reported but not yet settled or incurred but not yet reported. The most important task of the insurance companies is to accurately estimate these possible future claim payments and to allocate sufficient reserves for these payments. Insurance companies may have information from different sources such as paid and incurred claims. However, only one source of information is used in order to estimate reserve in many classical reserve methods. When an estimation is calculated based only on paid or incurred claims, the ultimate claims will be different. As the incurred claims are expected to be paid at the end of the development year for each accident year, the ultimate claim estimates obtained using these two sources of information are also expected to be equal. Therefore, reserv methods based on both paid and incurred claims have been developed in order to obtain equal or almost equal estimations. In this study, the claim development triangle including cumulative paid and incurred losses between 2010 and 2016 in Turkey for compulsory motor third party liability insurance are used and reserve is estimated by methods using both source of information and methods considered are compared taking into account the mean squared error.