Optimal Claiming Strategies in Bonus Malus Systems and Implied Markov Chains

Arthur Charpentier, Arthur David and Romuald Elie
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Arthur Charpentier: Faculte des Sciences Economiques, Universite Rennes 1, 7 Place Hoche, 35065 Rennes CEDEX, France
Arthur David: Faculte des Sciences Economiques, Universite Rennes 1, 7 Place Hoche, 35065 Rennes CEDEX, France
Romuald Elie: Batiment Bois de l’Etang, Universite Paris Est, 5 rue Galilee, 77420 Champs sur Marne, France

Risks, 2017, vol. 5, issue 4, 1-17

Abstract: In this paper, we investigate the impact of the accident reporting strategy of drivers, within a Bonus-Malus system. We exhibit the induced modification of the corresponding class level transition matrix and derive the optimal reporting strategy for rational drivers. The hunger for bonuses induces optimal thresholds under which, drivers do not claim their losses. Mathematical properties of the induced level class process are studied. A convergent numerical algorithm is provided for computing such thresholds and realistic numerical applications are discussed.

Keywords: bonus hunger; bonus-malus; control; incentives; Markov Chains; reporting (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:5:y:2017:i:4:p:58-:d:118079

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