The Long-Term Effects of Merit-Rating Plans on Individual Motorists

Joseph Ferreira
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Joseph Ferreira: Massachusetts Institute of Technology, Cambridge, Massachusetts

Operations Research, 1974, vol. 22, issue 5, 954-978

Abstract: This paper examines the effects over an individual's driving lifetime of being charged annual premiums for automobile bodily-injury insurance in accordance with particular merit rating plans. Individual accident involvement is modeled as a compound Poisson process and the annual premium amounts as a Markov process. For each plan, the model examines (1) how well an individual's lifetime premium payments reflect his accident likelihood, (2) the discount that is provided for accident-free drivers, (3) the probability that a driver pays a very high annual premium, and (4) the number of years that lapse before a previous accident no longer affects a driver's premium.

Date: 1974
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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:22:y:1974:i:5:p:954-978

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