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Document Details :

Title: Optimal Loss Financing under Bonus-Malus Contracts
Author(s): HOLTAN, J.
Journal: ASTIN Bulletin
Volume: 31    Issue: 1   Date: May 2001   
Pages: 161-173
DOI: 10.2143/AST.31.1.1000

Abstract :
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.