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Impact of the number of classes and transition rules of bonus-malus system on its efficiency in tariff setting

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  • Anna Szymańska

    (Uniwersytet Łódzki)

Abstract

Insurance companies compete with each other in local markets and the insurance premium is one of the elements of this competition. It is widely believed that in Poland the motor liability insurance is decisive for the participation of the insurance company in the market. On the other hand, the technical result on the civil liability insurance of vehicle owners has been negative for some time. This demonstrates the need for changes in tariffs. One of the elements of ratemaking in civil liability motor insurance is the bonus-malus system. The paper investigates how a change in the rules of transition between classes and the increasing the number of classes impact the efficiency of bonus-malus systems for tariff setting. To assess this efficiency stochastic measures, based on the theory of Markov chains, were applied.

Suggested Citation

  • Anna Szymańska, 2015. "Impact of the number of classes and transition rules of bonus-malus system on its efficiency in tariff setting," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 37, pages 253-268.
    • Handle: RePEc:sgh:annals:i:37:y:2015:p:253-268
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    References listed on IDEAS

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    1. Katrien Antonio & Emiliano Valdez, 2012. "Statistical concepts of a priori and a posteriori risk classification in insurance," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 96(2), pages 187-224, June.
    2. Niemiec, Małgorzata, 2007. "Bonus-malus Systems as Markov Set-chains," ASTIN Bulletin, Cambridge University Press, vol. 37(1), pages 53-65, May.
    3. Bonsdorff, Heikki, 1992. "On the Convergence Rate of Bonus-Malus Systems," ASTIN Bulletin, Cambridge University Press, vol. 22(2), pages 217-223, November.
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