A Non-asymptotic Automobile Bonus-malus System with Varying Transition Rules

Authors

ZLATOŠOVÁ Silvie

Year of publication 2019
Type Article in Proceedings
Conference EUROPEAN FINANCIAL SYSTEMS 2019
MU Faculty or unit

Faculty of Economics and Administration

Citation
Web https://munispace.muni.cz/library/catalog/book/1273
Keywords bonus-malus system; optimal relativities; non-asymptotic criterion; the efficiency of a bonus-malus system
Description In this paper, we examine a non-asymptotic criterion for a bonus-malus system in vehicle insurance, and we combine it with varying transition rules. Policies are in effect only during a finite number of insurance periods. If most of the policies are far from a stationary state, it is useful to change the criterion so that to consider the rating error for new policies and policies of medium age too. Therefore we use a bonus-malus system based on minimization weighted average of the expected square rating errors for selected insurance periods. We calculate the relative premium associated with each level of the bonus-malus system. Finally, we compare our proposed bonus-malus system with the system from the Czech Insurance Company. We find that the proposed examples of non-asymptotic bonus-malus system are more effective than the current system used by the Czech Insurance Company.

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