An Application of Linear Programming to Bonus Malus System Design

Antonio Heras, José A. Gil, Pilar García-Pineda and José L. Vilar

ASTIN Bulletin, 2004, vol. 34, issue 2, 435-456

Abstract: The purpose of this paper is to show how linear programming methodology can help us to design Bonus-Malus premium scales with some interesting theoretical and practical attributes. Examples of these properties are the financial equilibrium of the system, the monotonicity and proper variability of the premium scale, and the improvement of some efficiency measures such as the RSAL and the elasticity of the system. We will conclude that the use of the linear programming methodology makes possible a high degree of interaction between the designer and the mathematical model.

Date: 2004
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