Varying transition rules in bonus–malus systems: From rules specification to determination of optimal relativities

Chong It Tan

Insurance: Mathematics and Economics, 2016, vol. 68, issue C, 134-140

Abstract: In this paper, we extend the proposed idea of level-varying transition rules in bonus–malus systems onto risk-varying rules and combine both these ideas to formulate the generalization of varying transition rules. Moreover, we generalize the analytical formulae for the determination of optimal relativities under these rules. We find that the risk-varying transition rules are the most effective among the different specifications of transition rules. Our numerical results also indicate that the resulting optimal relativities under the general-varying rules are higher than those of under the risk-varying rules partly due to the differences of the transitions imposed by the rules.

Keywords: Bonus–malus system; Transition rules; Optimal relativities; a priori claim frequency; a posteriori rating (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:68:y:2016:i:c:p:134-140

DOI: 10.1016/j.insmatheco.2016.03.007

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