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Pure risk premiums under deductibles. A quantitative management in actuarial practice

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  • Krzysztof Burnecki
  • Joanna Nowicka-Zagrajek
  • Aleksander Weron

Abstract

It is common practice in most insurance lines for the coverage to be restricted by a deductible. In the paper we investigate the influence of deductibles on pure risk premiums. We derive simple but practical formulae for premiums under franchise, fix amount, proportional, limited proportional and disappearing deductibles in terms of the limited expected value function. Next, we apply the results to typical loss distributions, i.e. lognormal, Pareto, Burr, Weibull and gamma. Finally, we analyse a loss data of one of the power companies. We fit distributions to the data and show how the choice of the distribution and a deductible influences the premium.

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File URL: http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_04_05.pdf
File Function: Draft, 2004
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Bibliographic Info

Paper provided by Hugo Steinhaus Center, Wroclaw University of Technology in its series HSC Research Reports with number HSC/04/05.

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Length: 23 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:wuu:wpaper:hsc0405

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Keywords: Insurance risk premium; Deductible; Limited expected value function;

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