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Optimal Loss Financing 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 Telephone: + 47 22 31 52 53, Facsimile: + 47 22 31 24 34, E-mail: [email protected]
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Abstract

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The paper analyses the question: Should an insurance customer carry an occurred loss himself, or should he make a claim to the insurance company? This question is important within bonus-malus contracts with individual experience adjustments of the premium. The analysis model includes a bonus hunger strategy where the customers prefer the most profitable financial alternative, that is, the alternative which represents the lowest rate of interest. Hence the loss of bonus after a claim is calculated as a rate of interest paid from the customer to the insurer. Within this model the paper outlines the existence of a true compensation function and a relative cost function for each customer. A set of properties for bonus-malus contracts are presented and discussed. A concrete example of a bonus-malus system and an insurance compensation function illustrates the theoretical framework in a practical manner.

Keywords

Insurance contractsbonus-malusbonus hungertrue compensationtrue deductiblerelative cost functionoptimal loss financing
Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 31 , Issue 1 , May 2001 , pp. 161 - 173
Copyright
Copyright © International Actuarial Association 2001

References

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