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Optimizing Claims Fluctuation Reserves

Author

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  • Christoph Haehling von Lanzenauer

    (Sloan School of Management, M.I.T.)

  • Don D. Wright

    (University of Western Ontario)

Abstract

Many group insurance programs are characterized by experience rating features which imply that a surplus resulting from favorable experience belongs to the group, while the administering insurance company is to be reimbursed for a deficit resulting from unfavorable experience. Due to the volatile nature of claims, a claims fluctuation reserve is frequently established in order to reduce frequent rebates or premium adjustments resulting from surplus or deficit positions. A model is presented for resolving the rebate question and determining the design parameters of a claims fluctuation reserve. The model is formulated for non-stationary conditions and uses the first passage time concept as part of a chance constraint criterion. Results of an actual application are reported.

Suggested Citation

  • Christoph Haehling von Lanzenauer & Don D. Wright, 1977. "Optimizing Claims Fluctuation Reserves," Management Science, INFORMS, vol. 23(11), pages 1199-1207, July.
    • Handle: RePEc:inm:ormnsc:v:23:y:1977:i:11:p:1199-1207
    DOI: 10.1287/mnsc.23.11.1199
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