Optimal relativities and transition rules of a bonus–malus system
When a bonus–malus system with a single set of optimal relativities and a set of simple transitionrules is implemented, two inadequacy scenarios are induced because all policyholders are subject tothe same a posteriori premium relativities (level transitions) independent of their a priori characteri...
| Main Authors: | , , , |
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| Format: | Journal Article |
| Published: |
Elsevier Science
2014
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| Subjects: | |
| Online Access: | http://hdl.handle.net/20.500.11937/43534 |
| _version_ | 1848756722990055424 |
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| author | Tan, C.I. Li, Ka ki jackie Li, J.S. Balasooriya, U. |
| author_facet | Tan, C.I. Li, Ka ki jackie Li, J.S. Balasooriya, U. |
| author_sort | Tan, C.I. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | When a bonus–malus system with a single set of optimal relativities and a set of simple transitionrules is implemented, two inadequacy scenarios are induced because all policyholders are subject tothe same a posteriori premium relativities (level transitions) independent of their a priori characteristics(current levels occupied). In this paper we propose a new objective function in the determination ofoptimal relativities that directly incorporates the a priori expected claim frequencies to partially addressone of the inadequacy scenarios. We derive the analytical solution for the optimal relativities under afinancial equilibrium constraint. Furthermore, we introduce a metric called effectiveness of transitionrules to compare the different specifications of transition rules. We also argue that varying transitionrules which are more flexible in addressing the other inadequacy scenario may be more effective thantheir corresponding simple rules. |
| first_indexed | 2025-11-14T09:16:43Z |
| format | Journal Article |
| id | curtin-20.500.11937-43534 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T09:16:43Z |
| publishDate | 2014 |
| publisher | Elsevier Science |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-435342018-03-29T09:07:08Z Optimal relativities and transition rules of a bonus–malus system Tan, C.I. Li, Ka ki jackie Li, J.S. Balasooriya, U. A posteriori rating Transition rules Optimal relativities Claim frequencies Bonus–malus system When a bonus–malus system with a single set of optimal relativities and a set of simple transitionrules is implemented, two inadequacy scenarios are induced because all policyholders are subject tothe same a posteriori premium relativities (level transitions) independent of their a priori characteristics(current levels occupied). In this paper we propose a new objective function in the determination ofoptimal relativities that directly incorporates the a priori expected claim frequencies to partially addressone of the inadequacy scenarios. We derive the analytical solution for the optimal relativities under afinancial equilibrium constraint. Furthermore, we introduce a metric called effectiveness of transitionrules to compare the different specifications of transition rules. We also argue that varying transitionrules which are more flexible in addressing the other inadequacy scenario may be more effective thantheir corresponding simple rules. 2014 Journal Article http://hdl.handle.net/20.500.11937/43534 10.1016/j.insmatheco.2015.02.001 Elsevier Science restricted |
| spellingShingle | A posteriori rating Transition rules Optimal relativities Claim frequencies Bonus–malus system Tan, C.I. Li, Ka ki jackie Li, J.S. Balasooriya, U. Optimal relativities and transition rules of a bonus–malus system |
| title | Optimal relativities and transition rules of a bonus–malus system |
| title_full | Optimal relativities and transition rules of a bonus–malus system |
| title_fullStr | Optimal relativities and transition rules of a bonus–malus system |
| title_full_unstemmed | Optimal relativities and transition rules of a bonus–malus system |
| title_short | Optimal relativities and transition rules of a bonus–malus system |
| title_sort | optimal relativities and transition rules of a bonus–malus system |
| topic | A posteriori rating Transition rules Optimal relativities Claim frequencies Bonus–malus system |
| url | http://hdl.handle.net/20.500.11937/43534 |