Relative premium in vehicle insurance



Year of publication 2014
Type Article in Proceedings
Conference European financial systems 2014. Proceedings of the 11th international scientific conference
MU Faculty or unit

Faculty of Economics and Administration

Field Management and administrative
Keywords Markov chain; premium; bonus-malus system
Description Very important task of the actuary is to create a fair tariff structure. This structure has to fairly divide the burden of claims among policyholders. The subject of this paper is bonus-malus system in vehicle insurance. This system penalizes drivers responsible for accidents and rewards the drivers for claim-free years. First the long term behavior of BM system is examined. A stationary distribution of the drivers is calculated based on Markov chains. Then the relative premium associated with each level of BM system is calculated. For this purposes, quadratic loss function and Bayesian approach are used. Finally, we compare the calculated relative premium to the relative premium from Czech Insurance Company.

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