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Optimal Insurance Coverage under Bonus-Malus Contracts

Published online by Cambridge University Press:  29 August 2014

Jon Holtan
Jon Holtan*
Affiliation:
if P&C Insurance Ltd., Oslo, Norway
*
if P&C Insurance Ltd., P.O. Box 1340 Vika, N-0114 Oslo, Norway
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Abstract

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The paper analyses the questions: Should – or should not – an individual buy insurance? And if so, what insurance coverage should he or she prefer? Unlike classical studies of optimal insurance coverage, this paper analyses these questions from a bonus-malus point of view, that is, for insurance contracts with individual bonus-malus (experience rating or no-claim) adjustments. The paper outlines a set of new statements for bonus-malus contracts and compares them with corresponding classical statements for standard insurance contracts. The theoretical framework is an expected utility model, and both optimal coverage for a fixed premium function and Pareto optimal coverage are analyzed. The paper is an extension of another paper by the author, see Holtan (2001), where the necessary insight to – and concepts of – bonus-malus contracts are outlined.

Keywords

Insurance contractsbonus-malusoptimal insurance coveragedeductiblesutility theoryPareto optimality
Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 31 , Issue 1 , May 2001 , pp. 175 - 186
Copyright
Copyright © International Actuarial Association 2001

References

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