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Bonus-malus system with premium adjustment

Author

Listed:
  • Kamil Gala

    (Ubezpieczeniowy Fundusz Gwarancyjny)

  • Wojciech Bijak

    (Szkoła Główna Handlowa w Warszawie, Ubezpieczeniowy Fundusz Gwarancyjny)

Abstract

Bonus-malus systems are a widely used method for pricing automobile insurance on the basis of individual claim history. Despite their popularity and many advantages, several modifications were proposed in the actuarial literature, but none of them, however, takes into consideration the benefit for the insured. This paper analyses the bonus-malus system, in which at the end of the insurance period the premium is adjusted according to the number of reported claims. We describe such a system using Markov chains and the credibility theory framework. Furthermore, we show how premium relativities may be derived under certain optimality criteria and we investigate their properties.

Suggested Citation

  • Kamil Gala & Wojciech Bijak, 2015. "Bonus-malus system with premium adjustment," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 37, pages 99-126.
    • Handle: RePEc:sgh:annals:i:37:y:2015:p:99-126
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    References listed on IDEAS

    as
    1. Pitrebois, Sandra & Walhin, Jean-François & Denuit, Michel, 2005. "Bonus-malus Systems with Varying Deductibles," ASTIN Bulletin, Cambridge University Press, vol. 35(1), pages 261-274, May.
    2. Holtan, Jon, 1994. "Bonus Made Easy1," ASTIN Bulletin, Cambridge University Press, vol. 24(1), pages 61-74, May.
    Full references (including those not matched with items on IDEAS)

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