Double-counting problem of the bonus–malus system
- 주제(키워드) Auto insurance , Bonus–malus system , Double counting , Optimization , Ratemaking
- 등재 SCIE, SSCI, SCOPUS
- OA유형 Green Submitted
- 발행기관 Elsevier B.V.
- 발행년도 2020
- 총서유형 Journal
- URI http://www.dcollection.net/handler/ewha/000000169472
- 본문언어 영어
- Published As https://dx.doi.org/10.1016/j.insmatheco.2020.04.008
- 저작권 이화여자대학교 논문은 저작권에 의해 보호받습니다.
초록/요약
The bonus–malus system (BMS) is a widely used premium adjustment mechanism based on policyholder's claim history. Most auto insurance BMSs assume that policyholders in the same bonus–malus (BM) level share the same a posteriori risk adjustment. This system reflects the policyholder's claim history in a relatively simple manner. However, the typical system follows a single BM scale and is known to suffer from the double-counting problem: policyholders in the high-risk classes in terms of a priori characteristics are penalized too severely (Taylor, 1997; Pitrebois et al., 2003). Thus, Pitrebois et al. (2003) proposed a new system with multiple BM scales based on the a priori characteristics. While this multiple-scale BMS removes the double-counting problem, it loses the prime benefit of simplicity. Alternatively, we argue that the double-counting problem can be viewed as an inefficiency of the optimization process. Furthermore, we show that the double-counting problem can be resolved by fully optimizing the BMS setting, but retaining the traditional BMS format. © 2020 Elsevier B.V.
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