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



Year of publication 2019
Type Article in Proceedings
MU Faculty or unit

Faculty of Economics and Administration

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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