Research On The Optimal BMS And The BMS Given The Transition Rule

With the rapid development of economy and society, the motor vehicle has become an indispensable part of modern human life, thus the increasing demand for the vehicle driver’s insurance, auto insurance has become an integral part of a national non-life insurance industry. In order to make the premium paid by the driver to match its risk, and to make the motor vehicle insurance maximize its value, it’s in urgent need to introduce incentive systems. Simply, Bonus-Malus system is based on a priori risk characteristics of the driver, the frequency of claims and the amount of money claimed by the driver. Provide those without any claims record with some incentives, which is to pay less premium in the upcoming term. Give those with claims a penalty, which is to pay more premium for the upcoming term.Currently, most of the studies of BMS are based on the actuarial floating insurance premium ratemaking, which brings much more significant outcome. In practice, several existing BMS in different countries are quite different, almost all about the BMS given the transition rule. The optimal BMS is based on Bayesian Theory and Credibility Theory. It will calculate the premium relativities, as long as the information required by the actuarial models are provided. However,BMS given the transition rule is based on Markov chain model, it does not exactly match the expected risk value of the policy holders and premium.It only gives an approximately description. In addition, how to evaluate the transition rule is still a problem. Most current research is focused on the optimal BMS, few studies center on the BMS given the transition rules, but the BMS given the transition rule is widely used in various countries.In this paper,the first chapterprovides an overview ofthe basicconcepts of Bonus-Malus system. BMS judgmentsindicators, the current BMS implementedby different countries, the current developments intheoretical research are all included.The second chapter is about the optimal BMS, which mainly considers three factors: the risk characteristics of a priori information, the claims frequency and the amount of claims.The third chapter focuses onthe BMS given the transition rules.Then, it brings the possibility of varying transition rule, then it concludes a set of indicators to estimate the BMS given the transition rule.At last, we put the comparison of the optimal BMS and the BMS given the transition rule.