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Adjusting the Premium Relativities in a Bonus-Malus System: An Integrated Approach Using the First Claim Time and the Number of Claims

Mahmoudvand Rahim, Tan Chong It () and Abbasi Narges
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Mahmoudvand Rahim: Department of Statistics, Bu-Ali Sina University, Hamedan, Iran
Tan Chong It: Department of Applied Finance and Actuarial Studies, Macquarie University, New South Wales, Australia
Abbasi Narges: Department of Statistics, Payame Noor University, I. R.Iran

Asia-Pacific Journal of Risk and Insurance, 2017, vol. 11, issue 2, 19

Abstract: In this paper, we propose an integrated approach to adjust the premium relativities in a bonus-malus system by using the information of the first claim time (expressed in terms of sub-period in a year) and the number of claims reported by individual policyholder. We provide a formal representation for the newly proposed structure and derive the analytical expressions for the adjusted premium relativities. Other things being equal, a lower adjusted premium relativity is imposed for an earlier sub-period of the first claim made, whereas policyholders with more claims are subject to a higher adjusted premium relativity.

Keywords: bonus-malus system; premium relativities; claims count (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:bpj:apjrin:v:11:y:2017:i:2:p:19:n:3