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Optimal Claim Decisions by Policyholders in Automobile Insurance with Merit-Rating Structures

Author

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  • Christoph Haehling von Lanzenauer

    (The University of Western Ontario, London, Ontario, Canada)

Abstract

Merit-rating structures in automobile-insurance systems require the insured to decide whether to file a claim for an accident when he is at fault. This decision can only be analyzed in the light of future developments and future decisions, and thus must be formulated as a sequential decision process that can be solved by dynamic programming. If future developments are estimated in light of new experience, the decision problem can be analyzed by adaptive programming. The approach is illustrated by sample calculations providing a number of observations that are of interest from the insurance industry's point of view.

Suggested Citation

  • Christoph Haehling von Lanzenauer, 1974. "Optimal Claim Decisions by Policyholders in Automobile Insurance with Merit-Rating Structures," Operations Research, INFORMS, vol. 22(5), pages 979-990, October.
    • Handle: RePEc:inm:oropre:v:22:y:1974:i:5:p:979-990
    DOI: 10.1287/opre.22.5.979
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    Cited by:

    1. Arthur Charpentier & Arthur David & Romuald Elie, 2017. "Optimal Claiming Strategies in Bonus Malus Systems and Implied Markov Chains," Risks, MDPI, vol. 5(4), pages 1-17, November.
    2. Arthur Charpentier & Arthur David & Romuald Elie, 2016. "Optimal Claiming Strategies in Bonus Malus Systems and Implied Markov Chains," Working Papers hal-01326798, HAL.
    3. Dimitriyadis, Irini & TektaS, Arzu, 1998. "A note on the behavior of the insureds in auto-insurance systems in Turkey," European Journal of Operational Research, Elsevier, vol. 106(1), pages 39-44, April.
    4. Guillermo Gallego & Ruxian Wang & Ming Hu & Julie Ward & Jose Luis Beltran, 2015. "No Claim? Your Gain: Design of Residual Value Extended Warranties Under Risk Aversion and Strategic Claim Behavior," Manufacturing & Service Operations Management, INFORMS, vol. 17(1), pages 87-100, February.
    5. Michael Braun & Peter S. Fader & Eric T. Bradlow & Howard Kunreuther, 2006. "Modeling the "Pseudodeductible" in Insurance Claims Decisions," Management Science, INFORMS, vol. 52(8), pages 1258-1272, August.

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