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Bonus-malus Systems as Markov Set-chains

Published online by Cambridge University Press:  17 April 2015

Małgorzata Niemiec
Małgorzata Niemiec*
Affiliation:
Warsaw School of Economics, Institute of Econometrics, Al. Niepodległości 164, 02-554 Warsaw, Poland, Tel: +48 601 371 611, Fax: +48 22 564 86 17, E-mail: malgorzata.niemiec@sgh.waw.pl
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Abstract

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The objective of this paper is to present an analysis of a bonus-malus system (BMS) within the framework of the theory of ergodic Markov set-chains. It is shown that this type of Markov chains enables the evaluation of BMS, even in steady-state, under the assumption that transition probabilities change in a definite range. We introduce a model that allows the determination of the consequences of changes in the claim frequency of a policyholder. In a numerical example we examine the BMS employed by one of the Polish insurance companies.

Keywords

Markov set-chainbonus-malus systemclaim frequency

Information

Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 37 , Issue 1 , May 2007 , pp. 53 - 65
Copyright
Copyright © ASTIN Bulletin 2007

References

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Lemaire, J. (1995) Bonus-Malus Systems in Automobile Insurance. Kluwer Academic Publishers, Boston.CrossRefGoogle Scholar