The Design of an optimal retrospective rating plan

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Articles Articles The Design of an optimal retrospective rating plan - Chen, Xinxiang

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Title: The Design of an optimal retrospective rating plan / Xinxiang Chen, Yichun Chi, Ken Seng Tan

Notes: Sumario: A retrospective rating plan, whose insurance premium depends upon an insured's actual loss during the policy period, is a special insurance agreement widely used in liability insurance. In this paper, the design of an optimal retrospective rating plan is analyzed from the perspective of the insured who seeks to minimize its risk exposure in the sense of convex order. In order to reduce the moral hazard, we assume that both the insured and the insurer are obligated to pay more for a larger realization of the loss. Under the further assumptions that the minimum premium is zero, the maximum premium is proportional to the expected indemnity, and the basic premium is the only free parameter in the formula for retrospective premium given by Meyers (2004) and that the basic premium is determined in such a way that the expected retrospective premium equates to the expected indemnity with a positive safety loading, it establishes the relationship that the insured will suffer more risk for a larger loss conversion factor or a higher maximum premium.

Other authors: Chi, Yichun Icono con lupa
Tan, Ken Seng Icono con lupa

Other categories: 6

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