Optimal Claiming Strategies in Bonus Malus Systems and Implied Markov Chains

13 Pages Posted: 7 Jun 2016

See all articles by Arthur Charpentier

Arthur Charpentier

Université de Rennes 1

Arthur David

Université de Rennes 1

Romuald Elie

Université Paris Est

Date Written: June 5, 2016

Abstract

In this paper, we investigate the impact of the claim reporting strategy of drivers, within a bonus malus system. We exhibit the induced modification of the corresponding class level transition matrix and derive the optimal reporting strategy for rational drivers. The hunger for bonuses induces optimal thresholds under which, drivers do not claim their losses. A numerical algorithm is provided for computing such thresholds and realistic numerical applications are discussed.

Keywords: Bonus Malus, Markov Chain, Optimal Control

Suggested Citation

Charpentier, Arthur and David, Arthur and Elie, Romuald, Optimal Claiming Strategies in Bonus Malus Systems and Implied Markov Chains (June 5, 2016). Available at SSRN: https://ssrn.com/abstract=2790583 or http://dx.doi.org/10.2139/ssrn.2790583

Arthur Charpentier (Contact Author)

Université de Rennes 1 ( email )

11 Rue Jean Macé
Rennes, Rennes 35700
France

HOME PAGE: http://perso.univ-rennes1.fr/arthur.charpentier/index.html

Arthur David

Université de Rennes 1 ( email )

11 Rue Jean Macé
Rennes, Rennes 35700
France

Romuald Elie

Université Paris Est ( email )

Batiment Bois de l'Etang
5 rue Galilee
Champs sur Marne, 77420
France

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