Optimizing Claims Fluctuation Reserves

Christoph Haehling von Lanzenauer and Don D. Wright
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Christoph Haehling von Lanzenauer: Sloan School of Management, M.I.T.
Don D. Wright: University of Western Ontario

Management Science, 1977, vol. 23, issue 11, 1199-1207

Abstract: Many group insurance programs are characterized by experience rating features which imply that a surplus resulting from favorable experience belongs to the group, while the administering insurance company is to be reimbursed for a deficit resulting from unfavorable experience. Due to the volatile nature of claims, a claims fluctuation reserve is frequently established in order to reduce frequent rebates or premium adjustments resulting from surplus or deficit positions. A model is presented for resolving the rebate question and determining the design parameters of a claims fluctuation reserve. The model is formulated for non-stationary conditions and uses the first passage time concept as part of a chance constraint criterion. Results of an actual application are reported.

Date: 1977
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:23:y:1977:i:11:p:1199-1207

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