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An Application of Linear Programming to Bonus Malus System Design

Published online by Cambridge University Press:  17 April 2015

Antonio Heras ,
José A. Gil ,
Pilar García-Pineda  and
José L. Vilar
Antonio Heras
Affiliation:
Departamento de Economía Financiera y Contabilidad I, (Economía Financiera y Actuarial), Facultad de Ciencias Económicas, Universidad Complutense de Madrid, (Campus de Somosaguas), 28223 Pozuelo de Alarcón, Madrid, Spain. e-mail: aheras@ccee.ucm.es
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Abstract

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The purpose of this paper is to show how linear programming methodology can help us to design Bonus-Malus premium scales with some interesting theoretical and practical attributes. Examples of these properties are the financial equilibrium of the system, the monotonicity and proper variability of the premium scale, and the improvement of some efficiency measures such as the RSAL and the elasticity of the system. We will conclude that the use of the linear programming methodology makes possible a high degree of interaction between the designer and the mathematical model.

Keywords

Bonus-Malus systemsLinear Goal ProgrammingPremium variabilityRSALElasticity

Information

Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 34 , Issue 2 , November 2004 , pp. 435 - 456
Copyright
Copyright © ASTIN Bulletin 2004

Footnotes

*

The authors are affiliated to Universidad Complutense de Madrid, Spain.

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