An alternative pricing system through Bayesian estimates and method of moments in a bonus-malus framework for the Ghanaian auto insurance market
| Autor: | Zhao Wu, Azaare Jacob |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2020 |
| Předmět: |
lcsh:Risk in industry. Risk management
Bayesian probability Negative binomial distribution Distribution (economics) Markov process Developing country Markovian process Expected value negative binomial distribution 01 natural sciences Ghana 010104 statistics & probability symbols.namesake lcsh:Finance lcsh:HG1-9999 0502 economics and business Bonus-malus Econometrics Economics ddc:330 0101 mathematics auto insurance Bayes estimator bonus-malus system 050208 finance business.industry 05 social sciences Bayesian estimation lcsh:HD61 ComputerApplications_GENERAL symbols business |
| Zdroj: | Journal of Risk and Financial Management, Vol 13, Iss 143, p 143 (2020) Journal of Risk and Financial Management Volume 13 Issue 7 |
| Popis: | This paper examines the current No-Claim Discount (NCD) system used in Ghana&rsquo s auto insurance market as inefficient and outmoded and, therefore, proposes an alternative optimal Bonus-Malus System (BMS) intended to meet the present market conditions and demand. It appears that the existing BMS fails to acknowledge the frequency and severity of policyholders&rsquo claims in its design. We minimized the auto insurance portfolios&rsquo risk through Bayesian estimation and found that the risk is well fitted by gamma, with the claim distribution modeled by the negative binomial law with the expected number of claims (a priori) as 14%. The models presented in this paper recognize the longevity of accident-free driving and fully reward higher discounts to policyholders from the second year when the true characteristics of the hidden risks posed to the pool have been ascertained. The BMS finally constructed using the net premium principle is very optimal and has reasonable punishment and rewards for both good and bad drivers, which could also be useful in other developing economies. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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