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The Development of an Optimal Bonus-Malus System in a Competitive Market

Published online by Cambridge University Press:  29 August 2014

Fabio Baione ,
Susanna Levantesi  and
Massimiliano Menzietti
Fabio Baione
Affiliation:
Department of Actuarial Science, University “La Sapienza”, Rome, Italy Dipartimento di Scienze Attuariali e Finanziarie, Via Nomentana, 41 C.A.P. 00161 Roma, Italia, E-mail:fabio.baione@uniromal.it, susanna.levantesi@uniromal.it, massimiliano.menzietti@uniromal.it
Susanna Levantesi
Affiliation:
Department of Actuarial Science, University “La Sapienza”, Rome, Italy Dipartimento di Scienze Attuariali e Finanziarie, Via Nomentana, 41 C.A.P. 00161 Roma, Italia, E-mail:fabio.baione@uniromal.it, susanna.levantesi@uniromal.it, massimiliano.menzietti@uniromal.it
Massimiliano Menzietti
Affiliation:
Department of Actuarial Science, University “La Sapienza”, Rome, Italy Dipartimento di Scienze Attuariali e Finanziarie, Via Nomentana, 41 C.A.P. 00161 Roma, Italia, E-mail:fabio.baione@uniromal.it, susanna.levantesi@uniromal.it, massimiliano.menzietti@uniromal.it
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Abstract

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BMS in force show a progressive reduction of the observed average premium, which causes a financial imbalance in the system (see Lemaire (1995)). As a onsequence, frequent premium adjustments become necessary and result in discrepancy between the reduction defined in the policy contract and the ffective discount applied to the driver. Most policyholders are not aware of his “lack of transparency”. This paper deals with the problem of designing an optimal tariff structure so that the designed BMS is adequate and satisfies both transparency and financial balance conditions.

Keywords

Bonus-Malus systemsStationary distributionTransparencyAdequacy
Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 32 , Issue 1 , May 2002 , pp. 159 - 170
Copyright
Copyright © International Actuarial Association 2002

References

Lemaire, J. (1985) Automobile insurance: actuarial models. Kluwer-Nijhoff Publishing, Boston.CrossRefGoogle Scholar
Lemaire, J. (1995) Bonus-Malus systems in automobile insurance. Kluwer-Academic Publishers, Boston.CrossRefGoogle Scholar
Loimaranta, K. (1972) Some Asymptotic Properties of Bonus Systems. ASTIN Bulletin 6, 233–245.CrossRefGoogle Scholar