Analysis of Relativity Premium in Bonus-Malus System Based on Optimal Linear Method

Yu Chen and Long Li

Mathematical Problems in Engineering, 2014, vol. 2014, 1-6

Abstract:

A bonus-malus system plays a very important role in actuarial mathematics through determining its relativity premium, which is extensively used in automobile insurance. There are many ways including Bayesian estimator and ordinary linear estimator to calculate the relativity premium. There is no doubt that Bayesian estimator is the most accurate estimator; however, it is undesirable for commercial purposes for its rather irregular pattern. This paper aims to introduce an optimal linear estimator for relativity premium, which has a simple pattern and is obtained under the quadratic loss function such that the result is close to Bayesian method. The Loimaranta efficiency of such an optimal linear estimator has been studied and compared with the two methods mentioned above.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:846407

DOI: 10.1155/2014/846407

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