Automobile Collision Deductibles and Repair Cost Groups: The Lognormal Model

Ratemaking methodology in the field of auto physical damage insurance is still in the Stone Age. The peculiarities involved in auto physical damage have really never received the same rigorous scrutiny in actuarial literature that has been given liability, ratemaking techniques. The use of driver classification plans, territorial differentials, and other rating factors has been advanced to a remarkable level for physical damage coverages as well as liability. But the real sine qua non of a complete physical damage ratemaking procedure-the consideration of the physical characteristics of the vehicle itself-has always been shrouded in actuarial mystery, characterized by ritualistic rules of thumb, crude groupings of cars by left rear-window price stickers, and the absence of an earnest attempt to examine one of the most significant aspects of all physical damage ratemaking: the deductible.