Research On Classification Ratemaking On Automobile In China

The basic principle on automobile pricing is risk analysis. This article concentrate on the research of risk related to automobile insurance and classified the risks, then pricing of it.Premium ratemaking risk is the consideration of the factors by the actuary when fulfill the long-run profit target of insurance company. Ratemaking risks consist of automobile factor, the driver factor and circumference of driving. And the driver factor is easily neglected by Chinese insurance industry, since this factor is too subjective. Other risks is risks when insurance company makes the real product price. This risk is composed of the risks on management of insurers, macroeconomic risks, and legal risks or so. This kind of risks decides the choice of pricing strategy.Automobile factor, the driver factor and circumference of driving make a whole risk system To categorize the multiple systems, a feasible way is to get the corresponding risks rating by some methods of classifying risks. The minimum bias procedure and generalized linear model are two basic but practical methods.The minimum bias procedure is a widely accepted method in traditional premium ratemaking, the basic theory of it is to find a suitable model which makes the minimum difference between the observed cost of loss and net premium. The weakness of this model is the limited variable, which is not practical when there are lots of related pricing variables. What's more, the iteration of this method is quite hard and the result of it is not accurate.The traditional linear model makes a wide analysis on significant level and correlation. But the assumption of normality, linearity, constant variable, makes the model unpractical in lots of researches. The GLM makes a huge progress in theory, structure of model and diagnosis of the model that makes it acceptable for insurance claim.According to the samples collected, to make a generalized linear model and use SAS software to analyze the risks factors in automobile pricing, with a result of equation and information of the model, the insurer will be able to recognize and control different risks. Recently, GLM is able to technically support the automobile pricing for actuaries and help them making a fair premium ratemaking system.