Part III - Credibility

Summary

Credibility theory provides the basic analytical framework for pricing insurance products. The importance of combining information about the recent experience of the individuals versus the aggregate past experience has been recognized in the literature through the classical approach. Rigorous analytical treatment of the subject started with Hans Bühlmann, and much work has been accomplished by him and his students. Bühlmann's approach provides a simple solution to the Bayesian method and achieves optimality within the subset of linear predictors. In this part of the book we introduce the classical approach, the Bühlmann approach, the Bayesian method, as well as the empirical implementation of these techniques.