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Optimisation of transition rules of bonus-malus system with Q-optimal premiums

Author

Listed:
  • Marcin Topolewski

    (Szkoła Główna Handlowa w Warszawie)

  • Michał Bernardelli

    (Szkoła Główna Handlowa w Warszawie)

Abstract

Bonus-malus systems are used to differentiate premiums ex post in the risk assessment process in the vehicle insurance. While the tools of system analysis and premium calculation criteria are well-described in the literature, relatively little attention has been given to the optimisation of transition rules between classes of the bonus-malus system. The problem appears to be particularly interesting from the viewpoint of system design. The possibility of building a system that meets the specified optimality criterion in advance seems to be desirable. In this paper, we try to optimise the transition rules of bonus-malus systems of different sizes for insured portfolios characterised by the function of the risk structure of various parameters. We try to check whether the optimisation of transition rules can improve and objectify the process of building the bonus-malus system, and whether the aim to create a bonus-malus system with good statistical properties conforms with the desired market utility performance of the system.

Suggested Citation

  • Marcin Topolewski & Michał Bernardelli, 2015. "Optimisation of transition rules of bonus-malus system with Q-optimal premiums," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 37, pages 229-252.
    • Handle: RePEc:sgh:annals:i:37:y:2015:p:229-252
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    References listed on IDEAS

    as
    1. De Pril, Nelson, 1978. "The Efficiency of a Bonus-Malus System," ASTIN Bulletin, Cambridge University Press, vol. 10(1), pages 59-72, May.
    2. Loimaranta, K., 1972. "Some asymptotic properties of bonus systems," ASTIN Bulletin, Cambridge University Press, vol. 6(3), pages 233-245, May.
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