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On the evaluation of the asymptotic fairness of bonus-malus systems

Heras Martínez, Antonio and Vilar Zanón, José Luis and Gil Fana, José Antonio (2001) On the evaluation of the asymptotic fairness of bonus-malus systems. [ Documentos de Trabajo de la Facultad de Ciencias Económicas y Empresariales; nº 32, 2001, ISSN: 2255-5471 ]

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Abstract

In this paper we try to evaluate the asymptotic fairness of bonus-malus systems, assuming the simplest case when there is no hunger for bonus.The asymptotic fairness has to be understood as the bonus-malus systemability in assessing the individual risks in the long run (see Lemaire[1995] p.xvi). Firstly we de…ne the asymptotic fairness of a bonus-malussystem following an expression that can be found in Lemaire [1985] p.168. Secondly, we de…ne a measure of the global asymptotic fairness considering the structure function of the risk group. Finally we try to calculate, for each set of transition rules and a given structure function,the scale of premiums that brings the global asymptotic fairness closest to the ideal situation where each insured pays in the long run a premium corresponding to its own claim frequency. This is possible thanks to the application of a multiobjective optimization technique named Goal Programing. We give an example illustrating the fact that the ideal case could be fairly well approached.


Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Bonus-malus system. Asymptotic fairness. Goal Programming. Simplex method.
Subjects:Social sciences > Economics > Money
Series Name:Documentos de Trabajo de la Facultad de Ciencias Económicas y Empresariales
Volume:2001
Number:32
ID Code:6754
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Deposited On:30 Nov 2007
Last Modified:06 Feb 2014 07:50

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