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Varying transition rules in bonus–malus systems: From rules specification to determination of optimal relativities

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  • Tan, Chong It

Abstract

In this paper, we extend the proposed idea of level-varying transition rules in bonus–malus systems onto risk-varying rules and combine both these ideas to formulate the generalization of varying transition rules. Moreover, we generalize the analytical formulae for the determination of optimal relativities under these rules. We find that the risk-varying transition rules are the most effective among the different specifications of transition rules. Our numerical results also indicate that the resulting optimal relativities under the general-varying rules are higher than those of under the risk-varying rules partly due to the differences of the transitions imposed by the rules.

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  • Tan, Chong It, 2016. "Varying transition rules in bonus–malus systems: From rules specification to determination of optimal relativities," Insurance: Mathematics and Economics, Elsevier, vol. 68(C), pages 134-140.
    • Handle: RePEc:eee:insuma:v:68:y:2016:i:c:p:134-140
    DOI: 10.1016/j.insmatheco.2016.03.007
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    Cited by:

    1. Wenhui Zhang & Yongmin Su & Ruimin Ke & Xinqiang Chen, 2018. "Evaluating the influential priority of the factors on insurance loss of public transit," PLOS ONE, Public Library of Science, vol. 13(1), pages 1-11, January.

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