# Authors: The scikit-learn developers
# SPDX-License-Identifier: BSD-3-Clause
"""
======================================
Tweedie regression on insurance claims
======================================
This example illustrates the use of Poisson, Gamma and Tweedie regression on
the `French Motor Third-Party Liability Claims dataset
`_, and is inspired by an R tutorial [1]_.
In this dataset, each sample corresponds to an insurance policy, i.e. a
contract within an insurance company and an individual (policyholder).
Available features include driver age, vehicle age, vehicle power, etc.
A few definitions: a *claim* is the request made by a policyholder to the
insurer to compensate for a loss covered by the insurance. The *claim amount*
is the amount of money that the insurer must pay. The *exposure* is the
duration of the insurance coverage of a given policy, in years.
Here our goal is to predict the expected
value, i.e. the mean, of the total claim amount per exposure unit also
referred to as the pure premium.
There are several possibilities to do that, two of which are:
1. Model the number of claims with a Poisson distribution, and the average
claim amount per claim, also known as severity, as a Gamma distribution
and multiply the predictions of both in order to get the total claim
amount.
2. Model the total claim amount per exposure directly, typically with a Tweedie
distribution of Tweedie power :math:`p \\in (1, 2)`.
In this example we will illustrate both approaches. We start by defining a few
helper functions for loading the data and visualizing results.
.. [1] A. Noll, R. Salzmann and M.V. Wuthrich, Case Study: French Motor
Third-Party Liability Claims (November 8, 2018). `doi:10.2139/ssrn.3164764
`_
"""
# %%
from functools import partial
import matplotlib.pyplot as plt
import numpy as np
import pandas as pd
from sklearn.datasets import fetch_openml
from sklearn.metrics import (
mean_absolute_error,
mean_squared_error,
mean_tweedie_deviance,
)
def load_mtpl2(n_samples=None):
"""Fetch the French Motor Third-Party Liability Claims dataset.
Parameters
----------
n_samples: int, default=None
number of samples to select (for faster run time). Full dataset has
678013 samples.
"""
# freMTPL2freq dataset from https://www.openml.org/d/41214
df_freq = fetch_openml(data_id=41214, as_frame=True).data
df_freq["IDpol"] = df_freq["IDpol"].astype(int)
df_freq.set_index("IDpol", inplace=True)
# freMTPL2sev dataset from https://www.openml.org/d/41215
df_sev = fetch_openml(data_id=41215, as_frame=True).data
# sum ClaimAmount over identical IDs
df_sev = df_sev.groupby("IDpol").sum()
df = df_freq.join(df_sev, how="left")
df["ClaimAmount"] = df["ClaimAmount"].fillna(0)
# unquote string fields
for column_name in df.columns[df.dtypes.values == object]:
df[column_name] = df[column_name].str.strip("'")
return df.iloc[:n_samples]
def plot_obs_pred(
df,
feature,
weight,
observed,
predicted,
y_label=None,
title=None,
ax=None,
fill_legend=False,
):
"""Plot observed and predicted - aggregated per feature level.
Parameters
----------
df : DataFrame
input data
feature: str
a column name of df for the feature to be plotted
weight : str
column name of df with the values of weights or exposure
observed : str
a column name of df with the observed target
predicted : DataFrame
a dataframe, with the same index as df, with the predicted target
fill_legend : bool, default=False
whether to show fill_between legend
"""
# aggregate observed and predicted variables by feature level
df_ = df.loc[:, [feature, weight]].copy()
df_["observed"] = df[observed] * df[weight]
df_["predicted"] = predicted * df[weight]
df_ = (
df_.groupby([feature])[[weight, "observed", "predicted"]]
.sum()
.assign(observed=lambda x: x["observed"] / x[weight])
.assign(predicted=lambda x: x["predicted"] / x[weight])
)
ax = df_.loc[:, ["observed", "predicted"]].plot(style=".", ax=ax)
y_max = df_.loc[:, ["observed", "predicted"]].values.max() * 0.8
p2 = ax.fill_between(
df_.index,
0,
y_max * df_[weight] / df_[weight].values.max(),
color="g",
alpha=0.1,
)
if fill_legend:
ax.legend([p2], ["{} distribution".format(feature)])
ax.set(
ylabel=y_label if y_label is not None else None,
title=title if title is not None else "Train: Observed vs Predicted",
)
def score_estimator(
estimator,
X_train,
X_test,
df_train,
df_test,
target,
weights,
tweedie_powers=None,
):
"""Evaluate an estimator on train and test sets with different metrics"""
metrics = [
("D² explained", None), # Use default scorer if it exists
("mean abs. error", mean_absolute_error),
("mean squared error", mean_squared_error),
]
if tweedie_powers:
metrics += [
(
"mean Tweedie dev p={:.4f}".format(power),
partial(mean_tweedie_deviance, power=power),
)
for power in tweedie_powers
]
res = []
for subset_label, X, df in [
("train", X_train, df_train),
("test", X_test, df_test),
]:
y, _weights = df[target], df[weights]
for score_label, metric in metrics:
if isinstance(estimator, tuple) and len(estimator) == 2:
# Score the model consisting of the product of frequency and
# severity models.
est_freq, est_sev = estimator
y_pred = est_freq.predict(X) * est_sev.predict(X)
else:
y_pred = estimator.predict(X)
if metric is None:
if not hasattr(estimator, "score"):
continue
score = estimator.score(X, y, sample_weight=_weights)
else:
score = metric(y, y_pred, sample_weight=_weights)
res.append({"subset": subset_label, "metric": score_label, "score": score})
res = (
pd.DataFrame(res)
.set_index(["metric", "subset"])
.score.unstack(-1)
.round(4)
.loc[:, ["train", "test"]]
)
return res
# %%
# Loading datasets, basic feature extraction and target definitions
# -----------------------------------------------------------------
#
# We construct the freMTPL2 dataset by joining the freMTPL2freq table,
# containing the number of claims (``ClaimNb``), with the freMTPL2sev table,
# containing the claim amount (``ClaimAmount``) for the same policy ids
# (``IDpol``).
from sklearn.compose import ColumnTransformer
from sklearn.pipeline import make_pipeline
from sklearn.preprocessing import (
FunctionTransformer,
KBinsDiscretizer,
OneHotEncoder,
StandardScaler,
)
df = load_mtpl2()
# Correct for unreasonable observations (that might be data error)
# and a few exceptionally large claim amounts
df["ClaimNb"] = df["ClaimNb"].clip(upper=4)
df["Exposure"] = df["Exposure"].clip(upper=1)
df["ClaimAmount"] = df["ClaimAmount"].clip(upper=200000)
# If the claim amount is 0, then we do not count it as a claim. The loss function
# used by the severity model needs strictly positive claim amounts. This way
# frequency and severity are more consistent with each other.
df.loc[(df["ClaimAmount"] == 0) & (df["ClaimNb"] >= 1), "ClaimNb"] = 0
log_scale_transformer = make_pipeline(
FunctionTransformer(func=np.log), StandardScaler()
)
column_trans = ColumnTransformer(
[
(
"binned_numeric",
KBinsDiscretizer(n_bins=10, random_state=0),
["VehAge", "DrivAge"],
),
(
"onehot_categorical",
OneHotEncoder(),
["VehBrand", "VehPower", "VehGas", "Region", "Area"],
),
("passthrough_numeric", "passthrough", ["BonusMalus"]),
("log_scaled_numeric", log_scale_transformer, ["Density"]),
],
remainder="drop",
)
X = column_trans.fit_transform(df)
# Insurances companies are interested in modeling the Pure Premium, that is
# the expected total claim amount per unit of exposure for each policyholder
# in their portfolio:
df["PurePremium"] = df["ClaimAmount"] / df["Exposure"]
# This can be indirectly approximated by a 2-step modeling: the product of the
# Frequency times the average claim amount per claim:
df["Frequency"] = df["ClaimNb"] / df["Exposure"]
df["AvgClaimAmount"] = df["ClaimAmount"] / np.fmax(df["ClaimNb"], 1)
with pd.option_context("display.max_columns", 15):
print(df[df.ClaimAmount > 0].head())
# %%
#
# Frequency model -- Poisson distribution
# ---------------------------------------
#
# The number of claims (``ClaimNb``) is a positive integer (0 included).
# Thus, this target can be modelled by a Poisson distribution.
# It is then assumed to be the number of discrete events occurring with a
# constant rate in a given time interval (``Exposure``, in units of years).
# Here we model the frequency ``y = ClaimNb / Exposure``, which is still a
# (scaled) Poisson distribution, and use ``Exposure`` as `sample_weight`.
from sklearn.linear_model import PoissonRegressor
from sklearn.model_selection import train_test_split
df_train, df_test, X_train, X_test = train_test_split(df, X, random_state=0)
# %%
#
# Let us keep in mind that despite the seemingly large number of data points in
# this dataset, the number of evaluation points where the claim amount is
# non-zero is quite small:
len(df_test)
# %%
len(df_test[df_test["ClaimAmount"] > 0])
# %%
#
# As a consequence, we expect a significant variability in our
# evaluation upon random resampling of the train test split.
#
# The parameters of the model are estimated by minimizing the Poisson deviance
# on the training set via a Newton solver. Some of the features are collinear
# (e.g. because we did not drop any categorical level in the `OneHotEncoder`),
# we use a weak L2 penalization to avoid numerical issues.
glm_freq = PoissonRegressor(alpha=1e-4, solver="newton-cholesky")
glm_freq.fit(X_train, df_train["Frequency"], sample_weight=df_train["Exposure"])
scores = score_estimator(
glm_freq,
X_train,
X_test,
df_train,
df_test,
target="Frequency",
weights="Exposure",
)
print("Evaluation of PoissonRegressor on target Frequency")
print(scores)
# %%
#
# Note that the score measured on the test set is surprisingly better than on
# the training set. This might be specific to this random train-test split.
# Proper cross-validation could help us to assess the sampling variability of
# these results.
#
# We can visually compare observed and predicted values, aggregated by the
# drivers age (``DrivAge``), vehicle age (``VehAge``) and the insurance
# bonus/malus (``BonusMalus``).
fig, ax = plt.subplots(ncols=2, nrows=2, figsize=(16, 8))
fig.subplots_adjust(hspace=0.3, wspace=0.2)
plot_obs_pred(
df=df_train,
feature="DrivAge",
weight="Exposure",
observed="Frequency",
predicted=glm_freq.predict(X_train),
y_label="Claim Frequency",
title="train data",
ax=ax[0, 0],
)
plot_obs_pred(
df=df_test,
feature="DrivAge",
weight="Exposure",
observed="Frequency",
predicted=glm_freq.predict(X_test),
y_label="Claim Frequency",
title="test data",
ax=ax[0, 1],
fill_legend=True,
)
plot_obs_pred(
df=df_test,
feature="VehAge",
weight="Exposure",
observed="Frequency",
predicted=glm_freq.predict(X_test),
y_label="Claim Frequency",
title="test data",
ax=ax[1, 0],
fill_legend=True,
)
plot_obs_pred(
df=df_test,
feature="BonusMalus",
weight="Exposure",
observed="Frequency",
predicted=glm_freq.predict(X_test),
y_label="Claim Frequency",
title="test data",
ax=ax[1, 1],
fill_legend=True,
)
# %%
# According to the observed data, the frequency of accidents is higher for
# drivers younger than 30 years old, and is positively correlated with the
# `BonusMalus` variable. Our model is able to mostly correctly model this
# behaviour.
#
# Severity Model - Gamma distribution
# ------------------------------------
# The mean claim amount or severity (`AvgClaimAmount`) can be empirically
# shown to follow approximately a Gamma distribution. We fit a GLM model for
# the severity with the same features as the frequency model.
#
# Note:
#
# - We filter out ``ClaimAmount == 0`` as the Gamma distribution has support
# on :math:`(0, \infty)`, not :math:`[0, \infty)`.
# - We use ``ClaimNb`` as `sample_weight` to account for policies that contain
# more than one claim.
from sklearn.linear_model import GammaRegressor
mask_train = df_train["ClaimAmount"] > 0
mask_test = df_test["ClaimAmount"] > 0
glm_sev = GammaRegressor(alpha=10.0, solver="newton-cholesky")
glm_sev.fit(
X_train[mask_train.values],
df_train.loc[mask_train, "AvgClaimAmount"],
sample_weight=df_train.loc[mask_train, "ClaimNb"],
)
scores = score_estimator(
glm_sev,
X_train[mask_train.values],
X_test[mask_test.values],
df_train[mask_train],
df_test[mask_test],
target="AvgClaimAmount",
weights="ClaimNb",
)
print("Evaluation of GammaRegressor on target AvgClaimAmount")
print(scores)
# %%
#
# Those values of the metrics are not necessarily easy to interpret. It can be
# insightful to compare them with a model that does not use any input
# features and always predicts a constant value, i.e. the average claim
# amount, in the same setting:
from sklearn.dummy import DummyRegressor
dummy_sev = DummyRegressor(strategy="mean")
dummy_sev.fit(
X_train[mask_train.values],
df_train.loc[mask_train, "AvgClaimAmount"],
sample_weight=df_train.loc[mask_train, "ClaimNb"],
)
scores = score_estimator(
dummy_sev,
X_train[mask_train.values],
X_test[mask_test.values],
df_train[mask_train],
df_test[mask_test],
target="AvgClaimAmount",
weights="ClaimNb",
)
print("Evaluation of a mean predictor on target AvgClaimAmount")
print(scores)
# %%
#
# We conclude that the claim amount is very challenging to predict. Still, the
# :class:`~sklearn.linear_model.GammaRegressor` is able to leverage some
# information from the input features to slightly improve upon the mean
# baseline in terms of D².
#
# Note that the resulting model is the average claim amount per claim. As such,
# it is conditional on having at least one claim, and cannot be used to predict
# the average claim amount per policy. For this, it needs to be combined with
# a claims frequency model.
print(
"Mean AvgClaim Amount per policy: %.2f "
% df_train["AvgClaimAmount"].mean()
)
print(
"Mean AvgClaim Amount | NbClaim > 0: %.2f"
% df_train["AvgClaimAmount"][df_train["AvgClaimAmount"] > 0].mean()
)
print(
"Predicted Mean AvgClaim Amount | NbClaim > 0: %.2f"
% glm_sev.predict(X_train).mean()
)
print(
"Predicted Mean AvgClaim Amount (dummy) | NbClaim > 0: %.2f"
% dummy_sev.predict(X_train).mean()
)
# %%
# We can visually compare observed and predicted values, aggregated for
# the drivers age (``DrivAge``).
fig, ax = plt.subplots(ncols=1, nrows=2, figsize=(16, 6))
plot_obs_pred(
df=df_train.loc[mask_train],
feature="DrivAge",
weight="Exposure",
observed="AvgClaimAmount",
predicted=glm_sev.predict(X_train[mask_train.values]),
y_label="Average Claim Severity",
title="train data",
ax=ax[0],
)
plot_obs_pred(
df=df_test.loc[mask_test],
feature="DrivAge",
weight="Exposure",
observed="AvgClaimAmount",
predicted=glm_sev.predict(X_test[mask_test.values]),
y_label="Average Claim Severity",
title="test data",
ax=ax[1],
fill_legend=True,
)
plt.tight_layout()
# %%
# Overall, the drivers age (``DrivAge``) has a weak impact on the claim
# severity, both in observed and predicted data.
#
# Pure Premium Modeling via a Product Model vs single TweedieRegressor
# --------------------------------------------------------------------
# As mentioned in the introduction, the total claim amount per unit of
# exposure can be modeled as the product of the prediction of the
# frequency model by the prediction of the severity model.
#
# Alternatively, one can directly model the total loss with a unique
# Compound Poisson Gamma generalized linear model (with a log link function).
# This model is a special case of the Tweedie GLM with a "power" parameter
# :math:`p \in (1, 2)`. Here, we fix apriori the `power` parameter of the
# Tweedie model to some arbitrary value (1.9) in the valid range. Ideally one
# would select this value via grid-search by minimizing the negative
# log-likelihood of the Tweedie model, but unfortunately the current
# implementation does not allow for this (yet).
#
# We will compare the performance of both approaches.
# To quantify the performance of both models, one can compute
# the mean deviance of the train and test data assuming a Compound
# Poisson-Gamma distribution of the total claim amount. This is equivalent to
# a Tweedie distribution with a `power` parameter between 1 and 2.
#
# The :func:`sklearn.metrics.mean_tweedie_deviance` depends on a `power`
# parameter. As we do not know the true value of the `power` parameter, we here
# compute the mean deviances for a grid of possible values, and compare the
# models side by side, i.e. we compare them at identical values of `power`.
# Ideally, we hope that one model will be consistently better than the other,
# regardless of `power`.
from sklearn.linear_model import TweedieRegressor
glm_pure_premium = TweedieRegressor(power=1.9, alpha=0.1, solver="newton-cholesky")
glm_pure_premium.fit(
X_train, df_train["PurePremium"], sample_weight=df_train["Exposure"]
)
tweedie_powers = [1.5, 1.7, 1.8, 1.9, 1.99, 1.999, 1.9999]
scores_product_model = score_estimator(
(glm_freq, glm_sev),
X_train,
X_test,
df_train,
df_test,
target="PurePremium",
weights="Exposure",
tweedie_powers=tweedie_powers,
)
scores_glm_pure_premium = score_estimator(
glm_pure_premium,
X_train,
X_test,
df_train,
df_test,
target="PurePremium",
weights="Exposure",
tweedie_powers=tweedie_powers,
)
scores = pd.concat(
[scores_product_model, scores_glm_pure_premium],
axis=1,
sort=True,
keys=("Product Model", "TweedieRegressor"),
)
print("Evaluation of the Product Model and the Tweedie Regressor on target PurePremium")
with pd.option_context("display.expand_frame_repr", False):
print(scores)
# %%
# In this example, both modeling approaches yield comparable performance
# metrics. For implementation reasons, the percentage of explained variance
# :math:`D^2` is not available for the product model.
#
# We can additionally validate these models by comparing observed and
# predicted total claim amount over the test and train subsets. We see that,
# on average, both model tend to underestimate the total claim (but this
# behavior depends on the amount of regularization).
res = []
for subset_label, X, df in [
("train", X_train, df_train),
("test", X_test, df_test),
]:
exposure = df["Exposure"].values
res.append(
{
"subset": subset_label,
"observed": df["ClaimAmount"].values.sum(),
"predicted, frequency*severity model": np.sum(
exposure * glm_freq.predict(X) * glm_sev.predict(X)
),
"predicted, tweedie, power=%.2f"
% glm_pure_premium.power: np.sum(exposure * glm_pure_premium.predict(X)),
}
)
print(pd.DataFrame(res).set_index("subset").T)
# %%
#
# Finally, we can compare the two models using a plot of cumulated claims: for
# each model, the policyholders are ranked from safest to riskiest based on the
# model predictions and the fraction of observed total cumulated claims is
# plotted on the y axis. This plot is often called the ordered Lorenz curve of
# the model.
#
# The Gini coefficient (based on the area between the curve and the diagonal)
# can be used as a model selection metric to quantify the ability of the model
# to rank policyholders. Note that this metric does not reflect the ability of
# the models to make accurate predictions in terms of absolute value of total
# claim amounts but only in terms of relative amounts as a ranking metric. The
# Gini coefficient is upper bounded by 1.0 but even an oracle model that ranks
# the policyholders by the observed claim amounts cannot reach a score of 1.0.
#
# We observe that both models are able to rank policyholders by risky-ness
# significantly better than chance although they are also both far from the
# oracle model due to the natural difficulty of the prediction problem from a
# few features: most accidents are not predictable and can be caused by
# environmental circumstances that are not described at all by the input
# features of the models.
#
# Note that the Gini index only characterizes the ranking performance of the
# model but not its calibration: any monotonic transformation of the predictions
# leaves the Gini index of the model unchanged.
#
# Finally one should highlight that the Compound Poisson Gamma model that is
# directly fit on the pure premium is operationally simpler to develop and
# maintain as it consists of a single scikit-learn estimator instead of a pair
# of models, each with its own set of hyperparameters.
from sklearn.metrics import auc
def lorenz_curve(y_true, y_pred, exposure):
y_true, y_pred = np.asarray(y_true), np.asarray(y_pred)
exposure = np.asarray(exposure)
# order samples by increasing predicted risk:
ranking = np.argsort(y_pred)
ranked_exposure = exposure[ranking]
ranked_pure_premium = y_true[ranking]
cumulated_claim_amount = np.cumsum(ranked_pure_premium * ranked_exposure)
cumulated_claim_amount /= cumulated_claim_amount[-1]
cumulated_samples = np.linspace(0, 1, len(cumulated_claim_amount))
return cumulated_samples, cumulated_claim_amount
fig, ax = plt.subplots(figsize=(8, 8))
y_pred_product = glm_freq.predict(X_test) * glm_sev.predict(X_test)
y_pred_total = glm_pure_premium.predict(X_test)
for label, y_pred in [
("Frequency * Severity model", y_pred_product),
("Compound Poisson Gamma", y_pred_total),
]:
ordered_samples, cum_claims = lorenz_curve(
df_test["PurePremium"], y_pred, df_test["Exposure"]
)
gini = 1 - 2 * auc(ordered_samples, cum_claims)
label += " (Gini index: {:.3f})".format(gini)
ax.plot(ordered_samples, cum_claims, linestyle="-", label=label)
# Oracle model: y_pred == y_test
ordered_samples, cum_claims = lorenz_curve(
df_test["PurePremium"], df_test["PurePremium"], df_test["Exposure"]
)
gini = 1 - 2 * auc(ordered_samples, cum_claims)
label = "Oracle (Gini index: {:.3f})".format(gini)
ax.plot(ordered_samples, cum_claims, linestyle="-.", color="gray", label=label)
# Random baseline
ax.plot([0, 1], [0, 1], linestyle="--", color="black", label="Random baseline")
ax.set(
title="Lorenz Curves",
xlabel="Fraction of policyholders\n(ordered by model from safest to riskiest)",
ylabel="Fraction of total claim amount",
)
ax.legend(loc="upper left")
plt.plot()