A Systematic Literature Review of Insurance Claims Risk Measurement Using Hidden Markov Model

In the rapidly evolving field of insurance, accurate risk measurement is crucial for effective claims management and financial stability. Therefore, this research presented a systematic literature review (SLR) on insurance claims risk measurement using Hidden Markov Model (HMM). Bibliometric analysis was conducted using VOSviewer and ResearchRabbit software to map research trends and collaboration networks in this topic. The review explored the implementation of HMM in predicting the frequency and magnitude of insurance claims, with a focus on the statistical distribution methods used. In addition, the research emphasized the influence of the number of hidden states in HMM on claims behavior, both in terms of frequency and magnitude, and provided interpretations of these hidden dynamics. Data sources for the review comprised three databases, namely Scopus, ScienceDirect, and Dimensions. The article selection process followed PRISMA guidelines, resulting in five key articles relevant to the topic. The results offered insights into the application of HMM for forecasting the frequency and severity of insurance claims and opened avenues for further investigation on distribution models and hidden state modeling.