Explainable Boosting Machine for Predicting Claim Severity and Frequency in Car Insurance

Abstract

With the rapid development of machine learning and deep learning techniques, actuaries and the broader insurance industry face a persistent trade-off between predictive accuracy and interpretability. This paper provides a comprehensive applied assessment of Explainable Boosting Machines (EBM) in a car insurance framework, focusing on claim frequency and severity modeling. EBM combines the additive structure of generalized additive models (GAM) with a cyclic gradient boosting algorithm, resulting in a glass-box model whose predictions are interpretable by design. Using real-world data, we empirically illustrate its practical relevance and compare EBM with modern benchmark models used in non-life insurance pricing. The evaluation considers (i) out-of-sample predictive accuracy, including Murphy diagrams and Bregman dominance tests, and (ii) calibration assessment using T-reliability diagrams and Murphy's score decomposition. Finally, we highlight the link between EBM predictions and Shapley values, showing how predictions can be transparently decomposed into exact main and pairwise interaction effects, providing actionable insights beyond predictive performance.