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Equity and Credibility

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  • S. David Promislow
  • Virginia Young

Abstract

We build on previous work concerned with measuring equity and consider the problem of using observed claim data or other information to calculate premiums which maximize equity. When these optimal premiums are used, we show that gathering more information or refining the risk classification always increases equity. We study the case for which the premium is constrained to be an affine function of the claim data and obtain results analogous to classical credibility theory, including the inhomogeneous and homogeneous cases of the Bu¨hlmann-Straub model. We derive formulas for the credibility weights in certain cases.

Suggested Citation

  • S. David Promislow & Virginia Young, 2000. "Equity and Credibility," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2000(2), pages 121-146.
    • Handle: RePEc:taf:sactxx:v:2000:y:2000:i:2:p:121-146
    DOI: 10.1080/034612300750066827
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