Impact of the number of classes and transition rules of bonus-malus system on its efficiency in tariff setting

Anna Szymańska
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Anna Szymańska: Uniwersytet Łódzki

Collegium of Economic Analysis Annals, 2015, issue 37, 253-268

Abstract: Insurance companies compete with each other in local markets and the insurance premium is one of the elements of this competition. It is widely believed that in Poland the motor liability insurance is decisive for the participation of the insurance company in the market. On the other hand, the technical result on the civil liability insurance of vehicle owners has been negative for some time. This demonstrates the need for changes in tariffs. One of the elements of ratemaking in civil liability motor insurance is the bonus-malus system. The paper investigates how a change in the rules of transition between classes and the increasing the number of classes impact the efficiency of bonus-malus systems for tariff setting. To assess this efficiency stochastic measures, based on the theory of Markov chains, were applied.

Keywords: MTPL insurance; effectiveness measures of bonus-malus systems; Markov chains (search for similar items in EconPapers)
Date: 2015
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