Bonus-malus systems with different claim types and varying deductibles

DOI10.15559/17-VMSTA80MaRDI QIDQ2360595zbMATH OpenFDO

Authors O. Yu. Ragulina

Publication date 4 July 2017

Published in Modern Stochastics. Theory and Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1707.00917

zbMATH Keywords

allocation principlebonus-malus systemclaim typeindifference principleMarkov chainstationary distributionvarying deductible

Mathematics Subject Classification ID

Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Applications of Markov chains and discrete-time Markov processes on general state spaces (social mobility, learning theory, industrial processes, etc.) (60J20)

Abstract: The paper deals with bonus-malus systems with different claim types and varying deductibles. The premium relativities are softened for the policyholders who are in the malus zone and these policyholders are subject to per claim deductibles depending on their levels in the bonus-malus scale and the types of the reported claims. We introduce such bonus-malus systems and study their basic properties. In particular, we investigate when it is possible to introduce varying deductibles, what restrictions we have and how we can do this. Moreover, we deal with the special case where varying deductibles are applied to the claims reported by policyholders occupying the highest level in the bonus-malus scale and consider two allocation principles for the deductibles. Finally, numerical illustrations are presented.

Review text

Consider a bonus-malus system, where not only the number of claims determines the bonus class but also the size of the claim. The number of claims is determined by a mixed Poisson process, where the mixing parameter characterises the customer. Moreover, for bonus classes with a higher premia than the average, a deductible depending on the size of the claim is applied and the premium is reduced accordingly. It is investigated whether `fair' deductibles exist. The theory is illustrated by some examples. It seems a little bit strange to have a claim size dependent bonus-malus system but iid claims. Thus the work should be generalised to customers with non-equal claim size distributions.

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Cites work

• A credibility theory for automobile bonus systems
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Cited in

(5)

• Varying transition rules in bonus-malus systems: from rules specification to determination of optimal relativities
• An insurance model with bonus - malus system
• Experience-rating mechanisms in auto insurance: implications for high-risk, low-risk, and novice drivers
• Bonus-malus Systems with Varying Deductibles
• A bonus-malus framework for cyber risk insurance and optimal cybersecurity provisioning

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